In Commissioner of Central Excise, Delhi v. Ishaan Research Lab (P) Ltd. (Supra), the issue before this Court was whether the products manufactured by the assessee would fall under Sub-Heading 3003.30 as medicament or under Chapter 33 as cosmetics. The assessee contended that each of the products was having ayurvedic medicinal herbs in it and even the labels on these products claim specifically the medicinal properties of the product. The assessee further urged that even if the user of product leads to improvement in appearance of a person that by itself cannot bring it into the category of “cosmetics” if otherwise the product is having a medicinal value and is marketed as such. According to the revenue, all these products were understood to be the “cosmetics” in common parlance and not actually the “ayurvedic medicines” for various reasons, the said products should have been held to be covered under Chapter 33. This Court after inspecting the labels of the product has held that the assessee had claimed in each of the label regarding its medicinal properties and, the product is not a cosmetic. This Court also observed that the common parlance test is not “be all and end all”, and held that the miniscule percentage used is also not a deciding factor. This Court concluded that the products in question are medicinal products and, therefore, are covered by Chapter 30 and not under Chapter 33. That case would not assist revenue as this Court after taking into account the labels on the products observed that these products have medicinal ingredients and are marketed as ayurvedic medicines not cosmetics, however it incidentally improve the appearance, and also held that the common parlance test by itself is not conclusive.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.783-803 OF 2004
COMMNR. OF CENTRAL EXCISE
VERSUS
M/S.WOCKHARDT LIFE SCIENCES LTD.
ORDER
1. These appeals are directed against the judgment and order passed by the Customs, Excise and Gold (Control) Appellate Tribunal, West Zonal Bench at Mumbai in Appeal Nos.E-1252-1271/02-MUM and E/3630-01-MUM dated 18.6.2003. By the impugned judgment and order, the Tribunal has reversed the findings and conclusions reached both by the Adjudicating Authority and the appellate authority.
2. The primary issue that falls for our consideration in these appeals is the classification of two products viz. ‘Povidone Iodine Cleansing Solution USP and Wokadine Surgical Scrub for the purpose of levy of duty under the provisions of Central Excise Tariff Act, 1985 (‘The Tariff Act’ for short).
3. The assessee is the manufacturer of Povidone Iodine Cleansing Solution USP and Wokadine Surgical Scrub. These two products have identical composition. The only difference between these two products is that Wokadine is a branded product whereas Povidone Iodine Cleansing Solution is a generic name. The assessees’ claim before the authorities and also before the Tribunal is that the aforesaid products are medicaments and, therefore, require to be classified under Chapter sub-heading 3003 of the Tariff Act, 1985, whereas the revenue’s stand was that the products in question are detergents and, therefore, to be classified under chapter sub-heading 3402.90.
4. The Adjudicating Authority had issued nearly 20 show cause notices to the assessee for the period commencing from September, 1992 to December, 1999. In the show cause notices, it is alleged that the assessee has mis¬classified the product under chapter sub-heading 3003.10/20, instead of chapter sub-heading 3402.90 of the Act with an intent to evade the payment of the duty by suppressing vital facts regarding usage of the product and the same amounts to contravention of Rule 1 73B of the Central Excise Rules, 1944 (for short “Rules”). It is further stated in the show cause notices that the products in question are mainly used for the purpose of detergents rather than medicaments. Accordingly, the assessee was directed to show cause why the products in question should not be classified under chapter sub-heading 3402.90 and why the duty should not be demanded under Rule 9(2) read with proviso to section 1 1A (1) of the Central Excise Act, 1944 (for Short “the Act of 1944”) along with interest thereon under Section 1 1AB of the Act of 1944 and penalty under Section 11 AC of the Act of 1944 read with Rule 173 Q of the Rules for short payment of excise duty.
5. After receipt of the show cause notices, the assessee had filed its detailed reply, inter alia, bringing to the notice of the adjudicating authority the contents of the products in question, their labeling on the commodity and the user to which the products are put. The assessee had also relied on the various shades of meaning that is attributed to the medicaments, in particular the expressions ‘therapeutic and prophylactic’ and had contended that those medicines are used for external treatment of a human-being. The assessee had also placed reliance on the Indian Pharmacopoeia, the United States Pharmacopoeia and the International Pharmacopoeia. The assessee had also contended that the ‘Neutronix and Superamide’ are other two products with which Povidone Iodine is mixed to contend that they are in the nature of vehiculars for the spreading of the medicament.
6. After receipt of the reply so filed, the adjudicating authority has proceeded to conclude, that, since the contents of Neutronix and Superamide are more than the medicament, namely; Povidone Iodine, the product in question requires to be classified as detergent and thereby, would fall under chapter sub-heading 3402.90 and it has also observed in its order that the product in question is primarily used as a cleansing solution and, therefore, cannot fall in the description of the medicament. Accordingly, had confirmed the show cause notices issued earlier and, thereby, had directed the assessee to pay the difference in duty and also the penalty.
