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upreme Court in Baidyanath on Classification of Commodity in

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Court :
Supreme Court

Brief :
The primary object of the Excise Act is to raise revenue for which various products are differently classified in New Tariff Act.

Citation :

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELALTE JURISDICTION
CIVIL APPEAL NO. 4048/2001
Commissioner of Central Excise, Nagpur .. Appellant
Vs.
Shree Baidyanath Ayurved Bhawan Ltd. .. Respondent
WITH
Civil Appeal Nos.2396-2397/2003
M/s.Shree Baidyanath Ayurved Bhawan Ltd. ..
Appellant
Vs.
Commissioner of Central Excise, Patna ..Respondent
WITH
Civil Appeal Nos.9739-9746/2003
M/s. Shree Baidyanath Ayurved Bhawan,Ltd. ..
Appellant
Vs.
Commissioner of Central Excise, Patna ..Respondent
WITH
CIVIL APPEAL NO.6691/2004
M/s. Shree Baidyanath Ayurved Bhawan Ltd.
Sathariya, District - Jaunpur ..
Appellant
Vs.
Commissioner of Central Excise, Allahabad ..Respondent
AND
Civil Appeal No .1521/2009(D.No.20489/06)
Commissioner of Central Excise, Nagpur ..Appellant
Vs.
M/s. Baidyanath Ayurvedic Bhawan Ltd. ..Respondent
JUDGEMENT
R.M. LODHA, J.
The only issue in this batch of thirteen civil appeals is in respect of classification of "Dant Manjan Lal"(DML) manufactured by M/s. Baidyanath Ayurved Bhawan Limited (`Baidyanath', for short). While Baidyanath contendsthat the product DML is medicament under Chapter Sub-heading 3003.31 of the Central Excise Tariff Act, 1985, the stand of the Department is that the said product is a cosmetic/toiletry preparation/tooth powder classifiable under Chapter Heading 33.06.
2. The true classification of the product DML has been subject of fluctuating opinion among the benches of the Customs, Excise and Gold (Control) Appellate Tribunal (for short, `Tribunal'). West Regional Bench of the Tribunal decided the classification in favour of Baidyanath and held that DML is classifiable under Chapter Sub-heading 3003.31. The similar view has been taken by East Regional Bench of the Tribunal. However, the larger bench of the Tribunal to which the issue of classification of DML was referred, has held that DML is classifiable under Chapter Sub-heading 3306.10. It is for this reason that the Department as well as Baidyanath has preferred separate appeals.
3. The litigative journey with regard to classification of
this product has reached this Court earlier in Shree
Baidyanath Ayurved Bhawan Ltd. Vs. Collector of Central
Excise, Nagpur1. We shall refer to that decision a little later.
1
(1996) 9 SCC 402
First we shall advert to the sequence of facts leading to the
present controversy.
4. Baidyanath is engaged in the activity of
manufacturing medicines adopting Indian systems. They
have their works situate at Calcutta (now Kolkata), Naini,
Patna, Nagpur and Jhansi. One of the products being
manufactured by Baidyanath is DML. The product is a powder
compounded with Geru, Peepall, Sonth, Kali Mirch, Tambakuh,
Clove Oil, Camphor, Pepperment, Babul Chhal, Tumber Beej.
Baidyanath claims that DML is manufactured in accordance
with the formulae given in Ayurved Sar Sangraha (an
authoritative text on the Ayurved system of medicine) by using
the ingredients mentioned therein. Ayurved Sar Sangraha is
notified under the First Schedule of the Drugs and Cosmetics
Act, 1940 ( for short `Act, 1940'). It is also the case of the
Baidyanath that DML is sold in the name which is specified
in Ayurved Sar Sangraha.
5. Prior to 1975, the product DML was considered to
be classifiable under Tariff Item 14E of the First Schedule of
the Central Excise and Salt Act,1944 ( for short `Act, 1944')
which item covered medicines. Accordingly, DML was not
subject to levy of excise duty and exempted therefrom. On
March 1, 1975, Residuary Item 68 was incorporated in the
Act, 1944 wherein all items not elsewhere specified in the
tariff were liable to be classified. Baidyanath filed a fresh
classification list and commenced paying excise duty as was
leviable under Residuary Item 68 of the Act, 1944.
6. On March 1, 1978, the Central Government issued
an Exemption Notification bearing No. 62/78-CE whereby
exemption was extended to ".....all drugs, medicines,
pharmaceuticals and drug intermediates not elsewhere
specified." Baidyanath claimed the benefit extended by the
Central Government under the said Notification and stopped
paying duty on the product DML while filing fresh classification
list.
7. In the month of March 1980, the Department
expressed doubts about the classification of DML and issued
notices to Baidyanath requiring them to show cause as to why
DML be not subjected to tariff rate without treating it as an
Ayurvedic Medicine and without extending the benefit available
under the Notification No.62/78-CE.
8. Baidyanath resisted various show cause notices on
diverse grounds, namely; that DML is an Ayurvedic Medicine,
that it manufactures the same under a drug licence; that all
the ingredients of DML are mentioned in the authoritative book
of Ayurved System of Medicine; and that the product is an
Ayurvedic Medicine in the trade and common parlance. The
Baidyanath, thus, claimed that it was eligible for the benefit
extended under the Notification No.62/78-CE.
