Holding

The product contains perfume as an ingredient and is therefore a perfumed hair oil under SH 3305.10; the Tribunal's classification is upheld.

Summary

The respondent, Zandu Pharmaceutical Works Ltd., manufactured a hair oil called "Alma Lio" and initially classified it as an Ayurvedic medicament under SH 3003.39 of the Central Excise Tariff Act, 1985. The Commissioner of Central Excise issued a show‑cause notice alleging that the product should be classified as a cosmetic (SH 3305.99) and imposed a short‑payment demand and penalty. The assessing authority and the Commissioner (Appeals) upheld the cosmetic classification, but the Central Excise & Service Tax Appellate Tribunal re‑classified the product as a perfumed hair oil under SH 3305.10, remitting the matter for recomputation of duty. The Commissioner appealed to the Supreme Court, contending that the Tribunal erred because the manufacturing process did not disclose perfume. The Court held that perfume was indeed added as an ingredient, making the product a perfumed hair oil, and therefore upheld the Tribunal's classification, dismissing the appeal without ordering costs.

Issues considered

Whether the product "Alma Lio" qualifies as a perfumed hair oil under SH 3305.10 of the Central Excise Tariff Act, 1985.
Whether the presence of Ayurvedic ingredients and claimed therapeutic benefits renders the product an Ayurvedic medicament under SH 3003.39.
Whether the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 is applicable.

Legislation cited

Central Excise Act, 1944s. Section 11AB, s. Section 4A
Central Excise Rules, 1944s. Rule 173Q, s. Rule 9(2)
Central Excise Tariff Act, 1985s. SH 3003.39, s. SH 3305.10, s. SH 3305.99

Subjects

central exciseproduct classificationperfumed hair oilAyurvedic medicamenttariff headingspenaltyburden of proof

Judgment

COMMISSIONER OF CENTRAL EXCISE, SURAT
v.
A
MIS. ZANDU PHARMACEUTICAL WORKS LTD.

NOVEMBER 10, 2006

[S.B. SINHA AND DALVEER BHANDARI, JJ.] B

Central Excise Tariff Act, 1985: SH 3003.39, 3305.10 and 3305.99-
Hair oil manufactured by assessee containing perfame-Held: classified as
perfumed hair oil under SH: 3305. I 0.
Respondent-assessee had been manufacturing hair oil under the brand C
name of'Alma Iio' and classifying it under CETA: SH: 3003.39 as Ayurvedic
Medicament. The Department sought its classification under SH: 3305.99.
Before the assessing authority, assessee disclosed the ingredients and
manufacturing process of the p1oduct. Assessing Authority classified the
product under H: 3305.99 as cosmetic product. Aggrieved assessee filed D
appeal, which was dismissed. On further appeal, Tribunal classified the product
under SH: 3305.10 as perfumed hair oil. Aggrieved by the order, Department
filed the present appeal.
Dismissing the appeal, the Court
HELD: No appeal has been filed by assessee against the order of the E
Tribunal refusing to classify the product of assessee as an Ayurvedic
Medicament. Therefore, only contention is whether the product of assessee
is a 'perfumed hair oil'. Indisputably, perfume is added. Addition of perfume
is a part of manufacturing process. It is one of the ingredients of the product.
Therefore without going into the question as to whether the product of assessee F
has any therapeutic value or not, the judgment of the Tribunal is upheld.
11063-D-F)
Commissioner of Central Excise, Calcutta v. Sharma Chemical Works,
12003) 5 SCC 60; Alpine Industries v. Collector of Central Excise, New Delhi,
(2003) 152 E.L.T.16 (SC), Commissioner of Central Excise, Cochin v. Kera/a
Ayurvedic Pharmacy Ltd., (2005) 187 E.L.T.29 and Puma Ayurvedic Herbal G
(P.) Ltd. v. Commissioner, Central Excise, Nagpur, (2006) 196 E.L.T.3 (SC),
referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No.7849 of2004.

From the final Order No.387/2004-B dated 26-5-2004 of the Customs,
1057 II
1058 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A Excise & Service Tax Appellate Tribunal, New Delhi in Appeal No.E/20I4/03-
NB (8).

