Commisssioner of Customs, Central Excise and Service Tax, Hyderabad vs Ashwani Homeo Pharmacy

2.1 As regards the question as to whether the product, Aswini Homeo Arnica Hair Oil-AHAHO, merits classification as ‘medicament’ under Chapter 30 or as ‘cosmetic or toilet preparations’ under Chapter 33, the inquiry shall be directed towards a couple of tests taken together, being the common/commercial parlance test i.e., how the product is understood commonly, including by the persons dealing in the same and by the end- users; and the ingredients test i.e., whether the ingredients used in the product are found mentioned in authoritative textbooks. The connotations of common parlance test could further be understood, that the primary object of such taxing statute being to raise revenue and various products being differently classified for that purpose, the entries are not to be understood in their scientific and technical meaning; rather the terms and expressions used in tariff have to be understood by their popular meaning, that is the meaning attached to them by those dealing with or using the product. Further, the words and expressions, unless defined in the statute have to be construed in the sense in which persons dealing with them understand i.e., as per trade understanding and usage. Yet further, there is no fixed test or static parameter for correct classification of a product and it essentially depends on the meaning assigned to it by the persons concerned with it. One of the essential factors for determining whether a product falls under Chapter 30 or not is as to whether the product is understood as a pharmaceutical product in common parlance. However, the quantity of medicament used in a particular product is not a relevant factor because, ordinarily, the extent of use of medical ingredients is very low as a larger use may be harmful for the human body. Moreover, the mere fact that a product is sold across the counters and not under a doctor’s prescription, does not by itself lead to a conclusion that it is not a medicament; and that a product may be medicinal without having been prescribed by a medical practitioner. The items which may be sold under names bearing a cosmetic connotation would nevertheless remain medicines based on the composition. As regards the question as to whether a particular product is classifiable under Chapter 30 as ‘medicament’ or under Chapter 33 as ‘cosmetic’, one of the essential features would be as to whether the preparation is essentially for cure or prevention of disease (medicament) or for care (cosmetic); and the preparation having only subsidiary curative or prophylactic value would fall under Chapter 33. [Para 18.1][338-F-H; 339-A-F]

2.2 In an overall comprehension of the matter, and with application of the relevant principles to the facts of the instant case, the product in question sails through the twin tests without any doubt and has rightly been held as medicament by the tribunal. [Para 21][344-G-H]

2.3 Taking up the test relating to the ingredients, there appears absolutely no reason to suggest that the product in question, AHAHO, does not pass this test. It remains indisputable that the product has been manufactured as a drug after being duly licensed by the competent authorities and carries the combination of as many as four Homeopathic medicines, Arnica Montana, Cantharis, Pilocarpine, and Cinchona in its preparation. These Homeopathic medicines are duly found mentioned in Homeopathic Pharmacopoeia of India as also in the Dictionary of Practical Materia Medica. [Para 22][344-H; 355-A-B]

2.4 The Adjudicating Authority in its elaborate order could not otherwise doubt the recognition of other ingredients of AHAHO as being Homeopathic drugs. The approach of the Adjudicating Authority in his micro analysis of the contents of label had also been in the nature of a fishing inquiry as if only to find some gap or some loophole therein, without looking at the substance of the matter that the product in question was clearly indicated to be a Homeopathic medicine under Schedule K to the Rules of 1945. Looking to the nature of the product and its properties, the relevant indications have also been specified in reasonable terms and looking to its nature and purpose, directions for use have also been given in the manner that it was to be massaged directly on the scalp and should be left overnight for best results. Hence, the Adjudicating Authority’s observations about want of specification regarding the dosage to be used and the duration f or which it is to be used carry their own shortcomings. The product in question is essentially meant for dealing with the conditions arising in and on the scalp with hair being the integral part thereof. The product consists of Homeopathic medicines. Its manner of use is to put the same on the scalp and to leave it overnight. Looking to the nature of the product and its uses, the observations about want of specification regarding the dosage do not take the product out of its pharmaceutical value. Further, the Adjudicating Authority’s observations of dissatisfaction because of there being no contraindications have gone miles away from the reasonableness of approach. If the respondent has stated in clear terms on the label that the product carried nil contra- indications, looking to its nature, purpose and the manner of use, it does not cease to be a medicament. [Para 22.1][345-C-G; 346-A-B]