9. The view of adjudicating authorities who issued
show cause notices was not uniform. Their opinion has been
varied. While some of the adjudicating authorities held that
DML was an Ayurvedic Medicine; the others took the view that
it was not so. All these matters ultimately found their way to
the Tribunal. On July 14, 1985, the Tribunal delivered its
judgment in the matter and held that in common trade
parlance, DML is neither treated nor understood as an
Ayurvedic Medicine and hence could not be classified as such.
The Tribunal, thus, held that the product DML was not eligible
for the benefit extended under Notification No.62/78-CE as it
was not covered by the category of goods mentioned at
Sr.No.19 of the schedule to the said notification. Pertinently,
the goods mentioned in the said category included `drugs,
medicines, pharmaceuticals and drug intermediates' not
elsewhere defined.
10. The aforesaid order of the Tribunal came to be
challenged at the instance of Baidyanath before this Court in
various appeals. The appeals were admitted and finally
disposed of on March 30, 1995 (referred to hereinafter as
Baidyanath I1) . This Court held that the product DML would
have to be classified on the basis of the common trade
parlance test and applying that test, the Tribunal was correct
in its finding that DML was not known as an Ayurvedic
Medicine. The finding of the Tribunal that DML was toilet
requisite was upheld. Be it noticed here that during the
pendency of the appeals before this Court, Central Excise
Tariff Act, 1985 (for short, `New Tariff Act' ) was enacted which
replaced the Schedule to the Act, 1944. Chapter 30 of the
New tariff Act deals with pharmaceutical products. Chapter
Sub-heading 3003.30 provided for no excise duty leviable on
medicaments, including those used in Ayurvedic, Unani,
Siddha, Homeopathic or Bio-chemic System. On August 28,
1987, the First Schedule to the Drugs and Cosmetic Act, 1940
was amended and the book `Ayurved Sar Sangraha' was
included therein.
11. On September 25, 1991, the Central Board of
Excise and Customs (for short, `the Board') issued a circular
in respect of DML and advised its classification as an
Ayurvedic Medicine. It is Baidyanath's case that in pursuance
of the circular dated September 25,1991, the concerned
Commissioner of Central Excise issued trade notices directing
the field formations to classify DML as an Ayurvedic Medicine.
The assessee filed classification list in its various units
declaring DML as an Ayurvedic Medicine and claimed the
exemption benefit extending thereto. Baidyanath, thus,
stopped paying excise duty on DML.
12. During 1996-97, Chapter 30 of the New Tariff came
to be amended. Under Chapter Heading 30.03, Sub-heading
3003.31 was inserted which provided levy of nil duty in
respect of the medicaments manufactured exclusively in
accordance with the formulae described in the authoritative
books in the First Schedule to the Drugs and Cosmetics Act,
1940.
13. On October 31, 1996, the Board withdrew the
circular dated September 25, 1991 and advised its field
formations to classify the product DML in accordance with the
order passed by this Court in Baidyanath I1. The assessee
approached the Board by way of representation putting forth
the plea that after the introduction of New Tariff Act and the
amendments made in 1996, there is a specific definition of
Ayurvedic Medicine and hence classification of its product DML
should be done on the basis of that definition alone and not the
common trade parlance test. The Board thereafter on May 27,
1997, sent communication to the Commissioner of Central
Excise, Nagpur, concerning the classification of DML to decide
the classification of the product in the light of opinion of Drug
Controller of India as well as instructions contained in the
circulars dated March 29, 1994 and April 3, 1996.
14. On September 10, 1997, the Board withdrew its
circular dated May 27, 1997 and directed classification of
DML in terms of judgment of this Court in Baidyanath I1 with
regard to this very product.
15. In pursuance of the circular issued by the Board on
October 31, 1996, several notices came to be issued to
Baidyanath by various Excise Authorities at Patna; Allahabad
(Naini); Jhansi and Nagpur asking them to show cause as to
why DML should not be classified as a toiletry under Chapter
33 of the New Tariff Act and duty be demanded accordingly.
The show cause notices were resisted and contested by
Baidyanath and the matter reached the Tribunal. As stated
above, West Regional Bench and East Regional Bench of
the Tribunal decided the classification in favour of Baidyanath.
Thereafter, the classifiability issue of DML came up for
consideration before the Principal Bench of the Tribunal at New
Delhi and the Bench doubted the correctness of the decisions
of West Regional Bench and East Regional Bench and referred
the issue to the Larger Bench. The Larger Bench of the
Tribunal decided the reference and held that the product DML
was classifiable under Chapter Heading 33.06 of the New
Tariff Act.
16. The factual position that the product DML is
manufactured by Baidyanath in accordance with the formulae
mentioned in the book `Ayurved Sar Sangraha' which is notified
in the First Schedule appended to Drugs and Cosmetics Act,
1940 and that the product is sold in the name which is specified
in that book has not been seriously put in issue by the
Department before us.
17. We heard Mr. C.A.Sundram, learned senior counsel
for Baidyanath and Mr. K. Radhakrishnan, learned senior
counsel for the Department at quite some length.