Mohan Kumar Parasaran, A.S.G., Ms. Sandhya Goswami and B. Krishna
Prasad, for the Appellant.

B Madhav Rao, Alok Yadav and Rajesh Kumar, for the Respondent.

The Judgment of the Court was delivered by

S.B. SINHA, J: Respondent herein manufacture hair oil under the brand
name of"Alma Lio". It was classified under SH No.3003.39 of the Schedule
C appended to the Central Excise Tariff Act, I985 (for short, 'the 1985 Act').
The said entry provides for excise duty at the rate of 8% ad valorem being
Ayurvedic Medicament. A show cause notice was issued as to why the said
product shall not be classified under SH No.3305.99 being a cosmetic product
attracting excise duty at the rate of 30% ad valorem. It was alleged that by
D wrong classification of its product there had been a short payment of central
excise duty amounting to Rs. I I, 12, 129/-. A demand of the said amount in
terms of Rule 9(2) of the Central Excise Rules, 1944 (for short, 'the Rules')
read wi~h section I IA of the Central Excise Act, 1944 (for short, 'the I944
Act') was issued. A penal action in terms of rule 173-Q of Rules was also
proposed: Cause having been shown by Respondent, the matter was heard
E by the Deputy Commissioner, who opined that the product was classifiable
under SH 3305.99 of the 1985 Act. Respondent was directed to make good the
short payment. A penalty of Rs.l l,12,129/- was also imposed upon it
together with interest. An o::der for recovery of interest under section 11 AB
of the 1944 Act was also passed. The appea: preferred by Respondent before
the Commissioner (Appeals) was dismissed by an order dated 17.4.2003. He,
F however, opined that the product being not perfumed and being hair tonic,
and as such different from hair oil, could be classified under Chapter Heading
No.3305.99 falling in the residuary group. He also directed valuation of the
goods to be done under Section 4A of the 1944 Act. On a further appeal
made by Respondent before the Tribunal, the product was held to be
G classifiable under SH-3305. IC as 'perfumed hair oil'. The matter was remanded
to the Adjudicating Authority for recomputing the duty of excise payable.

Appellant is, thus, before us.

Mr. Mohan Parasharan, the learned Additional Solicitor General oflndia,
H appearing on behalf of Appellant, submitted that the Tribunal went wrong in
COMMNR. OF CENTRAL EXCISE, SURAT"· ZANOU PHARMACEUTICAL WORKS LTD. [S.B. SINHA. J.Jl 059

classifying the product of Respondent as perfumed hair oil although it never A
disclosed the manufacturing process involved therein.

Mr. Madhav Rao, the learned counsel appearing on behalf of Respondent,
on the other hand, supported the judgment.

Before the assessing authority, Respondent disclosed the manufacturing B
process undertaken by it, which is as under :

"(a) Aqueous extract of Mehandi, Bhringraj, Amla, Doodhi Seeds,
Renukbeej, Ambagotti, is prepared and concentrated.
(b) Coconut oil in hearted with Nagarevel Pan.
(c) Concentrated aqueous extract is added to coconut oil and boiled. C
(d) Milk solution is added to hot Coconut oil and boiled. Then kapur
kachli powder is added.
(e) Bulk is cooled and fragrance is added. It is kept for 7 days and
filtered."
D
The assessing authority in its order furthermore noticed :

"They further submitted that the Coconut oil is used in the said
Product for the purpose of using the same as base to enable application
of the above referred Ayurvedic Ingredients. Their product contains,
time tested herbs with well known properties. They submitted the E
various properties of the said Ayurvedic. Ingredients ultimately
ensured dandruff free hair, and also strengthen and promotes of the
various ingredients use is the said "Almalio" the details against each
of the said Ingredients:-

(A) Mehandi, Amlaki & Kapur Kachli : To strengthen and promote F
healthy hair growth.
(B) Bhringraj : To make hair dark, luxuriant and prevent dandruff.
(C) Doodhibeej & Dugdha : To cool head
(D) Renuk beej & Amaresthi : To Nourish the scalp.
G
They submitted that the use of the above Ingredients in their
product "Almalio" are having Pre-dominant curative or prophylactic
value and the use of the same cannot be compared with any other
ordinary preparation intended to be use on hair."

