Commissioner of Central Excise, Chennai-IV v. Hindustan Lever Ltd.

6) While contrasting the two Entries, namely, Entry 3304.00 on the one hand and 3003.10 on the other, it can be discerned that if it is a product for care of the skin, then it would fall under Chapter Heading 3304.00 but if it is for the cure of skin disease then the product in-question would be medicament; meaning thereby the inquiry has to be whether it is a care product or a product meant for cure. Another aspect, while comparing the two Entries, which needs to be mentioned is that Entry 3304.00 specifically excludes medicaments. The obvious purpose is that if it is a medicament, it has to fall under Chapter 30. Because of this specific exclusion of medicament from Chapter Heading 3304.00, necessary consequence is that if the Revenue wants to cover it under 3304.00, the onus is on the Revenue to show that the particular product is not a medicament. At the same time, reading of this Entry along with chapter notes 2 and 5, already extracted above, would indicate that if pharmaceutical or antiseptic constituents contained in the product are only subsidiary in nature, or having subsidiary curative or prophylactic value, then that would not make the product as medicament. Again, certain preparation for skin like preparations for use in manicure or chiropody and barrier creams which give protection against skin irritants are still to be treated as preparations for care of the skin and would not be treated as curing the skin diseases. That is the clear intent of chapter Page 7 note 5 of Chapter 33. This is made further clear with the heading of chapter note no. 1(d) of Chapter 30 which specifically excludes preparation of Chapter 33 even if they have therapeutic or prophylactic properties. However, a conjoint reading of note 5 of Chapter 33 and note 1(d) of Chapter 30 needs us to clarify that in order to see as to whether a particular preparation falls under Chapter 33 or not (or gets excluded from Chapter 30), such therapeutic or prophylactic properties have to be subsidiary in nature. Further, medicaments are specifically defined in note 2 of Chapter 30 and the attributes of this definition are to be kept in mind in order to decide whether a particular product is a medicament or not. To put it in a nutshell, if a particular product is substantially for the care of skin and simply because it contains subsidiary pharmaceutical or antiseptic constituents or is having subsidiary curative or prophylactic value, it would not become medicament and would still qualify as the product for the care of the skin. There would be certain products which would be purely for the care of skin and certain other products would be clearly medicament and such cases may not pose any problem. The issue of determination as to whether a particular product falls in Chapter 33 or Chapter 30 would arise in those cases where certain products have the shades or qualities of both, namely, skin care as well as cure of skin diseases. In such cases, the necessary exercise requires to be Page 8 undertaken. Whenever product has curative or prophylactic value as well, but the Department still wants the said product to be brought under Chapter Heading 3304.00, onus is on the Department to show that it is not medicament. For this, it will have to demonstrate that curative or prophylactic value is only subsidiary in nature or that the product is covered by the description under chapter notes 5, namely, either it is chiropody or barrier cream to give protection against skin irritants. If the Department fails to discharge this onus, the product has to be treated as medicament and would be covered under Chapter 30.

7) In BPL Pharmaceuticals Ltd. v. CCE, Vadodra[1], this Court has laid down the principles which are to be kept in mind while deciding as to whether a particular product would fall under Chapter 30 or under competing Chapter 33. That was a case where the assessee was engaged in manufacture of Selenium Sulfide Lotion which contained 2.5% selenium sulfide W/V. The assessee was manufacturing this product under a loan licence from Abbott Laboratories in accordance with Abbott's specifications, raw materials, packing materials and quality control. It was sold under the private name 'Selsun'. The assessee in that case claimed that this product was used in the therapeutic quantity i.e. 2.5% W/V which was the only active ingredient and other ingredient