18. Mr. C.A.Sundram would contend: (i) that the
product DML falls under Chapter Sub-heading 3003.31 as it is
a medicament because it comprises of two or more
constituents which have been mixed together for therapeutic
and prophylactic uses. It is manufactured exclusively in
accordance with the formulae described in `Ayurved Sar
Sangraha' which is an authoritative text on the Ayurvedic
System of treatment and is notified in the First Schedule to the
Drugs and Cosmetics Act, 1940. Moreover, in accordance
with the provisions of the Drugs and Cosmetics Act, 1940, the
said product is manufactured by Baidyanath under a drug
licence issued by the concerned competent authority. Further,
the product is sold under the name of `Dant Manjan Lal' which
is the name specified for the said product in `Ayurved Sar
Sangraha', (ii) that the Government accepts that the product
DML is a classical or pharma-copoeial Ayurvedic Medicine.
During the parliamentary debates, the Finance Minister clearly
stated that if the two conditions are met namely, the product
is manufactured exclusively in accordance with the formulae
described in the authoritative text on the Ayurvedic System of
treatment and is notified in the First Schedule to the Drugs and
Cosmetics Act, 1940 and the product is sold in the name
which is the name specified for the said product in the
authoritative text, there is no duty on the product; (iii) that the
New Tariff Act contains definition of Ayurvedic Medicines post-
1996 and now there is clear distinction drawn between
classical or pharmacopoeial Ayurvedic Medicines and
patent and proprietary medicines. Once there is a definition
provided in the Tariff Act, that definition alone shall prevail
and common trade parlance test is not applicable. The
common trade parlance test is to be applied only in the
absence of definition; (iv) that therapeutic and prophylactic
uses of DML as pharmacopoeial Ayurvedic Medicine clearly
stand established as the formulae has been in existence for
the past several 100 years which is contained in the book
`Ayurved Sar Sangraha' and the said book is notified in the
First Schedule of the Drugs and Cosmetics Act, 1940 and the
product is accepted as a medicine under the Drugs Act; (v)
that entry in Chapter Sub-heading 3003.31 being more specific
entry, it must be preferred over general residuary entry of
3306.10. By applying general rules of interpretation to the
Schedule and the New Tariff Act, a specific entry must prevail
over a general entry; (vi) that Note 1(d) of Chapter 30 does not
cover -"preparations of Chapter 33 even if they have
therapeutic or prophylactic properties" and for a product to be
excluded by this Note 1(d), it must be a product covered in
Chapter 33 while DML is an Ayurvedic Medicine specifically
covered under Chapter 30; and (vii) that the product DML does
not qualify Note 2 of Chapter 33 as this Court in the case of
BPL Pharmaceutical Limited vs. Collector of Central Excise,
Vadodra2, has held that for a product to fall under this Entry, it
must: (i) be suitable for use as goods of Chapter Heading
33.06, (ii) the packaging, with labels, literature and other
indications must indicate that it is for cosmetic or toilet use,
and (iii) irrespective of whether they are held out to have
subsidiary curative or prophylactic properties.
2
1995 (77) ELT 500 (SC)
19. The learned senior counsel for Baidyanath relied
upon the judgment of this Court in the case of Collector of
Central Excise vs. Andhra Sugar Limited3 wherein the rule of
`contemporaneous exposito' has been explained namely that
for construction of a statute the Legislative intent and
Executive instructions may be taken into account to determine
the scope and intent of the entry or statue under
consideration. He also relied upon decisions of this Court in
(1) Oswal Agro Mills Ltd. vs. Collector of Central Excise &
Ors.4 (2) Amrutanjan Ltd. vs. Collector of Central Excise5; (3)
Commissioner of Central Excise, Calcutta vs. Sharma
Chemcial Works6; (4) Commissioner of Central Excise, Nagpur
vs. Vicco Laboratories7 and (5) Meghdoot Gramodyog Sewa
Sansthan vs. Commissioner of Central Excise, Lucknow8.
20. Mr. K. Radhakrishnan, learned senior counsel for
the Department contending contra, by referring to Notes 1
(d) and 2 of Chapter 30 and Note 2 to Chapter 33 and Chapter
Heading 30.03 and 33.06, submitted that Chapter 30 excludes
3
1989 Supp. (1) SCC 144
4
1993 (6) ELT 37 SC
5
1995 (77) ELT 500 SC
6
2003 (154) ELT 328
7
2005 (17) ELT 17 SC
8
2004 (174) ELT 14 SC
preparations of Chapter 33 even if they have therapeutic or
prophylactic properties. He would submit that the word used
in Note 1(d) of Chapter 30 is `properties' while the word used in
Note 2 of Chapter 30 is `uses'. These two words, `properties'
and `uses' import different concepts. Mr. K. Radhakrishnan
would submit that the restrictive definition of the word
`medicaments' in Note 2 of Chapter 30 is for the purposes of
Heading 30.03. Chapter Heading 30.03 deals with
medicaments including veterinary medicaments and
medicaments for therapeutic and prophylactic use.
Medicaments cover the entire Heading 30.03 including every
Sub-heading. Thus, for a product to qualify under
`medicament', `use' and `not properties' of the product must be
therapeutic or prophylactic. The common parlance test, the
learned senior counsel would submit, is inbuilt in the definition
of `medicament' in Note 2 of Chapter 30 as the emphasis is on
the word `uses'. In the submission of the learned senior
counsel for the Department, common parlance test is well
recognized as one of the twin tests which should be applied to
classify a product as medicament or cosmetic even post 1996.
