Case: M/S.Naturalle Health Products (P)Ltd Vs. Collector Of Central Excise, Hyderabad

Appeal No. 2072 ofappellants - M/s. Naturalle Health Products (P) Limited, Hyderabad filed the classification list as required under Rule 173-B of the Central Excise Rules, 1944 with the Assistant Collector of Central Excise claiming classification of their goods under sub-heading 3003.30 read with erstwhile notification No. 32/89-CE dated 1.3.1989. The appellants were issued a loan licence to manufacture for sale of Ayurvedic drugs under the Drugs and Cosmetics Act, 1940 and the said loan licence was renewed from time to time. A show-cause notice was issued by the Assistant Collector of Central Excise calling upon the appellants to show cause why the said goods should not be classified as Patent or Proprietary Medicaments under sub-heading 3003.10 of Central Excise Tariff attracting excise duty at the rate of 15% ad valorem. The appellants replied to the show-cause notice and denied that the said goods are not Ayurvedic Medicaments and submitted that the grounds raised in the show-cause notice were not relevant for determining the classification of the goods. The Assistant Collector, after giving a personal hearing, vide Order dated 14.03.1991 held that the said goods are classifiable as Patent or Proprietary Medicaments under sub-heading 3003.10 of the Central Excise Tariff and accordingly is assessable to duty thereon. The appeal filed by the appellants before the Collector of Central Excise was dismissed on 21.2.1992 upholding the Order dated 14.3.1991 of the Assistant Collector. The appellants challenged the said Order by filing Writ Petition No. 4030 of 1992 in the High Court of Andhra Pradesh which was dismissed on 12.03.1993 on the ground of alternative remedy. The appellants filed an appeal to the CEGAT on the grounds set out in their memorandum of appeal. The CEGAT, New Delhi by its final order dated 17.10.1995 by a majority of 2:1 dismissed the appeal and upheld the classification of the said goods as Patent or Proprietary Medicaments under sub-heading 3003.10 instead of appellants claim as Ayurvedic medicine under sub-heading 3003.30. The Vice-President opined that the matter needs to be referred to a larger Bench keeping in view the importance of the issue involved in the industry as a whole. However, he agreed with the Member (Technical) on many points. Aggrieved by the said order, the appellants preferred the present appeal under Section 35L(B) of the Central Excise and Salt Act,Appeal No. 10744 ofThe appellants manufactured two medicaments known as Sloans Balm and Sloans Rub out of the ingredients which are mentioned in the texts on the Ayurvedic system of medicine and in accordance with the principles therein. According to the appellants, the issues in their appeal stand covered by the decisions in the cases of Richardson Hindustan Limited vs. Collector of Central Excise, 1988 (35) ELT 424 (T) as confirmed by this Court reported in 1989 (42) ELT A100 and the decision in the case of Shri Baidyanath Ayurved Bhawan Private Limited vs. Collector of Central Excise reported in 1991(51) and 1985 (22) ELT 844 which decisions have been confirmed by this Court in 1996(83) ELT 492. The appellants filed Exhibit B1-B3 list of authoritative texts in English, Hindu and Telugu on the Ayurvedic system of Medicament in which the ingredients of the two products are mentioned. They also filed Exhibits C1 and C2 Licences issued by the Director, Indian Medicines and Homeopathy, Hyderabad for the manufacture of Ayurvedic Medicine, namely, "Sloans Balm and Sloans Rub". The appellants filed classification list in respect of the said products classifying the same under Chapter sub-heading 3003.30 as Ayurvedic Medicine attracting nil rate of duty. Two Show-cause notices were issued upon the appellants to show cause as to why the said products should not be classified under Chapter sub-heading 3003.10 as patent or proprietary medicine attracting duty at 15% ad valorem. The appellants replied to the show-cause notice relying upon the Tribunals decision in the case of Richardson Hindustan Limited (supra). The Assistant Collector, however, classified both the products under Chapter sub-heading 3003.10 chargeable to duty at 15% ad valorem. The appellants filed two appeals to the Collector of Central Excise (Appeals) and filed before the Collector (Appeals) a report in respect of clinical trials conducted in respect of the said two products. The Collector of Central Excise remanded the cases to the Assistant Collector for de novo adjudication. The Assistant issued two revised show-cause notices. The appellants sent a reply to the show-cause notices. The Assistant Collector by two separate orders rejected the contentions of the appellants. Two appeals were filed before the Collector Central Excise (Appeals). The Collector of Central Excise allowed the appeals and set aside both the orders of the Assistant Collector and upheld that the products are ayurvedic medicines and are classifiable under Chapter heading 3003.30. Aggrieved by the said order, the Collector of Central Excise filed an appeal to the CEGAT, which by its order allowed the appeal. Aggrieved by the said decision of the Tribunal, the present appeal has been preferred by the appellants- Akin Laboratories Ltd.In the two appeals, the classification of the medicines manufactured by them are in dispute. According to the appellants in both the appeals, the goods manufactured by them are classifiable under Chapter sub-heading 3003.30 (heading 30.03). According to the Revenue, the goods manufactured by both the appellants are to be classified under Chapter sub-heading 3003.10 chargeable to duty at 15% ad