Page 9 merely served the purpose of a bare medium. It was also claimed that the product is manufactured under a drug licence issued by the Food and Drug Administration. The assessee, thus, wanted the product to be classified under heading 3003.19 as Pharmaceutical Product under Chapter 30. However, the Revenue took the plea that it would fall under sub-heading 3305.90 i.e. under Chapter 33. Thus, the respective contentions of the Department as well as the assessee were almost on the same lines as in the present case, namely, whether the said product was Pharmaceutical product or it was a cosmetic/toiletry preparation. The only difference was of sub-headings under those Chapters. This Court went into the essential characteristics of the product and found it that dominant use of the product was medicinal, as it was sold only on medical prescription as a medicine for treatment of disease known as Seborrhoeic Dermatitis, commonly known as Dandruff. It was manufactured under a Drug Licence; the Food and Drug Administration had certified it as a Drug; and the Drug Controller had categorically opined that Selenium Sulfide present in Selsun was in a therapeutic concentration etc. The relevant passages from the said judgment throwing light on these aspects are reproduced below:

27. We cannot ignore the above broad classification while considering the character of the product in question. Certainly, the product in question is not intended for cleansing, beautifying, promoting attractiveness or altering appearance. On the other hand it is intended to cure certain diseases as mentioned supra. xx xx xx

35. The learned counsel also placed reliance on a number of judgments to support his argument that in common and commercial parlance the product is known as medicine rather than cosmetic. As pointed out already and in support of that submission, affidavits and letters from chemists, doctors and customers are filed to show that the product is sold under prescription only in chemists’ shops unlike shampoos sold in any shop including provision shops. This conclusion, namely, that the product is understood in the common and commercial parlance as a patent and proprietary medicine was also found by the Central Board of Excise and Customs as early as in 1981 and accepted by the Excise authorities and in the absence of any new material on the side of the respondents there is no difficulty in accepting this contention without referring to decision cited by the counsel for the appellants.”

8) The aforesaid case draws and delineates a clear distinction between a 'cosmetic' and a 'drug'. It further lays down that essential character of the product in question is to be kept in mind for ascertaining whether it would be a cosmetic or a drug. Another relevant consideration, which is highlighted, is to see whether in common and commercial parlance the Page 12 product is known as medicine or cosmetic/skin care product. If the product is registered as medicament by the Drug Controller, that would be a strong factor to consider it as having curative or prophylactic value and it is not for the care of the skin per se.

9) This Court in Muller & Phipps (India) Ltd. v. Collector of Central Excise, Bombay-I[2] was called upon to decide as to whether prickly heat power, which was manufactured and marketed by the appellant/assessee therein under the brand name Johnson's Prickly Heat Powder and Phipps Processed Talc, was a medicament or was simply a product for care of the skin. The case put-forth by the assessee therein was that prickly heat power contains a range of medicines and is used only for the treatment and prevention of a skin ailment known as Milaria Rubra, commonly known as prickly heat. Prickly heat powders are manufactured under a Drug Licence issued under the Drug and Cosmetics Act, 1940 and have been treated as a drug and not a cosmetic by the authorities under the Drugs Act. On a reference made by the Finance Ministry, the Drug Controller of India has opined that due to the high content of 5% boric acid in a prickly heat powder, it would be classifiable as a drug or medicament and not as a cosmetic. From 1970 till 1985, prickly heat powders have been classified and assessed under Tariff Item 14E of the old tariff as 'Patent or Proprietary Medicines'. It 2004 (167) ELT 374 (SC) Page 13 was also contended that prickly heat power not only relieves prickly heat faster but actually helps prevent it. When a person perspires profusely the sweat stays on the skin too long and the person becomes a potential victim of prickly heat. This specially formulated prickly heat powder absorbs the sweat better and faster and prevents the build up of bacteria on the skin. Therefore, the person avoids getting a red rash, itching and burning. No person who requires ordinary talk for the purposes of beautifying her or himself would use the said products which contain the aforesaid active therapeutic ingredients. These products are known as, as already mentioned above, prickly heat/ Milaria Rubra. The sale of these products is much higher in hot summer months when this disease frequently erupts.