Without satisfying the common parlance test, the classification
cannot be applied. Mr. K. adhakrishnan submitted that as to
whether the product described against the Sub-heading
3003.31 is a medicament or not can be ascertained only after
resorting to Note 2 of Chapter 30 and the common parlance
test inbuilt in it. Rule 1 of the Rules for the interpretation of the
Schedule to the New Tariff Act mandates that classification
shall be determined according to the terms of the Heading
and any relative Section or Chapter Notes, hence Chapter Note
2 dealing with medicaments cannot be by-passed.
21. The learned senior counsel for the Department
would urge that the classification cannot be finalized by looking
at the description of the goods provided against Sub-heading
3003.31; the description of goods provided against Sub-
heading 3003.31, is not a definition of medicament. According
to him, Sub-heading 3003.31 provides the process of
manufacture of certain medicaments including those used in
Ayurvedic and sale of the same. He would submit that
procedure for manufacture of a product is not a relevant test
legally recognized for classification of the product.
22. Mr. K. Radhakrishnan, learned senior counsel
would also submit that the definition under Section 3(a) of
Drugs and Cosmetics Act, 1940 does not relate to Ayurvedic
Medicines alone and it is materially distinct from Sub-heading
3003.31 of Chapter 30 as collocation of words "sold under
the name as specified in such book or pharmacopoeia" is
conspicuously absent in Section 3(a).
23. The learned senior counsel for the Department
heavily relied upon a three Judge Bench decision of this Court
in Baidyanath I1 wherein this Court held that the product DML
is not an Ayurvedic Medicine. This Court approved common
parlance test applied by the Tribunal. He would submit that
the product is the very same product for which Baidyanath is
agitating to get a classification under the heading medicament.
The product has not undergone any change in their
composition, character and use; merely because there is
some difference in the tariff entries, the character and use of
the product will not change. According to Mr. K.
Radhakrishnan, by inclusion of the book `Ayurved Sar
Sangraha' in the first schedule of the Drugs and Cosmetics
Act, 1940, the product DML could not be classified as
`medicament'. The senior counsel also submitted that the
earlier decision of this Court relating to very same product
operates as res judicata which is based on three legal
maxims: (1) Nemo debet bis vexari pro una et eadem causa
(2) Interest republicae ut sit finis litium and (3) Res judicata
pro veritate occipitur. He, thus, submitted that the product DML
is classifiable under Heading 33.06 being a tooth powder.
24. We deem it appropriate at this stage to set out
relevant portions in the Tariff Items, Chapter Notes and the
Rules for the interpretation of the Schedule which have
bearing for consideration before us.
25. Rules for interpretation of the Schedule as stated
in New Tariff Act are as follows:
"1. The titles of Sections and Chapter are provided for
ease of reference only; for legal purposes, classification
shall be determined according to the terms of the headings
and any relative Section or Chapter Notes and, provided
such headings or Notes do not otherwise require, according
to the provisions hereinafter contained.
2. (a) ........................................................
(b) ................................. The classification of
goods consisting of more than one material or substance
shall be according to the principles contained in rule 3.
3. When an application of sub-rule(b) of rule 2 or for
any other reason, goods are, prima facie, classifiable
under two or more headings, classification shall be
effected as follows:
(a) The heading which provides the most specific
description shall be preferred to headings providing a
more general description. However, when two or more
headings each refer to part only of the materials or
substances contained in mixed or composite goods or to
part only of the items in a set, those headings are to be
regarded as equally specific in relation to those goods,
even if one of them gives a more complete or precise
description of the goods.
(b) Mixture, composite goods consisting of different
materials or made up of different components, and goods
put up in sets, which cannot be classified by reference to
(a), shall be classified as if they consisted of the material or
component which gives them their essential character,
insofar as this criterion is applicable.
(c) When goods cannot be classified by reference to
(a) or (b), they shall be classified under the heading which
occurs last in the numerical order among those which
equally merit consideration.
4. Goods which cannot be classified in accordance with
the above rules shall be classified under the heading
appropriate to the goods to which they are most akin.
5. For legal purposes, the classification of goods in the
sub-headings of a heading shall be determined according
to the terms of those sub-headings and any related Chapter
Notes and, mutatis mutandis, to the above rules, on the
understanding that only sub-headings at the same level are
comparable. For the purposes of this rule, the relative
Section Notes also apply, unless the context otherwise
requires.
GENERAL EXPLANATORY NOTES
1. Where in column (3) of this Schedule, the description
of an article or group of articles under a heading preceded
by "-" the said article or group of articles shall be taken to
be a sub-classification of the article or group of articles
covered by the said heading. Where, however, the
description of an article or group of articles is preceded by
"- -", the said article or group of articles shall be taken to be
a sub-classification of the immediately preceding
description of article or group of articles which has "--".
26. Chapter 30 to the extent, it is relevant for the present
matter, is as follows:
"CHAPTER 30
PHARMACEUTICAL PRODUCTS
NOTES
1. This Chapter does not cover:
(a) .................
(b) .................
(c) .................
(d) Preparations of Chapter 33 even if they have
therapeutic or prophylactic properties;
(e) .................
(f) .................
(g) .................