7. Aggrieved by the aforesaid order passed by the adjudicating authority, the assessee had carried the matter in appeal before the First Appellate Authority, who by his order dated 29.11.2001 had sustained the order passed by the adjudicating authority. According to the appellate authority, since the product in question is mainly used as a cleansing solution, the proper classification would be as a detergent and would fall under tariff entry 3402.90.
8. The assessee, being aggrieved by the order so passed, had carried the matter in appeal before the Tribunal. Even before the Tribunal, the assessee had produced copious material in the form of product literature and also the dictionary meaning of the expression “medicaments”. The Tribunal, while appreciating the rival contentions of the revenue and the assessee, has considered the wide range of literature on the above products, their composition and user and accordingly has concluded that the ‘Povidone Iodine Cleansing Solution USP’ is used as an antiseptic and disinfectant. The Tribunal has further observed that the main contention of the revenue is that the addition of surface active agent and other substances would result in a product in which ‘Prophylactic’ qualities of Povidone Iodine would become subsidiary to its primary use as a washing solution. The Tribunal, while rejecting the revenue’s contentions and accepting the assesse’s stand, has observed that the presence of the surface active agent and other substances is only to ensure appropriate dispersible to the product and not to render its use as a washing or cleansing preparation. The Tribunal, while relying on the Affidavit dated 9.8.2002 filed by the Senior President (Marketing) of the assessee in order to show sale pattern of the goods, has observed that the product is not used as a general cleansing solution similar to medicated soaps used by ordinary persons, but it is only used in places where practice of surgery and medicine is being carried out. The Tribunal has further observed that the products are packed in opaque brown thick plastic bottles with plain labels, unlike, soaps and other products which are packed in bright attractive colors as used by ordinary household consumers. It has also observed that the labeling of the product shows that it is intended for preoperative use by the surgeon and his team or on the patient. The Tribunal after referring to the Explanatory Notes under heading 30.04 of the Harmonized System of Nomenclature relating to medicament, which covers Povidone Iodine as Polyvinyl Povidone Iodine and, the test laid down for classification of the product as medicament: has concluded that the product is purchased primarily for its therapeutic or prophylactic qualities and not for its qualities as organic surface active preparation. In conclusion, the Tribunal, while allowing the appeal, has held that the product in question is, primarily intended and also actually, used for its antiseptic properties, therefore, it is classifiable as medicament under Chapter 30 of the Schedule to the Act. It is the correctness or otherwise of the findings and conclusions reached by the Tribunal is the subject matter of these appeals before us.
9. We have heard Shri R.P. Bhatt, learned senior counsel appearing for the Revenue and Shri Ajay Aggarwal, learned counsel appearing for the Assessee. Both the learned counsel have dealt with the matter in detail and have also relied upon some of the decisions of this Court to buttress their submissions.
10. Shri R.P. Bhatt, learned senior counsel for revenue would submit that the product in dispute, namely; Povidone Iodine Solution or its patent and proprietary equivalent Wokadine surgical scrub, contains only 80 kg of Povidone Iodine and 250 kg of Neutronix in 1000 litres of demineralised water and is essentially used as a medicated detergent. He would contend that the said product predominantly contain surface active agents which are primarily used as a medicated cleaning agent for removal of dirt, bacteria, fungi etc. In this regard, he would further submit that the said product is admittedly used as an antiseptic agent for washing hands of surgeons and is also applied on the skin of the patients before operation. He would further contend that the said product is not a medicament in terms of Chapter Note 2(i) of the Tariff Act as it neither has “Prophylactic” nor “Therapeutic” usage. He would contend that in order to qualify as a medicament, the goods must be capable of curing or preventing some disease or ailment. Therefore the said products cannot be classified under Chapter Heading 3003 of Tariff Act.
11. Shri Bhatt would further submit that Chapter Note 1(e) of Chapter 30 clearly excludes soap or other products of Chapter 34, containing added medicament, from their classification under Chapter 30. He would, therefore, submit that the product is more appropriately classifiable under the Chapter 3402 as an organic surface active agent/preparation, or cleansing preparation, irrespective of the fact that it contains certain percentage of medicaments. In other words, he would contend that even if said products have added prophylactic effectiveness, they would be considered as cleansing agent and not medicaments for the purpose of classification in view of their primary and essential use which is cleansing and their prophylactic or therapeutic quality, by virtue of added medicament, is secondary in nature. He has placed reliance on some decisions of this Court in support of his submission that it is the primary functional properties and composition of the goods that would decide its classification under particular Chapter. We will refer to the decisions on which reliance is placed by learned counsel at an appropriate time.
12. Shri Ajay Aggarwal, learned counsel for the assessee, has meticulously taken us through the judgment of the Tribunal and supported its reasoning. He contended that the revenue in their show cause notices has admitted that the products in issue are antiseptic. He further submits that the products are medicament in which some carriers are added and therefore, it will fall under Chapter Sub-heading 3003 and not under Chapter 34.
13. In order to resolve the controversy that is raised before us, we need to notice first the entries which the revenue and the assessee relies upon to drive home their point of view. The Tariff Items under Chapter sub-heading 3003 and chapter sub-heading 3402.90, at the relevant time, are extracted. The same reads as under:
