Rachna Gupta, Judicial Member.
1. The common order is passed for disposing of three appeals, two filed by M/s. Badriwas Biotech Pvt. Ltd. and the other filed by the Department arising out of common order of Commissioner (Appeals) bearing No. 65-67/2018 dated 26.03.2018.
2. Relevant facts for these Appeals are:
Consequent upon the intelligence gathered by the Preventive Branch of Customs, Central Excise Division, Dehradun, that the Superintendant of the division visited the factory premises of the appellant at Kasra No.10 & 11 Makhanpur, Bhagwanpur, Roorkee, District Haridwar on 5th August, 2014. It was observed that the appellant has been manufacturing the cosmetic products i.e. talcum powder under the brand name of “Himgange Cool Talc” w.e.f. month of March, 2014.
3. After making necessary investigation, the Department observed that the appellant in three of these Appeals has evaded Central Excise Duty amounting to Rs. 22,72,480/- during the period March, 2014 to 04.08.2014 by wrongful availment of exemption under Notification No.49/2003-CE dated 10th June, 2003 vide a declaration dated 10.11.2008. It was observed that for availing the said exemption, the appellants have mis-classified their product i.e. talcum powder under Chapter 30 (pharmaceutical products) instead of Chapter 33 (cosmetic products) of Central Excise Tariff Act, 1985. Resultantly, a show cause notice No.43/2014 dated 13.06.2018 (in all Appeals) was served upon the appellant proposing the recovery of the Central Excise duty amounting to Rs. 38,563/- involved in the clearances made by them during the period March, 2014 to 31.03.2015 (total period) along with the interest and the proportionate penalty. Since the aforesaid amount of duty was deposited by the appellant vide challan No.50050 dated 02.03.2015, though under protest, the same was also proposed to be appropriated. The said proposal was confirmed vide the Orderin-Original No.42-43 dated 27.07.2016 and the appeal thereof was disposed of upholding the classification of the product and the demand of duties with interest. However, the imposition of penalty was set aside for the classification of impugned product between competing chapters of 30 and 33 of the Tariff to have been highly controversial. Being aggrieved of the said order, the Department/ CGST, Dehradun has preferred an appeal before this Tribunal. Simultaneously the appeal has been filed by the assessee challenging the classification of his talcum powder under Chapter 33 of CETA, 1985.
4. We have heard ld. Advocate Mr.S.K. Bansal for the Department and Ms. Vandana Singh, ld. Advocate for the assessee.
5. It is submitted on behalf of the Department that w.r.t. their appeal the facts of the present case makes it clear that the assessee was very well aware that the talcum powder, “Himgange Cool Talc”, manufactured by them is a cosmetic item appropriately falling under Chapter 33 of Central Excise Tariff Act, 1985 (CETA in short). Resultantly, it was very much in their conscious knowledge that Notification No.49/2003-CE dated 10.06.2003 not being available to the products falling under Chapter 33 of Central Excise Tariff Act was not applicable to the aforesaid product. But they intentionally mis-classified their product as a pharmaceutical product, which is a talcum powder with intention of wrongly availing the benefit of the Notification. The act of mis-classification is alleged to be an intentional act of wrongfully availing the exemption with the sole intention to evade the payment of appropriate duty on the said product, which renders them liable for the penal action under Section 11AC of Central Excise Tariff Act (CETA) read with Rule 25 of Central Excise Rules, 2002. Hence, the order to the extent of dropping the penalties is prayed to be set aside.
6. While rebutting these arguments, it is submitted by the assessee that the assessee had manufactured the talcum powder, “Himgange Cool Talc” in terms of an agreement dated 29.01.2014 entered between them and the brand-name owner M/s. G.K. Burman & Sons of the said product. M/s. G.K. Burman & Sons are engaged in manufacture and marketing of Ayurvedic Medicare products. Hence the assessee was bonafide believing the said talcum powder to be a product having therapeutic value and as such is covered under pharmaceutical products under chapter 30 of CETA. The authority has rightly observed no malafide intention on part of the appellant by classifying the product under Chapter 30 while availing the benefit of the Notification No.49/2003.