2. For the purposes of the heading No.30.03,
(i) `Medicaments' means goods (other than foods or
beverages such as dietetic, diabetic or fortified foods,
tonic beverages) not falling within heading No.30.02 or
30.04 which are either :
(a) products comprising two or more constituents which
have been mixed or compounded together for
therapeutic or prophylactic uses; or
(b) unmixed products suitable for such uses.
3. ..............
4. ..............
5. ..............
6. ..............
27. Relevant portions in Chapter 33 is thus:
CHAPER 33
ESSENTIAL OILS RESINOIDS; PERFUMERY, COSMETIC
OR TOILET PREPARATIONS
NOTES
1. ..........................................................
2. Heading Nos. 33.03 to 33.08 apply, inter alia, to
products, whether or not mixed (other than aqueous
distillates and aqueous solutions of essential oils),
suitable for use as goods of these headings and put
up in packings with labels, literature of other
indications that they are for use as cosmetics or
toilet preparations or put up in a form clearly
specialized to such use and includes products
whether or not they contain subsidiary
pharmaceutical or antiseptic constituents, or are
held out as having subsidiary curative or prophylactic
value.
3. ..................
4. ..................
---------------------------------------------------------------------------------------------------
Heading Sub- Description of goods Rate
No. heading of
No. duty
(1) (2) (3) (4)
33.06 3306.00 Preparations for oral or dental 15%
Hygiene, including dentifrices
(for example toothpaste and
Tooth powder) and denture
Fixative pastes and powders"
28. In 1996-97, Chapter 30 to New Tariff Act came to
be amended. Chapter Sub-heading No.3003 now stands as
under:
"MEDICAMENTS (INCLUDING VETERINARY
MEDICAMENTS)
3003.10-Patent or proprietary medicaments, other than
those medicaments which are exclusively Ayurvedic,
Unani, Siddha, Homoeopathic or Bio-chemic
3003.20- Medicaments (other than patent or proprietary )
other than those medicaments which are exclusively
Aurvedic, Unani, Siddha, Homoeopathic or Bio-chemic
-Medicaments, including those used in Ayurvedic, Unani,
Siddha, Homoeopathic or Bio-chemic systems
3003.31 - - Medicaments (including veterinary
Medicaments) used in Ayurvedic, Unani, Siddha or
Homoeopathic Systems, manufactured exclusively in
accordance with the formulae described in the authoritative
books specified in the First Schedule to the Drugs and
Cosmetics Act, 1940 (23 of 1940) or ................. and sold
under the name as specified in such book or pharma-
copoeia;"
29. Baidyanath's product DML has not been treated
as Ayurvedic Medicine to qualify for exemption from payment
of excise duty under Notification No.62/78-CE dated March, 1,
1978 by this Court. This Court approved common parlance
test applied by the Tribunal that DML could not be described as
a medicinal preparation and that it could rightly be described
as a toilet preparation. In Baidyanath I1, it was held thus:
"The ingredients for the product in question are
stated to be Geru (red earth) to the extent of 70% which is
sated to have cooling quality but the Tribunal noticed that it
is largely used as a filler or colouring agent and is not
described as a medicine in common parlance. After going
through the various texts, the definition of `drug' under the
Drugs and Cosmetics Act, 1940 and ayurvedic books as
well as opinion of experts in this behalf, the Tribunal
ultimately came to the conclusion that the product in
question could not be described as a medicinal preparation
and accordingly rejected the claim of the appellant.
We have heard the learned counsel at some length.
He also invited our attention to the provisions of the Drugs
and Cosmetics Act, 1940, the opinion of the experts, the
statements of a few consumers as well as the description
given in certain Ayurvedic books and contended that the
preparation would fall within the relevant entry in the
exemption notification. The Tribunal rightly points out that
in interpreting statutes like the Excise Act the primary object
of which is to raise Department and for which purpose
various products are differently classified, resort should not
be had to the scientific and technical meaning of the terms
and expressions used but to their popular meaning, that is to
say the meaning attached to them by those using the
product. It is for this reason that the Tribunal came to the
conclusion that scientific and technical meanings would not
advance in case of the appellants if the same runs counter
to how the product is understood in popular parlance. That
is why the Tribunal observed in para 86 of the judgment as
under:
"So certificates and affidavits given by the Vaidyas do
not advance the case of Shri Baidyanath Ayurved
Bhawan Limited in the absence of any evidence on
record to show and prove that the common man
who uses this Dam Manjan daily to clean his teeth
considers this Dant Manjan as a medicine and not a
toilet requisite."
It is this line of reasoning with which we are in agreement.
The Tribunal rejected the claim of the appellant holding that
ordinarily a medicine is prescribed by a medical practitioner
and it is used for a limited time and not every day unless it
is so prescribed to deal with a specific disease like diabetes.
We are, therefore, of the opinion that the Tribunal applied
the correct principles in concluding that the product in
question was not a medicinal preparation (`Ayurvedic') and,
therefore, the appellant was not entitled to the benefit of the
exemption notification. Having heard the learned counsel
at length and having perused the line of reasoning adopted
by the Tribunal with which we are in general agreement, we
see no reason to interfere with the conclusion reached by
the Tribunal and, therefore, we dismiss these appeals, but
make no order as to costs."