10) Accepting the aforesaid case set up by the assessee therein, the Court held that the said prickly heat power was a medicament for treatment of red rashes, itching and burning and not merely a powder for care of skin or for the purpose of beauty. The Court was greatly influenced by the fact that a department like Drug Controller and Central Sales Tax authorities had accepted the product in question as medicinal preparation. The discussion which is relevant for our purposes is contained in paras 11 and 12 of the said judgment and we reproduce the same hereinbelow: “11. But in the present case when throughout the meaning Page 14 given to products in question not only by the department itself but also by other departments like Drug Controller and Central Sales Tax authorities is that the product in question is a medicinal preparation should be accepted.

12. Applying the principles enunciated in BPL Pharmaceuticals Ltd. case and taking into consideration various circumstances as to the manner in which the goods had been treated on the earlier occasions by the department and the product having been utilised with reference to the commercial parlance and understanding, that it had been treated as a drug it would not cease to be one notwithstanding the fact that new tariff act has come into force. What is to be seen in such cases is when in the common parlance, for purposes of the Drug Act, for purposes of Sales Tax Act and in various findings recorded on earlier occasions by the department itself having been noticed, the conclusion is inevitable that the products in question must be treated as medicinal preparations.”

11) Interplay of Chapter 30 vis-a-vis Chapter 34 (which deals with detergent products) came up for consideration in Commissioner of Central Excise v. Wockhardt Life Sciences Limited[3]. In that case, the Court again emphasized 'common parlance test' or the 'commercial usage test' as the mot common test for determining the classification in such cases. After taking note of number of earlier decisions, this aspect was highlighted as under:

36. Moreover, the functional utility and predominant or primary usage of the commodity which is being classified must be taken into account, apart from the understanding in common parlance. [See O.K. Play (India) Ltd. v. CCE, (2005) 2 SCC 460, Alpine Industries v. CCE, (2003) 3 SCC 111, Sujanil Chemo Industries v. CCE & Customs, (2005) 4 SCC 189, ICPA Health Products (P) Ltd. v. CCE, (2004) 4 SCC 481, Puma Ayurvedic Herbal, (2006) 3 SCC 266, CCE v. Ishaan Research Lab (P) Ltd., (2008) 13 SCC 349, and CCE v. Uni Products India Ltd., (2009) 9 SCC 295].

37. A commodity cannot be classified in a residuary entry, in the presence of a specific entry, even if such specific entry requires the product to be understood in the technical sense (see Akbar Badrudin Giwani v. Collector of Customs, (1990) 2 SCC 203 and Commnr. Of Customs v. Page 16 G.C. Jain, (2011) 12 SCC 713). A residuary entry can be taken refuge of only in the absence of a specific entry; that is to say, the latter will always prevail over the former [see CCE v. Jayant Oil Mills (P) Ltd., (1989) 3 SCC 343, HPL Chemicals Ltd. v. CCE, (2006) 5 SCC 208, Western India Plywoods Ltd. v. Collector of Customs, (2005) 12 SCC 731, and CCE v. Carrier Aircon Ltd., (2006) 5 SCC 596].

38. In CCE v. Carrier Aircon Ltd., (2006) 5 SCC 596, this Court held: (SCC p. 601, para 14): “14...There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification, the relevant factors inter alia are statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to (sic produced), the end use to which the product is put to, cannot determine the classification of that product.”

39. In our view, as we have already stated, the combined factors that require to be taken note of for the purpose of the classification of the goods are the composition, the product literature, the label, the character of the product and the user to which the product is put. However, the miniscule quantity of the prophylactic ingredient is not a relevant factor. In the instant case, it is not in dispute that this is used by the surgeons for the purpose of cleaning or degerming their hands and scrubbing the surface of the skin of the patient before that portion is operated upon. The purpose is to prevent the infection or disease. Therefore, the product in question can be safely classified as a “medicament” which would fall under Chapter Sub-Heading 3003 which is a specific entry and not under Chapter Sub-Heading 3402.90 which is a residuary entry.”

12) It is required to be noted that in para 36 quoted above, the Court also laid importance to the functional utility and predominant or primary usage of the commodity that is to be taken into account while classifying the product. Another important aspect which needs to be noted is that the combined effect of the aforesaid factors is to be taken into consideration, Page 17 which would include composition, the product literature, the label, the character of the product and the user to which the product is put. It was also clarified that miniscule quantity of the prophylactic ingredient is not a relevant factor.