It is, therefore, not correct to contend that Respondent never disclosed H
1060 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A the manufacturing process. The assessing authority, inter alia, held :

"(x) Assuming with admitted (sic) their product merits classification
under Chapter 33 as cosmetics or toilet preparation, then it
deserves to classify under Chapter Sub Heading No. 3305.10 and
not under 3305.99 as alleged in the Show Cause Notice. The
B Chapter Sub Heading No. 3305.10 is applicable to the perfumed
hair oil whereas Chapter Sub Heading No.3.305.99 covers
preparation for use on the hair other than perfumed hair oil and
hair fixer. They submitted that going by the contents of their
product and manufacturing process set out hereinabove, their
product does contain Sugandhi Dravya i.e. perfume and
c accordingly it merits classification as perfume hair oil under
3305.10. In this context they refer to and rely upon the decision
of Honourable Supreme Court of India in the case of Dumlop
India Ltd., wherein the court has held as under:-"
When an article has by all standard reasonable claim to be
D classified under an enumerated item in a Tariff Schedule then it
would be against the very principle of classification to deny it a
parentage and consign it to an orphanage to the residuary clause
(Para-37)".
The Tribunal, on the other hand, as indicated hereinbefore, proceeded
E on the basis that only because some ingredients of the product are mentioned
in the authoritative books of Ayurveda, the same would not make the product
a medicament. It also noticed the ingredients and the therapeutic or
prophylactic uses of the product stating :

"Further the properties of the various ingredients used in the
F manufacture of the impugned product has been described by the
Appellants as under:- '
Ingredients Properties
(i) Mehandi, Amla & To strengthen and promote healthy
Kapur Kachli hair growth
G (ii) Bhringraj To make hair dark luxuriant and
prevent dandruff.
(iii) Doodhi Beej and To cool head
Dugdha
(iv) Ronuk Beej and To nourish the scalp.
H Amarasthi
COMMNR. OF CENTRAL EXCISE, SURAT v. ZANDU PHARMACEUTICAL WORKS LTD. [S.B. SINHA, J.J} Q6}

The Tribunal, however, proceeded to consider the altemative submission A
made on behalf of Respondent to hold :

"The learned Counsel has alternatively claimed the classification
under sub-heading No. 3305.10 as perfumed hair oil. The Commissioner
(Appeals) has classified the impugned product under sub-heading
3305.99 as there was nothing on record to show that the product is B
being perfumed. The learned Advocate has mentioned that fragrance
is added in the impugned product at the end of the manufacturing
process. This is apparent from the manufacturing process detailed in·
the Adjudication Order. We, therefore, hold that the impugned product
is classifiable under sub-heading 3305.10 and the matter is remanded C
to the jurisdictional Adjudicating Authority to recompute the duty of
excise payable by the appellants. We also agree with the learned
advocate that the issue involved being classification of a product for
which classification declaration was filed by the Appellants, penalty
under Rule l 73Q of the Cent~al Excise Rules, 1944 is not imposable.
We, therefore, set aside the penalty imposed on the Appellants. D
Respondent, as noticed herein before, not only disclosed the ingredients
of its products, but also disclosed the manufacturing process. On almost
identical situation, as would appear from the discussions made hereinafter,
such a product has been held to be an Ayurvedic product.
E
The relevant entries are as under :
"Heading Sub-heading Description of Rate
No. No. goods of duty
30.03 3003.39 Other 8%
F
33.05 3305.10 Perfumed 18%
hair oils Other
33.05 3305.99 Other 30%"

Note 2 of Chapter 33 reads as follows:-
G
"2. Heading Nos. 33.03 to 33.07 apply, inter alia, to products, whether
or not mixed (other than aqueous distillates and aqueous solutions of
essential oils), suitable for use as goods of these headings· and put
up in packings with labels, literature or other indications that they are
for use as cosmetics or toilet preparations or put up in a form clearly
specialized to such use and includes products whether or not they H
1062 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A contain subsidiary pharmaceutical or antiseptic constituents, or are
held out as having subsidiary curative or prophylactic value."