30. Merely because there is some difference in the tariff
entries, the product will not change its character. Something
more is required for changing the classification especially
when the product remains the same. (BPL Pharmaceuticals
Ltd.)9
31. There cannot be justification enough for changing
the classification without a change in the nature or a change
in the use of the product. The exception being where Tariff Act
itself provides for a statutory definition, obviously, the product
has to be classified as per the definition.
32. The question, therefore, is: does Chapter Sub-
heading 3003.31 contain a definition of Ayurvedic Medicine
and, if so, common parlance test for classifiability of the
product, whether medicament or cosmetic, is inapplicable?
33. Chapter 30 of the New Tariff Act deals with
pharmaceutical products. Note 2 thereof provides that for the
purpose of the Heading No.30.03, `medicaments' means
goods ............not falling within Heading 30.02 or 30.04 which
are products comprising two or more constituents having been
mixed or compounded together for therapeutic or prophylactic
uses or unmixed products suitable for such uses. Chapter
Heading 30.03 is in respect of medicaments. Sub-heading
3003.10 refers to patent or proprietary medicaments other
9
. 1995 Supp.(3) SCC 1
than those which are exclusively Ayurvedic, Unani, Siddha,
Homoeopathic or Bio-chemic. Sub-heading 3003.20 refers to
medicaments including those used in Ayurvedic, Unani, Sidha,
Homoeopathic or Bio-chemic system. Inter alia Sub-heading
3303.31 refers to medicaments used in Ayurvedic system of
medicine exclusively in accordance with the formulae described
in the authoritative books specified in the First Schedule to the
Drugs and Cosmetics Act, 1940 and sold under the name as
specified.
34. Does Chapter Sub-heading 3003.31 contain
specific definition of Ayurvedic Medicine? We do not think so.
What is provided in column 3 of Schedule is description of
goods against sub-heading 3003.31. We are afraid
description of goods cannot be treated as definition. There is
merit in the contention of the learned senior counsel for the
Department that Chapter Sub-heading 3003.31 provides
process for manufacture of certain medicaments including
those used in Ayurvedic system and sale of the same; it is not
a definition clause. Classification of a product, interpretative
Rule 1 of rules for interpretation of the Schedule says, is to be
determined according to the terms of the heading and any
relative Section or Chapter Notes and provided such headings
or Notes do not otherwise require. Chapter Sub-heading
3003.31 is an entry double dash (--) occurring under the single
dash (-) heading for medicament including those in Ayurvedic
Systems. As per general explanatory Note 1 appended to rules
for interpretation, single dash (-) indicates the said article or
group of articles to be a sub-classification of the article or group
of articles covered by the said heading and double dash (--)
indicates, the said article or group of articles to be a sub-
classification of the immediately preceding description of article
or group of articles which has single dash (-). It is, thus, clear
that Chapter Heading 30.03 would cover every Sub-heading as
well. Therefore, to find out whether the product described
against Sub-heading 3003.31 is a medicament or not, aid to
Note 2 of Chapter 30 for the purposes of Heading 30.03 is
necessarily called in. Note 2 to Chapter 30 defines
medicaments for the purposes of Heading 30.03 as products
comprising two or more constituents which have been mixed or
compounded together for therapeutic or prophylactic uses or
unmixed products suitable for such uses. The use of
expression "uses" in Note 2 is not without significance and is
surely distinct from the expression "properties" used in Note 1
(d) of Chapter 30. The term "uses" brings within its
comprehension, the act of user and, thus, there is merit in the
submission of the learned senior counsel for the Department
that common parlance test is inbuilt in Chapter Heading
30.03.
35. As a matter of fact, this Court has consistently
applied common parlance test as one of the well recognized
tests to find out whether the product falls under Chapter 30 or
Chapter 33. In a recent decision in Puma Ayurvedic Herbal
(P) Ltd. vs. Commissioner, Central Excise, Nagpur 10
this Court
observed that in order to determine whether a product is a
cosmetic or medicament, a twin test (common parlance test
being one of them) has found favour with the courts. This is
what this Court observed:
".... In order to determine whether a product is a
cosmetic or a medicament a twin test has find favour with
the courts. The test has approval of this Court also vide
CCE v. Richardson Hindustan {(2004) 9 SCC 156}. There is
no dispute about this as even the Department accepts that
the test is determinative for the issue involved. The tests
are:
I. Whether the item is commonly understood as
medicament which is called the common
parlance test. For this test it will have to be
10
(2006) 3 SCC 266
seen whether in common parlance the item is
accepted as a medicament. If a product falls
in the category of medicament it will not be an
item of common use. A user will use it only
for treating a particular ailment and will stop its
use after the ailment is cured. The approach
of the consumer towards the product is very
material . One may buy any of the ordinary
soaps available in the market. But if one has a
skin problem, he may have to buy a medicated
soap. Such a soap will not be an ordinary
cosmetic. It will be medicament falling in
Chapter 30 of the Tariff Act.
II. Are the ingredients used in the product
mentioned in the authoritative textbooks on
Ayurveda ?"
36. In Puma Ayurvedic Herbal (P) Ltd., the question
that arose for consideration before this Court was whether
the products manufactured by the appellant therein were
covered under the category of medicaments or cosmetics.
The following products were under consideration: 1. Puma
neem facial pack (Neemal), 2. Puma anti-pimple herbal powder
(Pimplex), 3. Puma herbal facial pack (Herbaucare), 4. Puma
herbal remedy for facial blemishes, 5. Puma herbal massage
oil, 6. Puma herbal massage oil for women, 7. Puma hair tonic
powder (Sukeshi), 8. Puma scalp tonic powder (Scalpton), 9.