13) Discussion on this aspect was again revisited in the case of Commissioner of Central Excise, Mumbai IV v. Ciens Laboratories, Mumbai[4]. In that case, a moisturising cream sold under the brand name 'Moisturex' was the product and it was to be determined as to whether it was used simply for care of the skin or was intended for treating or curing dry skin complaints like fissure feet, dry scaly skin conditions, ichthyosis etc. and, therefore, was a medicament. The argument of the Revenue that this cream was used merely for softening the skin was rejected in the following manner:

15) After straitening the position in law, we now proceed to apply this principles to the present case.

16) As pointed out above, the product in question, Vaseline Intensive Care Heel Guard, is marketed as a solution for cracked heels and it is claimed that this solution is specially developed by the scientists at Vaseline Research. The composition of this product includes salicylic acid I.P. 1.5% w/w. lactic acid 8.0% w/w. Triclosan 0.1% w/w. Cream base – q.s. Salicylic acid is described as keratolytic substance having bacteriostalic and fungicidal properties used in the treatment of fungus infection of the skin. The Tribunal, while deciding that the aforesaid product is a medicament, pointed out that the product was formulated and essentially used for treatment of 'cracked heels', protection from further cracks in the human heels due to extreme climatic conditions and low humidity, constant exposure of feet to water and due to absence of shoe or other protection while walking. It also found that this product was manufactured under a drug licence as drug authorities had treated the same as a medicament. The Tribunal also found that the usage of this product was related to the effect of therapeutic or mitigating substance of prophylactic substances added. Thus, the effect of mitigation of an Page 20 external condition is primary effect and the effect of smoothing the skin was secondary in nature and, therefore, it was to be treated as a medicament and classified under Chapter 30.

17) Interestingly, all the aforesaid features of the product are accepted by the Department. However, only on the ground that salicylic acid contained in the product is marginal, the Department took the view that it was a subsidiary substance. Having regard to the exposition of law narrated above, this was clearly an erroneous approach on the part of the Revenue as percentage of the said substance is immaterial to label it as subsidiary.

18) Another more important factor which needs to be stated at this stage is that though the burden was on the Department, it did not lead any evidence or produce any material to discharge this onus. It simply went by the pamphlet of the product, that too selectively picking up that portion where the product was described as good for care of the skin as well, ignoring the fact that the same very literature gives more emphasis to the therapeutic value of the product. On the other hand, the assessee had filed various affidavits of the dealers as well as consumers in support of its plea that the product was essentially a medicament, which material was blissfully ignored by the Department. Page 21

19) From the aforesaid, we conclude that the decision of the Tribunal holding the product in question to be a medicament and, therefore, covered by Chapter Heading 3003.10 is perfectly justified and does not call for any interference.

20) The civil appeal is, accordingly, dismissed with no order as to costs .............................................. J. (A.K. SIKRI) ............................................. J. (ROHINTON FALI NARIMAN) NEW DELHI; AUGUST 25, 2015 Page 22 ITEM NO.1A COURT NO.13

SECTION III (FOR JUDGMENT) S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Civil Appeal No(s). 1941/2006 C.C.E., CHENNAI Appellant(s)

VERSUS

HINDUSTAN LEVER LTD. Respondent(s) Date: 25/08/2015 This appeal was called on for pronouncement of Judgment today. For Appellant(s) Mr. B. Krishna Prasad,Adv. For Respondent(s) Mr. Rajan Narain,Adv. Hon'ble Mr. Justice A.K.Sikri pronounced the Judgment of the Bench comprising His Lordship and Hon'ble Mr. Justice Rohinton Fali Nariman. The appeal is dismissed in terms of the signed non-reportable judgment. Pending application(s), if any, stand disposed of. We have pronounced the judgment today whereby dismissing the appeal of the Revenue. In the consequence, if any, amount is refunded to the respondent, the same shall be done in accordance with law. (Ashwani Thakur) (Renu Diwan)