2.5 The perversity and unreasonableness of approach of the Adjudicating Authority is also noticed from the observations that, if the intention was to identify the product as medicament, there was no need to label it as “Hair Oil”. While the expression “Hair Oil” does appear on the label, the other integral expressions “Homeo” and “Arnica” preceding the expression “Hair Oil” could not have been ignored and could not have been left aside. The Adjudicating Authority had gone to the extent of observing that hair growth was at best a cosmetic necessity rather than a disease requiring immediate attention or treatment. The tribunal rightly observed that when hair fall or baldness is recognised as a medical condition, the Adjudicating Authority could not have taken a different view, which was not recognized by any branch of medicine. The tribunal rightly pointed out that the product clearly mentioned that it could be used for other ailments like headache and that it induces good sleep. Moreover, the Adjudicating Authority seems not to have given adequate attention to the contents of Chapter 30 and the fact that for being accepted as medicament, the product is not invariably required to carry only therapeutic use. A product having prophylactic use is also envisaged under the Headings 3003 and 3004. If the product claims to improve blood circulation to the hair roots and thereby controlling hair fall, its prophylactic use cannot be gainsaid. [Para 22.2-22.3][346-C-F]

2.6 The product in question, being undoubtedly covered by Serial No. 35 of Schedule K to the Rules of 1945 and being manufactured in terms of the license issued under the Act of 1940, clearly satisfies the ingredients test. In other words, on its ingredients, the product is indeed a medicament carrying the combination of Homeopathic medicines. [Para 22.4][346-G]

2.7 It is also apparent in the present case that the stand of the Department to classify the product in question as ‘cosmetic’ under Chapter 33 is essentially based on the distinct entry “Hair Oil” occurring therein; and it appears that the expression “Hair Oil” occurring on the label of the product has been taken as decisive by them. It would also follow as a natural corollary that the expression “Hair Oil” occurring on the label of the product is only indicating the medium through which Homeopathic medicines comprising the product are to be applied. The submissions and the efforts on the part of the appellant to take the product in question to Chapter 33 merely because of its label carrying the expression “Hair Oil” while ignoring the preceding significant expressions “Homeo” and “Arnica” cannot be accepted. Reference to Note 1(e) of Chapter 30 also turns out to be of no relevance because the product in question cannot be said to be a preparation of Heading 3305 and then having insignificant or subsidiary therapeutic or prophylactic properties. As regards the product in question, which is essentially made of Homeopathic medicines which have therapeutic and prophylactic uses, it cannot be said to be carrying only subsidiary pharmaceutical value. Putting it differently, the product in question, AHAHO, is predominantly of pharmaceutical value and the item of cosmetic therein, i.e., hair oil, is nothing but a medium for appropriate use of that pharmaceutical value. [Para 23.1][345-C-G; 346-A-B]

2.8 The submissions about specific entry to be preferred to the general entry do not take the case of appellant any further. The referred entry of Chapter 33 relating to the Tariff Item ‘Hair oil’ under the Heading 3305 is itself to be taken as a general entry and in any case, when hair oil is being used only as a medium for use/administration/application of the medicine, the case would fall in the specific entry pertaining to medicament under Headings 3003 or 3004; and it being of the medicines of Homeopathic system, it would fall either in Tariff Item 3003 90 14 or Item 3004

90 14. In any case, the product cannot fall under Chapter 33. [Para 23.3][348-B-D]

2.9 On the other features of common parlance test, i.e., the manner in which the product in question is commonly understood, it is noticed that one of the grounds placed at the forefront by the appellants and the Adjudicating Authority had been that AHAHO was accessible in both Medical and General Stores and could be bought across the counter. This feature of availability of the product in question has absolutely no relevance. Merely for being available across the counter, the product in question, AHAHO, does not cease to be a medicament. [Para 25][348-G-H; 349-A-C]

2.10 When the preparation is for cure or prevention, it would be medicament but, if only for care, it would be cosmetic. Of course, a cosmetic would not become medicament even if having subsidiary curative or prophylactic value. However, the product in question, AHAHO, does not fail on this count for the reason that it is a preparation of Homeopathic medicine and when it is marketed as carrying those medicines, in commercial as also common parlance, with its name carrying the significant expressions “Homeo” and “Arnica”, the product could only be understood as the one carrying predominantly pharmaceutical value and not mere cosmetic value. [Para 26][349-D-F]