In Commissioner of Central Excise, Calcutta v. Sharma Chemical
Works, [2003) 5 SCC 60, this Court noticed its earlier decisions to hold that
onus of proof to show that a particular product is classifiable under one entry
B or the other is on the Revenue. "Banphool Oil" was held therein as classifiable
as an Ayurvedic Medicament under sub-heading 3003.30 stating :

" .... Mere fact that a product is sold across the counters and not under
a doctor's prescription, does not by itself lead to the conclusion that
it is not a medicament. We are also in agreement with the submission
c of Mr Lakshmikumaran that merely because the percentage of
medicament in a product is less, does not also ipso facto mean that
the product is not a medicament. Generally the percentage or dosage
of the medicament will be such as can be absorbed by the human
body. The medicament would necessarily be covered by fillers/vehicles
D in order to make the product usable. It could not be denied that all
the ingredients used in Banphool Oil are those which are set out in
the Ayurveda textbooks. Of course the formula may not be as per the
textbooks but a medicament can also be under a patented or proprietary
formula. The main criterion for determining classification is normally
the use it is put to by the customers who use it. The burden of
E proving that Banphool Oil is understood by the customers as a hair
oil was on the Revenue ... "

In Alpine Industries v. Collector of Central Excise, New Delhi (2003)
152 E.L.T.16 SC: [2003) 3 SCC 111, this Court held that 'Lip salve' is a kind
of 'barrier cream' or a protective cream against skin irritants and, therefore,
F not a medicament, stating :

" .... Such preparations which have a subsidiary curative or prophylactic
value clearly fall under Entries 33.03 to 33.07 as per Note 2 under
Chapter 33. The product clearly is covered by Entry 33.04 read with
Note 5 of Chapter 33, it essentially being a preparation for protection
G of lips or skin. We have also gone through the minority opinion
expressed by one of the members of the Tribunal and the reasoning
therein supported before us on behalf of the appellant"

The Tribunal in Commissioner of Central Excise, Cochin v. Kera/a
G Ayurvedic Pharmacy Ltd. (2005) 187 E.L.T. 29 followed Alpine Industries
COMMNR. OF CENTRAL EXCISE, SURAT"· ZANDU PHARMACEUTICAL WORKS LTD. [S.S. SINHA, J.J} 063

(supra), holding : A
" ... The Respondent's product 'Kesini oil' is a preparation for use on
hair and fits the description in chapter heading 33.05 of the schedule.
Once a product is a preparation for use in hair, the fact that it has
therapeutic values does not take it away from the purview of chapter
33. The impugned product is classifiable under chapter 33. We set B
aside the order of the Commissioner (Appeals) and allow the appeals."

A special leave petition filed thereagainst was dismissed by this Court.

Recently, however, in Puma Ayurvedic Herbal (P) Ltd. v. Commissioner,
Central Excise, Nagpur (2006) 196 E.L.T. 3 (SC.): [2006] 3 SCC 266, 'Puma C
Hair Tonic Powder' and 'Puma Anti-Dandruff Oil', 'Puma Shishu Rakshak Tel'
were held to be medicinal products having regard to the medicinal property.
Respondent, therefore, could contend that there product also is an Ayurvedic
medicament. Tribunal, however, proceeded on the alternative submissions
made on its behalf. No appeal has been filed against the order of the Tribunal D
refusing to classify the product of respondent as an Ayurvedic Medicament.

We are, therefore, only left with the contention that the product of
Respondent is a 'perfumed hair oil'. Indisputably, perfume is added. Addition
of perfume is a part of manufacturing process. It is one of the ingredients
of the product. E
We therefore without going into the question as to whether the product
of Respondent has any therapeutic value or not would agree with the judgment
of the Tribunal. We, thus, ·find no merit in this appeal. It is dismissed
accordingly. However, in the facts and circumstances of the case, there shall
be no order as to costs. F
D.G. Apppeal dismissed.