Puma anti-dandruff oil (Dandika), 10. Puma shishu rakshan tel,
11. Puma neem tulsi. This Court referred to various decisions
of this Court and held:
"From the above judgments it follows that the law is
settled on the twin test for determination of classification of
a product. We have already found that the twin test is
satisfied in the present case regarding most of the items
under consideration."
37. Applying twin test for determination of classification
of products (including common parlance test), this Court in
Puma Ayurvedic Herbal (P) Ltd. held that items
1,2,3,4,7,9,10 & 11 were medicaments while items 5,6 & 8
were liable to be classified as cosmetics under Chapter sub-
heading 33.04.
38. We endorse the view that in order to determine
whether a product is covered by `cosmetics' or `medicaments'
or in other words whether a product falls under Chapter 30 or
Chapter 33 : twin test noticed in Puma Ayurvedic Herbal (P)
Ltd., continue to be relevant. The primary object of the Excise
Act is to raise revenue for which various products are differently
classified in New Tariff Act. Resort should, in the
circumstances, be had to popular meaning and understanding
attached to such products by those using the product and not
to be had to the scientific and technical meaning of the terms
and expressions used. The approach of the consumer or user
towards the product, thus, assumes significance. What is
important to be seen is how the consumer looks at a product
and what is his perception in respect of such product. The
user's understanding is a strong factor in determination of
classification of the products. We find it difficult to accept the
contention of the learned senior counsel for Baidyanath that
because DML is manufactured exclusively in accordance with
the formulae described in Ayurveda Sar Sangrah which is
authoritative text on Ayurvedic system of treatment and is
notified in the First Schedule to the Drugs and Cosmetics Act,
1940 and the said product is sold under the name `Dant
Manjan Lal' which is the name specified for the said product in
Ayurveda Sar Sangrah, the common parlance test is not
applicable. As a matter of fact, this contention is based on
misplaced assumption that Chapter Sub-heading 3003.31 by
itself provides the definition of Ayurvedic Medicine and there is
no requirement to look beyond.
39. West Regional Bench of the Tribunal in its order
dated 13.12.2000 which is subject matter of Civil Appeal
4048/2001 observed thus :
"The Drugs and Cosmetic Act, 1940 provides for a
licence to be obtained for manufacture of Ayurvedic, Sidha,
Homoeopathic and Unani medicines. Technical Advisory
Board to advise Central and State Government on technical
matters. Among the members of this Board are persons
well versed in ayurvedic medicines, including teacher in
Dravya Guna and Kalplana and a practitioner in ayurvedic
medicine. It also provides for a Ayurvedic, Sidha, and Unani
Drugs Consultant Committee. The manufacture of
ayurvedic medicament is subject to supervision and checks
by officers appointed to carry out the provisions under the
Drugs and Cosmetic Act, 1940.
Section 3 (a) of the Drugs and Cosmetics Act, 1940
defines "Ayurvedic, Sidha or Unani Drug" as follows:
Ayurvedic, Sidha or Unani drug" includes all medicines
intended for internal or external use for or in the diagnosis,
treatment, mitigation or prevention of disease or disorder
inhuman beings or animals and manufactured exclusively in
accordance with the formulae described in the
authoritative books of "Ayurvedic, Sidha or Unani Tibb
system of medicine, specified in the First Schedule."
A comparison of this definition and the entry now
contained in heading 3003.30 of the Tariff shows that the
two are virtually identical for the purpose of both the Drugs
and Cosmetics Act and the Tariff, after its amendment, the
medicament which is made exclusively in accordance with
the formulae described in the First Schedule to the Act is to
be considered as ayurvedic medicament.
The effect of insertion of the new entry in the tariff is
that to bring it on a par with the Drugs and Cosmetics Act,
1940. The term "ayurvedic medicament" in the tariff will
have the same meaning as the meaning in the Drugs and
Cosmetics Act. Therefore, if the product under
consideration conforms to the requirements specified in that
Act and the tariff, it will be entitled to be so classified. There
would be no requirement that the Central Excise authorities
must independently test it for its efficacy as medicament by
apply the provisions of Note (2) to the Chapter.
It must be emphasized that these considerations
were not present before the Supreme Court which passed
its orders on the classification of Dant Manjan Lal. The
Tribunal, and on appeal the Supreme Court, was concerned
with the classification of the goods under Item 14E of the
earlier Central Excise Tariff. The Tribunal has therefore
rightly applied the test as to whether the product was a
medicament, as is normally understood by persons in the
trade, was shown to possess the therapeutic or prophylactic
properties, was demonstrated as to be medicament by
being prescribed for a limited period, for a specific disease
or disorder. By virtue of the amendment made to the tariff,
these considerations cannot be gone into. The judgment of
the Supreme Court therefore cannot be a deciding factor in
determining its classification under the heading as it now
stands. This in fact is the view that has been expressed
by the Commissioner (Appeal), Patna, whose order was
cited by the advocate for the appellant. We therefore hold t
hat the product was rightly classifiable under heading 30.03
as claimed by the appellant."