2.11 When the product in question is intended to control hair fall as also to prevent dandruff and to induce good sleep, which all carry their own therapeutic and prophylactic connotations, the picture of a lady with long black flowing hair cannot be said to be unrelated to the indications related with the product. In any case, such a picture, by itself, cannot make the product in question a cosmetic. Interestingly, right at the top of the said picture and below the name of the product, it proclaims “Controls hair fall. Prevents dandruff”. The Adjudicating Authority has taken his process of analysis to further illogical heights by proclaiming that hair growth was at the best a cosmetic necessity rather than a disease requiring immediate attention or treatment. Such approach could only be disapproved. [Para 27][349-G-H; 350-A-B]

2.12 The substance of the matter remains that in common parlance, the product in question would be approached essentially for its claimed medicinal qualities and not as another hair oil. The tribunal rightly dealt with the matter in accordance with the law applicable to the facts of the instant case. [Para 27.1][350-CD]

2.13 The Adjudicating Authority also observed that drug licenses issued by respective authorities per se did not make AHAHO a preparation of Homeopathic medicine. However, the Adjudicating Authority failed to consider that such drug license issued under Schedule K to the Rules of 1945 had not been a factor to be ignored altogether. Both in relation to common parlance test as also the ingredients test, this factor carries its own relevance even if not finally decisive of the matter. The submission about want of condition of sale by authorised medical distributor or retailer under prescription has its own shortcomings for it has not been shown if such a preparation falling under Schedule K to the Rules of 1945 was also requiring such a mention in terms of Rule 97. In any case, any such requirements for adherence to the Act of 1940 and the Rules of 1945 could only be a matter for consideration of the authorities dealing with licensing and regulating the manufacture and sale of drugs. The only relevant aspect for the present purpose is that the product in question being manufactured as a Homeopathy medicine, and being marketed and used as a Homeopathic medicine for its pharmaceutical value, would fall in Chapter 30 and cannot be branded as cosmetic, so as to fall under Chapter 33 of the First Schedule to the Act of 1985. [Para 28][350-D-G]

2.14 The very product in question, in relation to the entry in the Andhra Pradesh General Sales Tax Act, 1957, has been accepted by this Court to be answering the description of a medicine and not being a cosmetic product, after it was found that the respondent-assessee’s assertion about its ingredients and thereby the product qualifying to be a drug within the meaning of Section 3 of the Act of 1940 could not be refuted by the Revenue. The said decision of this Court may not have a direct bearing on the question of classification of the product in question for the purpose of the Act of 1985 but, it cannot be denied that the product in question has been found answering to the description of a ‘drug’ for the purpose of the Act of 1940 as also for the purpose of the said Andhra Pradesh General Sales Tax Act, 1957. Viewed from any angle, it remains a medicament. [Para 29][350-H; 351-A-C]

3.1 It is apparent that the product in question had rightly been classified as ‘medicament’ in the past and nothing material had changed so as to re-classify the same. However, the Revenue has attempted to rely on the amendment of the tariff structure in the year 2012 as justification for re-look at its classification. The Adjudicating Authority stated this justification in the manner that there were substantial changes in the tariff headings, particularly when Chapter 30 came to be reworded so as to remove the distinction between patent/proprietary and generic medicaments and to classify them according to whether they are put up in unit containers for retail sale or not; the mention about the Act of 1940 and the various Pharmacopeia came to be deleted; and under Chapter 33, the phrase ‘Hair oil’ became prominent under which, subsidiary headings of ‘perfumed hair oil’ and ‘others’ came to be specified. According to the Adjudicating Authority, all these changes merited interpretation of the new entries vis-à-vis the product in question than what was decided or settled earlier. There had been no justification in the Department seeking to reopen the settled position in relation to the product in question merely with reference to certain changes made in Chapter 30 and Chapter 33, which had essentially broadened their ambit and scope and provided modified marginal notes and tariff entries with detailed specifications. These changes had otherwise no impact, so far as AHAHO, is concerned. [Para 30][351-C-G]

