Case Law Details
Brief of the case
In the case of Commissioner Of Central Excise, Hyderabad Vs. M/S Sarvotham Care Limited, it was held that wherein the shampoo having medicinal properties and the dominant use of shampoo was medicinal. By considering the essential characteristics of the product and that as it was sold only on medical prescription as a medicine for treatment of disease, it cannot be classified any other general/ordinary shampoo.
Brief Facts of the Case
Respondent herein is the manufacture of ‘Ketoconazole Shampoo’ and ‘Nizral Shampoo’ which are sold in the bottles of 50 ml and 5 ml. Dispute is about the classification of the aforesaid product for the purposes of payment of central excise duty. The respondent had filed the declaration classifying the said product under CSH 3003.10 of the Central Excise Tariff Act, 1985 on the ground that it is basically a medicine. However, as per the appellant/Revenue, the appropriate classification of this product is under CSH 3305.99 as it perceives the product as ‘preparation for use on on hair’.
Chapter 30 under which CSH 3003.10 falls deals with Pharmaceuticals products and the aforesaid entry thereof reads as under:
“Patent or proprietary medicaments, other than those medicaments which are exclusively Ayurvedic, Unani, Siddha, Homoeopathic or Bio-chemic.”
On the other hand, Chapter 33 deals with the products which fall under the nomenclature ‘Essential Oils and Resinoids; Perfumery, Cosmetic or Toilet Preparation’.
The entry CSH 3305.99 thereof is as under:
“Preparations for use on the hair
-Perfumed hair oils
-Other :
–Hair fixer
–Other”
It becomes clear from the reading of the aforesaid two entries that the respondent claims that the product in question belongs to the specie of Pharmaceutical products i.e. Medicinal product and is covered by the expression ‘patent or proprietary medicaments’. On the other hand, the case of the Revenue is that it is simply a shampoo which is to be used for cleaning hair and is nothing but a ‘toilet preparation’. If the product is to be treated as Pharmaceutical product covered by Entry 3003.10, excise duty prescribed is 16%. The excise duty of goods covered by Entry 3305.99 is 24%.
The Revenue issued show cause notice demanding differential duty. After the reply was given by the respondent along with the material placed by it before the Adjudicating Authority, the Adjudicating Authority passed the Order-in-Original dated 18.11.1999 for the period December, 1998 to April, 1999 confirming the differential duty of under Section 4A read with Section 11A of the Central Excise Act, 1944. In appeal preferred by the respondent, the aforesaid demand was upheld by the Commissioner (Appeals) vide order in original dated 13.02.2002, resulting in the dismissal of the appeal of the respondent.
Next level appeal filed by the respondent before the CESTAT, Bangalore, however, yielded results favourable to the respondent, as this appeal is allowed by the Tribunal vide final Orders dated 18.01.2005 with consequential reliefs, if any. It was held that there is enormous evidence to show that the product in question was used for treatment of several disorders/diseases and it has also been sold by Chemists under the prescription issued by the Registered Medical Practitioners or the Hospitals. Therefore, it is a medicinal product and not simply a shampoo for use of hair. Naturally, the Revenue is not satisfied with the aforesaid view of the Tribunal and, therefore, has preferred the instant appeal in this Court.
Contentions of the Revenue
The revenue referred to the orders passed by the Commissioner (Appeals) wherein findings in respect of this product are arrived at after discussing the ingredients/properties of the said product. On that basis, it was argued (as reasoned by the Commissioner (Appeals) as well) that there was no dispute raised even by the assessee that the product ‘Nizral’ was basically a shampoo preparation. Even if it was coupled with therapeutic or prophylactic properties imparted to it with the presence of an anti-fungal agent known as ‘Ketoconazole’, this would not change the basic character of The product viz. shampoo, which is meant for the use of cleaning hair. It was argued that such a classification was in conformity with Chapter Note (6) to Chapter 33 which specified ‘shampoos’ whether or not containing soap or organic surface active agent. The revenue further submitted that as per the packings, labels, leaflet literature, it was apparent that the product in question was held out commercially as having subsidiary curative or prophylactic value with main purpose and the main purpose of the produce was cleaning of scalp and hair. Therefore, Chapter Note (2) of Chapter 33 also got attracted as per which how the product is explained and marketed by the manufacturer itself becomes the determining factor. It was also submitted that HSC of Chapter 33 also includes not only shampoos containing soap and OSAC, but ‘other shampoos’ as well which would imply that those products which are essentially shampoos would still be treated as shampoos even if the subsidiary benefits of using such a shampoo would be curative in nature. On that basis, submission was that presence of ‘Ketoconazole’ which was hardly 2% W/V in the said shampoo making it anti-fungal agent, would not change the pre-dominant character of the product as shampoo and turn it into a patent or proprietary medicament classifiable under Chapter sub-heading 3003.10.