We do not agree. The approach of the West Regional Bench
is fallacious in what we have indicated above as it overlooks
and ignores common parlance test which is one of the well
recognized tests to determine whether the product is
classifiable as medicament or cosmetic and that has been
consistently followed by this Court including with regard to this
very product. It also overlooks the well-settled legal position
that without a change in the nature or a change in the use of
the product and in the absence of a statutory definition, the
product will not change its character. The product DML remains
the same in its composition, character and uses. We have
already held above that Sub-heading 3003.31 does not define
Ayurvedic Medicine and, therefore, there cannot be any
justification enough for changing the classification of the
product DML which has not been held to be Ayurvedic
Medicine by this Court.
40. The learned senior counsel for Baidyanath heavily
relied upon the statement of the Finance Minister during the
parliamentary debate on the question of levy of excise duty on
Ayurvedic medicines. In the entire debate there is no reference
to the product DML with which we are concerned. The part of
statement of Finance Minister reads, `...........there is no excise
duty on Ayurvedic Medicines manufactured according to the
Ayurvedic formulae, some medicines appears to be Ayurvedic
medicines.' The Finance Minister also stated, `........he must
raise the dispute on that. It will be decided by the Collector. It
will be decided by the appellate authority. There is a method to
decide it..........'. We are afraid the statement made by the
Finance Minister in the Parliament does not advance the case
of the assessee at all insofaras classification of DML is
concerned as method to decide classification has rightly been
observed to be within domain of the authorities.
41. True it is that Section 3(a) of the Drugs and
Cosmetics Act, 1940 defines `Ayurvedic, Sidha or Unani Drug'
but that definition is not necessary to be imported in New Tariff
Act. The definition of one statute having different object,
purpose and scheme cannot be applied mechanically to
another statute. As stated above, the object of Excise Act is to
raise revenue for which various products are differently
classified in New Tariff Act.
42. There is no doubt that a specific entry must prevail
over a general entry. This is reflected from Rule 3(a) of the
general Rules of interpretation that states that heading which
provides the most specific description shall be preferred to
headings providing a more general description. DML is a tooth
powder which has not been held to be Ayurvedic Medicine in
common parlance in Baidyanath I1. We have already observed
that common parlance test continues to be one of the
determinative tests for classification of a product whether
medicament or cosmetic. There being no change in the nature,
character and uses of DML, it has to be held to be a tooth
powder - as held in Baidyanath I1. DML is used routinely for
dental hygiene. Since tooth powder is specifically covered by
Chapter Sub-heading 3306, it has to be classified thereunder.
By virtue of Chapter Note 1(d) of Chapter 30 even if the product
DML has some therapeutic or medicinal properties, the product
stands excluded from Chapter 30.
43. The learned senior counsel for Baidyanath relied
upon the judgment of this Court in Vicco Laboratories to show
that in Baidyanath I1, no tests for classification were laid down.
First, in Baidyanath I1, common parlance test applied by the
Tribunal has been approved. Second, and more importantly,
with regard to the very product (DML), this Court held that it
could not be classified as Ayurvedic Medicine and rather the
product is toilet requisite. Baidyanath I1, no doubt relates to
old Tariff period i.e. prior to enactment of new Tariff Act but
since the product in its composition, character and uses
continues to be the same, even after insertion of new sub-
heading 3301.30, we have already held that change in
classification is not justified as common parlance test continues
to be relevant for classification. Vicco Laboratories is of no
help to the assessee.
44. In what we have already discussed above, it is not
necessary to refer to other decisions cited by the learned
Senior Counsel for Baidyanath. Be it noted here that Mr. C.A.
Sundaram, learned Senior Counsel submitted before us that
matters should be decided by this Court as raising neat
question of law about classification of product DML on the
available material and any further inquiry or remand was
unnecessary.
45. Before we part with the case, we may address to
the plea of res judicata raised by the learned Senior Counsel
for the Department. Mr. K. Radhakrishnan pressed into service
few legal maxims in this regard. It is true that maxim Nemo
debet bis vexari pro una et eadem causa is founded on
principle of private justice as it states that no man ought to
be twice put to trouble if it appear to the court that it is for
one and the same cause. The maxim Interest republicae
sit finis litium concerns the State that law suits be not
protracted. This maxim is based on public policy. In our
opinion, these maxims cannot be applied as a rule of thumb in
the taxation matters. In the matters of classification of goods,
the principles that have been followed by the courts - which
we endorse - are that there may not be justification for
changing the classification without a change in the nature or
a change in the use of the product; something more is required
for changing the classification especially when the product
remains the same. Earlier decision on an issue inter parties is
a cogent factor in the determination of the same issue. The
applicability of maxim Res judicata pro veritate occipitur in
the matters of classification of goods has to be seen in that
perspective. The interpretation given by this Court in
Baidyanath I1 with regard to this product has been
considered and applied by us after amendment because
Chapter Sub-heading 3003.31 does not contain definition of
Ayurvedic Medicine and the product DML in nature, character
and uses remains the same as it was prior to amendment.
46. As a result of the foregoing discussion, appeals of
Baidyanath must fail and are dismissed. The Department's
appeals are allowed. The parties shall bear their own costs.
...........................J.
(D.K. Jain) .........................J.
(R.M. Lodha)
New Delhi
April 13, 2009

 

Sanjeev Jain
on 30 June 2009
Published in Income Tax
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