3.2 The change of classification cannot be accepted merely on the ground of coming into force of different tax structure without showing that the product has changed its character. Thus, mere broad-basing of the entries in Chapter 30 and Chapter 33 of the First Schedule to the Act 1985, by itself, could not have been the justification for an attempt at re-classification of the product in question. [Para 31][352-B, D]

3.3 Even as regards the amendment of the entries, the stand of the appellant-Revenue has been that Chapter 30 was reworded so as to remove the distinction between patent/proprietary and generic medicaments and to classify them according to whether they are put up in unit containers for retail sales or not. Further, it has been stated that reference to the Act of 1940 and various pharmacopoeia had been deleted. Thirdly, it has been contended that in Chapter 33, the phrase hair oil had become prominent with subsidiary entries of perfumed hair oils and other. This Court could only reject such an attempt on the part of the Revenue as a hair- splitting exercise, away and detached from the substance. This is apart from the fact that the specification of medicament under Heading 3004 would, in any case, cover the product in question in the form it is marketed for retail sale. [Para 32][352E-G]

3.4 By way of the amendment of 2012, even if the relevant entries pertaining to preparation for use on the hair have been provided with micro classifications in comparison to the entries standing earlier (as could be seen from the entries, it could never be taken to mean that anything which is prepared for being used on the hair and carries the name “Hair Oil”, would lose its character as medicament if otherwise it has been prepared for therapeutic or prophylactic uses. Moreover, rewording and regrouping of different entries in medicaments are hardly of any impact on the character of the product in question. [Para 32.1][352G-H; 353-A-B]

3.5 Chapter 30, apart from Heading 3003 relating to medicaments consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses not put up in measured doses or in forms or packing for retail sale, Heading 3004 pertains to the medicaments consisting of mixed or un-mixed product for therapeutic or prophylactic uses put up in measured doses or in form of packing for retail sale. Viewed thus, the submissions that even with reference to its packaging, the product AHAHO would remain a homeopathic medicament and would be covered under Chapter 30, where it could be placed in Sub-Heading 3004 90 14 is accepted. Similarly, deletions of the reference to the Act of 1940 or to various pharmacopoeia cannot be interpreted to mean that a product like the one in question, which is otherwise a medicament, has to be classified on the basis of the base through which the application of medicine is being provided. [Para 32.2][353-B-E]

3.6 Application of the relevant principles, the product AHAHO, comes clean through the twin test. Therefore, there had been no justification for making any attempt to re-classify the product in question with reference to the amendments brought about in Chapters 30 and 33 in the year 2012. [Para 33][353-E-F] Bakson Homeo Pharmacy (P) Ltd. v. Collector of Central Excise, New Delhi (2001) 136 ELT 485; Alpine

Industries v. Collector of Central Excise, New Delhi (2003) 3 SCC 111 : [2003] 1 SCR 313; BPL

Pharmaceuticals v. Collector of Central Excise, Vadodara (1995) 3 Supp SCC 1 : [1995] 3 SCR 1235; Commissioner of Central Excise, Calcutta v. Sharma Chemical Works (2003) 5 SCC 60 : [2003] 3 SCR 1027; Meghdoot Gramodyog Sewa Sansthan, U.P. v.

Commissioner of Central Excise, Lucknow (2005) 4 SCC 15; Commissionerof Central Excise, Nagpur v. Shree Baidyanath Ayurved Bhavan Ltd. (2009) 12 SCC

419 : [2009] 5 SCR 879; Commissioner of Central Excise v. Wockhardt Life Sciences Limited (2012) 5 SCC

585 – relied on.

Collector of Central Excise, Guntur v. Andhra Sugar Ltd. Venkataraypuram (1989) 1 Supp SCC 144 : [1988]

3 Suppl. SCR 543; Sunny Industries (P) Ltd. v. Collector of Central Excise, Calcutta (2003) 4 SCC 280 : [2003]

3 SCR 18; Commissioner of Customs, Calcutta v. G.C. Jain and Anr. (2011) 12 SCC 713 : [2011] 8 SCR 798; Commissioner of Central Excise, Nagpur v. Vicco Laboratories (2005) 4 SCC 17; Commissioner of Commercial Taxes v. M/s Aswini Homeo Pharmacy Civil Appeal No. 9494-9495 of 2011; Shree Baidyanath Ayurved Bhavan Ltd. v. Collector of Central Excise, Nagpur (1996) 9 SCC 402 – referred to.