Court's reasoning:
30. It isseen from the above circular that the Government have accepted two tests for determining the classification of the products claimed to be the Ayurvedic medicines and the statutory authorities were directed to keep this in view while deciding similar pending assessments of the type indicated in the circular and be finalised on the above basis. It is also seen from the circular that the aforesaid two tests have been upheld by this Court in the case of C.A.No. 2127 of 1998 - C.C.E. Hyderabad, vs. M/s. Richardson Ltd. Order dated 10.1.1999.Thus, it is seen that the CEGATs decision and the circular of the Board does not lay down any tests regarding the formulae of manufacture as per authoritative Ayurvedic textalready noticed, the Government have issued a circular on the basis of the representations received from the manufacturers of Ayurvedic preparations and the doubts in regard to the question whether the products claimed to be Ayurvedic medicines, are, in fact, so and whether they would merit classification under sub-heading 3003.30 of the Schedule to the Central Excise Tariff Act, 1985. The Government of India after examining the matter in the light of the parameters prescribed by the Tribunal in their Order passed in M/s. Richardson Hindustan Ltd. vs. C.C.E., Hyderabad which has been upheld by this Court in C.A.No. 2127 of 1998 have issued the circular clarifying the correct position in regard to the classification and reiterating the said two test. The argument of Mr. Raju Ramachandran, therefore, has no force and is liable to be rejected.From the above, it is clear that a patent Ayuvedic medicament could be one where all the ingredients find mention in the authoritative text books on Ayurveda, though the formula for preparation of the medicament is not in accordance with the formula given in those text books. It is not in dispute that all the ingredients are mentioned in the authoritative text books on Ayurveda. In fact, in the case of appellant in Civil Appeal No. 2072/1996, the products satisfy the definition in Section 2(h) of Drugs & Cosmetics Act as patent or proprietary Ayurvedic medicines also. Further, the manufacture of this medicament is being done under the Ayurvedic drug licence issued by competent authority.We are also of the opinion that when there is no definition of any kind in the relevant taxing statute, the articles enumerated in the tariff schedules must be construed as far as possible in their ordinary or popular sense, that is, how the common man and persons dealing with it understand it. If the customers and the practitioners in Ayurvedic medicine, the dealers and the licensing officials treat the products in question as Ayurvedic medicines and not as Allopathic medicines, that fact gives an indication that they are exclusively ayurvedic medicines or that they are used in Ayurvedic system of medicine, though it is a patented medicine. This is especially so when all the ingredients used as mentioned in the authoritative books on Ayurveda. As rightly contended by the counsel for the appellants, the essential character of the medicine and the primary function of the medicine is derived from the active ingredients contained therein and it has certainly a bearing on the determination of classification under the Central Excise Act. As held in Amruthanjan case, the mere fact that the ingredients are purified or added with some preservatives does not really alter their character.In our view, the Tribunal has completely misdirected itself in law and on facts by being influenced by the unimportant factors like the mention of similar names of goods in Martindale and patent of the same in USA and failed to take into account the relevant factors like the issue of licence to manufacture Ayurvedic drug under the Drugs Act, the popular understanding of the products, the law laid down by this Court in the cases referred to above and the circular issued by the Government of India in the light of Richardson Hindustan case. The Tribunal placed undue reliance on the definition of Ayurvedic medicament in Section 2(a) of the Drugs Act. In our opinion, all the products ought to be classified as Ayurvedic medicaments under sub-heading 3003.30 of the Central Excise Tariff.