It was further argued that merely because the respondent was manufacturing this product on loan/licence basis from Johnson & Johnson Ltd., with the express permission/ licence of Drug Controller of India and Food & Drug Administration, would be of no avail to the respondent. Likewise, even if it was sold by the Chemist would be of no significance as the claim of the respondent that it could be sold only on specific prescription of the registered medical practitioner was clearly wrong as the respondent was widely publishing the product through advertisements clearly conveying to the users that the same was available with leading Chemists.
The Revenue relied on the judgment in the case of Collector of Central Excise, Shillong v. Wood Crafts Products Ltd.[1], wherein this Court emphasized that the criteria/classification laid down by Harmonised System Committee (HSC), established under Article 6 of the International Convention on Harmonised System, is to be acted upon while deciding the cases of classification inasmuch as it was an expert body which was assigned the main function of preparing explanatory notes, classification opinions or other advice as guides to the interpretation of the Harmonised System and to secure uniformity in the interpretation and application of the Harmonised System.
Revenue also referred to certain decisions of the Tribunals wherein such shampoos with 2% anti-fungal agents were still treated as shampoos and not a medicinal product. Notably, among these decisions are (i) Amit Ayurvedic & Cosmetic Products v. Commissioner[3] and (ii) CCE Vapi v. Beta Cosmetics[4].
Contentions of the Assessee
The respondent/assessee stoutly refuted the aforesaid arguments of the Revenue laying great emphasis on the plea that the product in question was basically a medicine which was pre-dominant use. In order to demonstrate that the product ‘Nizral Shampoo’ could only be used as medicine and not like any other general/ordinary shampoo, and pointed out the following features which stood established on record in the form of plethora of materials/evidence placed before the authorities below:
(i) The medicinal properties of the product were adequately emphasized and the product was sold by the assessee on that basis in the market.
(ii) There was a warning to the patients about the adverse reaction of the use of this shampoo, if used for a long period.
(iii) The product was essentially described as ‘medicine’ only and not as a shampoo meant for cleaning the hair.
(iv) The literature along with the product sold specifically stated the diseases which could be cured by the use of this shampoo.
(v) Limited period use of the product was suggested, unlike a normal shampoo which could be used regularly for infinite period.
The Assessee contended that matter needed to be examined keeping in view the aforesaid essential attributes/characteristics of the product and in this context, the fact that the product was held out by the respondent to the public at large as medicine; availability of the said product with the Chemists; sale of the product on the prescription of a Doctor; assume much relevancy in treating the product as medicament having therapeutic value and not as ordinary shampoo.
The assessee also pointed out that presence of 2% ‘Ketoconazole’ in the said shampoo could not be treated as something insignificant. On the contrary, it was the maximum percentage required to treat the dandruff inasmuch as presence of more ‘Ketoconazole’ could be harmful. It was submitted that if it is less than that, then it may lose its therapeutic value and for this reason, in those shampoos where the assessee was earlier
putting 1% to 1½% of ‘Ketoconazole’, the assessee was itself treating the said product as shampoo only and not as Pharmaceutical product. The assessee relied on the judgment of this Court in B.P.L. Pharmaceuticals Ltd. v. CCE, Vadodra[5] squarely covered the issue involved in this case.
Held By Hon’ble Supreme Court of India
The Hon’ble Court stated that the manufacturer has given clear warning and precautions for the use of this product which are follows:
“Warnings and Precautions – To prevent a rebound effect after stopping a prolonged treatment withtopical corticosteroid it is recommended to continue applying the topical corticosteroid together with Nizral Shampoo 2% and to subsequently and gradually withdraw the steroid therapy over a period of 2-3 weeks. Seborrhoeic dermatitis and dandruff are often associated with increased hair shedding, and this has also been reported although rarely, with the use of Nizral Shampoo 2%.”
It is further mentioned as to how the treatment should be given to a person suffering from various kinds of dandruffs:
“Treatment:
-Pityriasis versicolor; once daily for maximum 5 days.
-Seborrhoeic dermatitis and pityriasis capitis; twice weekly for 2 to 4 weeks.
Prophylaxis:
-Pityriasis versicolor: once daily for a maximum 3 days during a single treatment course before the summer.
-Seborrhoeic dermatitis and pityriasis capitis: once every one or two weeks.”
Thus, not only limited period use is stated, another important feature that appears in the literature supplied by the respondent is the information for the ‘patient’, describing the user of the product as a ‘patient’. It is as under:
“Patient information
Ketoconazole Shampoo 2%
Nizral Shampoo 2%
You have been advised by your doctor to use this shampoo to treat dandruff. This leaflet gives you some information that you should keep in mine while using Nizral Shampoo. It also gives some background information on dandruff, which is important for you to deal with it. Please read this leaflet carefully to get the best results from this treatment. Remember that it cannot answer all your questions, and that you should check with your doctor for any further information you may require.”
The use is suggested only on the advice of a Doctor and there is a suggestion that Doctor should be consulted for any further information. The respondent has also provided the literature/material showing that dandruff is a disorder which affects the hairy scalp. It is generally triggered by a single celled organism which is kind of fungus, with scientific name ‘Pityrosporum Ovale’. For treatment of this disease, Nizral Shampoo 2% (i.e. shampoo containing 2% ‘Ketoconazole’) is shown as ‘a new medicine’ use whereof cures clears a dandruff. It is suggested that it should be used once a week and on other days, normal shampoos may be used which clearly shows that ‘Nizral Shampoo’ is to be used like a medicine, unlike other normal Shampoos.
The Hon’ble Court found that in order to show that the product was used only as a medicament for curing dandruff and not for using the same for the purpose of cleaning hair, the assessee filed affidavits of various Doctors.
Having regard to the aforesaid material on record, the Hon’ble court stated that the case is directly covered by the ratio of this Court’s judgment in B.P.L. Pharmaceuticals Ltd. (supra). 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 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 aforesaid judgment not only provides a complete answer to the issue at hand, it also suitably answers the various arguments of the Revenue and the manner in which those arguments were rebutted by the Court in the said case. The Tribunal has summed up the entire legal proposition in para 5 of its judgment with which we entirely agree. This para reads as under:
“5. We have carefully considered the submissions made by the learned Counsel and the learned DR. We find from the extracted literature that the item comprises of 20 mg Ketoconazole in one ml and the pamphlet clearly indicates that it is for the use only of a Registered Medical Practitioner or a Hospital or a Laboratory. The pamphlet claims that the item is used for treatment and prophlaxis of infections in which the yeast pityrosporum is involved such as pityriasis versicolor (localized), seborrhoeic dermatitis and pityriasis capitis(dandruff). The procedure for treatment and the adverse reactions on such treatment due to overdose is also stated in the pamphlet. The Apex court, in the case of Muller & Phipps (India) Ltd. v. CCE, 2004 (167) ELT 347 (SC) has clearly held that once the item has been manufactured under a Drug licence and the Department has treated the item as a Drug, it would not cease to be one notwithstanding the fact that new Tariff Act has come into force. The Apex Court again held in the case of CCE v. Pandit D.P. Sharma, 2003 (154) ELT 324 (SC) that once in the common parlance the item is treated as a medicament and manufactured under drug licence and the evidence is produced by the party with regard to the item being a medicament, then it should be treated as such and should not treat ‘Himtaj Oil’ as ‘perfumed hair oil’. The Apex Court’s ruling in the case of B.P.L. Pharmaceuticals Ltd. v. CCE, 1995 (77) ELT 485 has held that ‘Selsun’ and anti-dandruff preparation containing 2.5% selenium sulphide which is full therapeutic limit permissible as per pharmacopoeia and manufactured under Drug Licence and certified by Food and Drugs Administration as a medicine, and the same is put up as a medicine to be used under Doctor’s advise in accompanying literature and sold through chemist shops under doctor’s prescription should be considered as a medicament under Sub-Heading 3003.19 of CE Act and not as a cosmetics. In the present case also, same evidence is relied which are identical to the facts of B.P.L. Pharmaceuticals Ltd. The item also acts as an anti-dandruff preparation with 2% Ketoconazole. The same is sold on doctor’s prescription and by the chemists and understood as a medicine in common parlance as per the enormous literature and affidavit produced. Therefore, there was no necessity for the Commissioner to have distinguished this Apex Court judgment which applies on all fours to the facts of the present case. We also find that the judgment of the Apex Court rendered in the case of CCE v. Vicco Laboratories, 2005 (179) ELT 17 (SC) also applies to the facts of the case. In this case, the Apex Court has clearly noted that the common parlance test should be applied for determining whether a product is classificable as a pharmaceutical product under Chapter 30 of CET Act or as a cosmetics under Chapter 33 ibid as laid down by the Supreme Court in the case of Shree Baidyanath Ayurved Bhavan Ltd., 1996 (83) ELT 492 (SC). As there is enormous evidence produced by the appellants with regard to the use of Ketoconazole Shampoo for treatment of several disorders and diseases mentioned in the pamphlet and the same is sold by a chemist under a prescription issued by a Registered medical Practitioner or a Hospital or a Laboratory, therefore, the appeal is required to be allowed with consequential relief, if any.”
In view of the above, the appeal is dismissed.