7. While impressing upon their own two appeals, ld. Counsel for the assessee has submitted that the adjudicating authority has wrongly classified the impugned product as a cosmetic product. It is submitted that appellant had given ample amount of submissions, case laws as well as the evidence to show that the product has the ingredients as that of camphor and menthol. Both of which have therapeutic use and as such the combination thereof i.e. the impugned talcum powder is also a product having therapeutic value but the said submissions, the case and the evidence have not been considered by the adjudicating authorities below. While impressing upon the definitions of cosmetic and that of medicines as mentioned under Drugs and Cosmetic Act, 1940, the ld. Counsel has impressed upon that the impugned product is neither used for cleansing nor for beautifying nor promoting attractiveness or altering the appearance. Hence, cannot be considered as a cosmetic product. The findings, therefore, are prayed to be set aside. Assessees’ appeals are prayed to be allowed.
8. Department while rebutting the arguments qua the assessees’ appeal has submitted that the adjudicating authorities below have given due consideration to all the submissions of the assessee even the definitions of cosmetic and medicines have been considered. It is thereafter that the adjudicating authorities have rightly considered the principle of classification of goods falling under First Schedule of Central Excise Tariff Act, 1985. The findings qua holding the impugned “Himgange Cool Talc” under chapter 33 instead of chapter 30 of CETA 1984 have therefore no infirmity. Appeal is, therefore, prayed to be dismissed.
9. After hearing both the parties and perusing the entire record of three of the appeals, we observe that following are the issues to be adjudicated in these appeals:-
(1) Whether the product of the appellant is a cosmetic (classifiable under Chapter 33) or a medicine (classifiable under Chapter 30)?
(2) Whether the appellant had the malafide intention, while declaring its product as pharmaceutical product, while claiming the exemption of Notification No.49/2003?
10. With respect to the first issue, we observe that the appellant was manufacturing pharmaceutical products i.e. tablets, capsules, liquid (oral) and external applications under the Drug License No.42/UA/2008 and 48/UA/SC/P-2008 issued to them under Drugs and Cosmetics Act (D & C Act in short). It is also observed that the assessee, admittedly engaged themselves in the manufacture of talcum powder under the brand-name “Himgange Cool Talc” w.e.f. March, 2014 for which they got another license bearing No.3/C/UA/2014 dated 21.02.2014 which was granted to them in form 32 under Rule 140 of Drugs and Cosmetic Rules, 1940 (D & C Act in short). From the perusal of the provision of D & C Act, it is observed that the license under Rule 140 of the Act is granted on an application in Form 31 praying for license to manufacture cosmetics. Thus, it becomes, clear that irrespective appellants were initially involved in manufacture of pharmaceutical products classifiable under Chapter 30 of Central Excise Tariff Act, 1985, but they subsequently started manufacturing the talcum powder not as a pharmaceutical product of Chapter 30 but as cosmetic product classifiable under Chapter 33. Their application in form 31 under Rule 138 of D & C Act is opined to be an admission on their part to seek permission/license to manufacture the cosmetic product. Admissions are relevant unless and until rebutted.
11. Though to rebut the said presumption, the assessee has submitted that the talcum power is not cosmetic because it is made up of the ingredients as that of menthol and camphor and both these ingredients have therapeutic value and as such, are the products as that of Ayurvedic medicaments. In view of these arguments, Principles of classification of goods acquires relevance. Rule 2 (b) thereof says that the classification of goods consisting of more than one material or substance shall be according to the principle of Rule 3, it reads as follows:-
“When by application of Rule 2(b) 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 on ly of the items in a set put up for retail sale, 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) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (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 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
12. Thus, the ingredients lose their individual existence and the outcome product of those ingredients has to be considered in respect of its complete or precise description and in terms of the essential character being given by the components. Thus, we are of the opinion that irrespective menthol and camphor are Ayurvedic medicament products but their combination is giving rise to a product admittedly known as talcum power. The mere fact that the talcum powder is providing the refreshing and the cool feeling, the mere application thereof does not make it a pharmaceutics product/ medicament. In general, parlance, it is a talcum power. Apparently and admittedly, the same can be applied without any medical prescription. Also the same is not the cure for any of the specific medical condition.
13. Further, before jumping into Rule 3 of the principles of classification, Rule 1 in itself has to be looked into foremost, which reads as follows:-
“The titles of Sections, Chapters and sub-chapters 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 following provisions.”
14. Chapter 30 from its note reveals that it is with respect to pharmaceutical products or medicaments having therapeutic or prophylactic uses whether or not in the measured dozes. No doubt, it includes the Ayurvedic medicines/ medicaments.
15. The Tribunal in the case Gajra Beval Gears Ltd. Vs. Govt. of India reported in 1995 (80) ELT 505 has held that for the purpose of assessment of products claim to be Ayurvedic medicaments under Chapter 30, the following facts may be kept in view:
(1) The perception of the product in popular Parlance whether as medicament or cosmetic/ toilet requisite. The advertising marketing and the manner in which the product is put up may also be taken into consideration.
(2) It may be ascertained that the products claim to be medicaments should have substantial therapeutic claims, which are not subsidiary in nature and the mode of prescription and use should be similar to that of medicine / drug. It may be noted that medicaments are normally prescribed in dozes for a limited time and for specific condition or the treatment.
(3) A Drug licence may be used as a guide for classification of the product.
16. Applying these principles to the “Himgange Cool Talc” we are of the opinion that the product is manufactured not under drug license but under cosmetic license. The cosmetic license was obtained when assessee was already engaged in manufacture of pharmaceutical products. Had this talc been a pharmaceutical product only, there was no need for the assessee to have a cosmetic license for the manufacture thereof. Apparently, in common parlance the product is a talcum powder, which can be used irrespective of any prescription about the dozes to be used thereof. Also, it is advertised/ marketed as talcum powder only with refreshners as its one of the quality. Seen from any angle, we are of the firm opinion that the talcum powder except providing a cooling and refreshing effect on body is not providing any therapeutic value nor any treatment to any specific skin condition. The effect of the talcum powder is opined to be more of a cosmetic product that is the product for a better feel and look of body and skin. Thus, we decide the first issue as above against the assessee in favour of the Department holding that the adjudicating authorities below have rightly classified the impugned “Himgange Cool Talc” as a product classifiable under Chapter 33 of CETA, 1985 i.e. as a cosmetic product.
17. Now coming to the second issue, as above, it is observed and held that the assessees started manufacturing the impugned talcum powder only after availing a cosmetic license to manufacture the same, though the same is being manufactured under the agreement with M/s. G.R. Burman & Sons, the brand-owner. It is also the simultaneous admitted fact that the said M/s. G.R. Burman & Sons and even the assessees were already engaged in manufacture of pharmaceutical products. Had there been no knowledge to either of them for the impugned talcum powder to not to be the pharmaceutical product, there was no need for them to agree for taking a license for manufacturing cosmetic. Irrespective of the classification, which otherwise has been held for the talcum powder to be a cosmetic rather than to be a pharmaceutical product, the asse
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ssee was bound by his own act and conduct and was in fact, estopped from claiming the said talcum powder as a pharmaceutical product. These observations are sufficient for us to hold that despite the conscious knowledge of the impugned products to be a mere talcum powder a mere cosmetic, the benefit of Notification No.49/2003 was availed. Though the said benefit, the assessee would have been claiming with respect to his pharmaceutical product in manufacture whereof he was already involved but for taking the same benefit for a cosmetic product despite the above said conscious knowledge, we are of the opinion that the mis-declaration has been done with a malafide intention to take wrong benefit of the impugned Notification with the sole intention of evading duty. The mis-declaration definitely invites penalty under Section 11AC of Central Excise Act, 1944. We are, therefore, of the opinion that penalties were rightly imposed upon the assessee by the original adjudicating authority but have wrongly been done-away by the Commissioner (Appeals). The second issue stand decided in favour of the Department and against the assessee. The order under challenge to that extent is therefore, set aside. 18. In view of entire above discussions, the appeals of the assessee challenging the order of Commissioner (Appeals) as far as classification of the impugned product as concerned are hereby dismissed, whereas the appeal for the Department challenging the dropping of penalties upon the assessee is hereby allowed. 19. In view of entire above discussions, the order under challenge is upheld and partly rejected.