Supreme Court Upholds ‘Aswini Homeo Arnica Hair Oil’ as Medicament Under Chapter 30: Commissioner of Customs vs. Ashwani Homeo Pharmacy (2023) INSC 4832 (03 May 2023)

Date of the Judgment: 03 May 2023
Citation: (2023) INSC 4832
Judges: Dinesh Maheshwari, J., Vikram Nath, J.

Can a product containing homeopathic medicines, applied topically, be classified as a cosmetic or a medicament? The Supreme Court of India recently addressed this question in a case involving ‘Aswini Homeo Arnica Hair Oil’ (AHAHO). The court had to determine whether AHAHO should be classified as a ‘medicament’ under Chapter 30 of the Central Excise Tariff Act, 1985, or as a ‘cosmetic’ under Chapter 33. This decision has significant implications for how similar products are classified and taxed.

Case Background

The respondent, Ashwani Homeo Pharmacy, manufactures ‘Aswini Homeo Arnica Hair Oil’ (AHAHO), which they classified as a ‘medicament’ under Tariff Item 3003 90 14 of the Central Excise Tariff Act, 1985 since 1994. This classification was accepted by the Department multiple times between 1994 and 2004. However, after amendments to the tariff entries in 2012, the Department issued show-cause notices to the respondent, arguing that AHAHO should be classified as a ‘cosmetic’ under Tariff Item 3305 90 19.

The core dispute revolved around whether AHAHO, containing homeopathic medicines, was primarily a therapeutic product (medicament) or a cosmetic product. The Department argued that AHAHO was a ‘hair oil’ and should be taxed as a cosmetic, while the respondent maintained that it was a ‘medicament’ due to its therapeutic and prophylactic properties.

Timeline

Course of Proceedings

Initially, the Commissioner of Customs and Central Excise, Hyderabad, ruled against Ashwani Homeo Pharmacy, holding that AHAHO was a ‘cosmetic’ and not a ‘medicament’. This decision was based on the premise that the product was not prescribed by a medical practitioner, was available in general stores, and did not have specific dosage instructions.

The respondent appealed to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which overturned the Commissioner’s order. The CESTAT held that AHAHO was indeed a ‘medicament’ based on its ingredients, therapeutic uses, and common understanding. The Department then appealed to the Supreme Court against the CESTAT’s decision.

Legal Framework

The core legal issue revolved around the classification of goods under the Central Excise Tariff Act, 1985. Chapter 30 of the Act deals with “Pharmaceutical Products,” and Chapter 33 covers “Essential Oils and Resinoids; Perfumery, Cosmetic or Toilet Preparations.” The specific tariff items in question were:

• Tariff Item 3003 90 14: This item covers “Medicaments of Homeopathic system.”
• Tariff Item 3305 90 19: This item covers “Hair oil.”

The Central Excise Act, 1944, and the Central Excise Rules, 2002, were also relevant for determining the duty payable and penalties. Additionally, the Drugs and Cosmetics Act, 1940, and the Drugs and Cosmetics Rules, 1945, were considered for the licensing and classification of drugs.

Note 1(e) of Chapter 30 of the Central Excise Tariff Act, 1985 specifies that the chapter does not cover “preparations of headings 3303 to 3307, even if they have therapeutic or prophylactic properties.”

The Supreme Court also considered the definition of ‘medicament’, which is defined in Note 2(i) to mean “goods which are either products comprising two or more constituents which have been mixed or compounded together for therapeutic or prophylactic use”.

Arguments

Appellant (Department) Arguments:

• The Department contended that the amendments in 2012 to the Central Excise Tariff Act, 1985, necessitated a re-look at the classification of AHAHO.
• It argued that Chapter 30 was reworded to remove the distinction between patent/proprietary and generic medicaments and to classify them based on whether they are put up in retail containers.
• The Department stated that the mention of the Drugs and Cosmetics Act, 1940, and various pharmacopeia was deleted from Chapter 30.
• It further argued that “Hair oil” under Chapter 33 garnered focus with specific sub-headings for “perfumed hair oil” and “others.”
• The Department submitted that AHAHO does not meet the criteria for classification under Chapter 30 because it is sold in retail packaging, and the label does not have mandatory requirements under the Drugs and Cosmetics Act, 1940.
• The Department argued that AHAHO is not prescribed by medical practitioners, is available without a prescription, and is perceived as a cosmetic by the public.
• The Department relied on the common parlance test, asserting that AHAHO is advertised as a hair oil and not a medicament.
• The Department stated that a specific entry (hair oil) takes precedence over a general entry (medicament).

Respondent (Ashwani Homeo Pharmacy) Arguments:

• The respondent argued that AHAHO’s classification as a ‘medicament’ had attained finality, having been examined four times, and should not be re-opened.
• The respondent emphasized that AHAHO is composed of four homeopathic medicines in a base oil medium and is licensed as a homeopathic medicine.
• The respondent argued that AHAHO has therapeutic and prophylactic properties, curing/preventing alopecia, dandruff, and hair fall.
• The respondent contended that the label indicates the product’s nature as a homeopathic medicine under Schedule K of the Drugs and Cosmetics Rules, 1945.
• The respondent submitted that despite tariff structure changes in 2012, AHAHO remained classifiable under Chapter 30, as its ingredients and manufacturing process did not change.
• The respondent stated that the product is understood as a homeopathic medicament by users and dealers.
• The respondent argued that the product is not a cosmetic, as it is not used for cleansing or beautifying but for therapeutic purposes.
• The respondent relied on the decision in Bakson Homeo Pharmacy, where a similar product was classified as a medicament.
• The respondent argued that the common parlance test was satisfied as the product is known and sold as a homeopathic medicine.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for determination:

1. Whether the product in question, AHAHO, merits classification as ‘medicament’ under Chapter 30 or as ‘cosmetic or toilet preparations’ under Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985.
2. Whether the change in tariff structure by way of amendment brought about in the year 2012 justified a re-look into the classification of the product in question.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Supreme Court relied on several cases to support its decision:

• Collector of Central Excise, Guntur v. Andhra Sugar Ltd. Venkataraypuram [CITATION]: The court distinguished this case, stating that the principle of contemporaneous exposition of law did not apply here.
• BPL Pharmaceuticals v. Collector of Central Excise, Vadodara [CITATION]: The court followed this case, stating that the product’s character does not change merely due to differences in tariff entries.
• Commissioner of Central Excise, Nagpur v. Vicco Laboratories [CITATION]: The court followed this case, stating that classification cannot be changed without a change in the product’s nature or use.
• Commissioner of Central Excise, Nagpur v. Shree Baidyanath Ayurved Bhavan Ltd. [CITATION]: The court distinguished this case, stating that the product in question therein did not satisfy the common parlance test.
• Alpine Industries v. Collector of Central Excise, New Delhi [CITATION]: The court distinguished this case, stating that AHAHO is not a cosmetic with subsidiary therapeutic properties.
• Sunny Industries (P) Ltd. v. Collector of Central Excise, Calcutta [CITATION]: The court distinguished this case, stating that AHAHO is not merely a massage oil.
• Commissioner of Customs, Calcutta v. G.C. Jain and Anr. [CITATION]: The court referred to this case to emphasize that words and expressions should be construed as per trade usage.
• Commissioner of Central Excise v. Wockhardt Life Sciences Limited [CITATION]: The court followed this case to support the common parlance test for classification.
• Commissioner of Central Excise, Calcutta v. Sharma Chemical Works [CITATION]: The court followed this case, stating that a product being sold across the counter does not necessarily mean it is not a medicament.
• Meghdoot Gramodyog Sewa Sansthan, U.P. v. Commissioner of Central Excise, Lucknow [CITATION]: The court followed this case, stating that items sold under cosmetic names can still be medicaments based on their composition.
• Commissioner of Commercial Taxes v. M/S Aswini Homeo Pharmacy [CITATION]: The court cited this case to show that the same product was previously classified as a medicine by the Supreme Court.
• Bakson Homeo Pharmacy (P) Ltd. v. Collector of Central Excise, New Delhi [CITATION]: The court relied on this case to support the classification of AHAHO as a medicament, noting that the same ingredients were considered in the cited case.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• The court emphasized that AHAHO contains four homeopathic medicines, which are recognized in authoritative texts and have therapeutic and prophylactic properties.
• The court noted that AHAHO is licensed as a homeopathic medicine, which supports its classification as a medicament.
• The court found that the common parlance test favored classifying AHAHO as a medicament, as it is understood and sold as a homeopathic medicine.
• The court held that the ‘hair oil’ in AHAHO is a medium for the medicine and not the primary function of the product.
• The court rejected the argument that the 2012 amendments justified re-examining the classification, stating that the product’s nature and use remained the same.
• The court emphasized that the product is not merely a cosmetic but has substantial therapeutic value.

Sentiment Analysis Table

Fact:Law Ratio

Logical Reasoning

The Supreme Court’s reasoning was based on a careful analysis of the product’s ingredients, its intended use, and how it is perceived by the public. The court rejected the argument that the product is merely a cosmetic, emphasizing its therapeutic value. The court also rejected the argument that the 2012 amendments to the tariff entries justified a re-examination of the product’s classification.

The court emphasized that the product has therapeutic and prophylactic uses, and the ‘hair oil’ is just a medium for the medicine. The court also noted that the product is licensed as a homeopathic medicine and is understood as such in the market.

The court distinguished the cases relied upon by the department, such as Alpine Industries and Sunny Industries, emphasizing that those cases involved products that were primarily for care and not for cure or prevention.

The court quoted the following from the judgment:

“…the product in question, AHAHO, merits classification as ‘medicament’ under Chapter 30 and not as ‘cosmetic or toilet preparations’ under Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985; and the change in tariff structure by way of amendment brought about in the year 2012 did not justify any re-look at the classification of the product in question.”

“…the product in question had rightly been classified as ‘medicament’ in the past and nothing material had changed so as to re-classify the same.”

“…in common parlance, the product in question would be approached essentially for its claimed medicinal qualities and not as another hair oil.”

There were no dissenting opinions in this case.

Key Takeaways

• Classification of Homeopathic Products: The Supreme Court’s decision clarifies that products containing homeopathic medicines, even if applied topically, can be classified as ‘medicaments’ under Chapter 30 of the Central Excise Tariff Act, 1985, if they have therapeutic or prophylactic properties.
• Twin Tests: The court emphasized the importance of the twin tests of common parlance and ingredients in classifying products. If a product is understood as a medicine and contains recognized medicinal ingredients, it is more likely to be classified as a medicament.
• Amendments Don’t Change Product Nature: Amendments to tariff structures alone do not warrant reclassification of a product if its nature, character, and use remain the same.
• Medicament vs. Cosmetic: The court clarified that a product is not a cosmetic if its primary function is therapeutic or prophylactic, even if it is used for hair care. The ‘hair oil’ in AHAHO was considered a medium for the medicine, not the primary function of the product.
• Licensing as a Factor: The fact that AHAHO was licensed as a homeopathic medicine was an important factor in the court’s decision.
• Consistency in Classification: The court emphasized the importance of consistency in classification, noting that the product had been classified as a medicament multiple times in the past.
• Impact on Similar Products: This judgment sets a precedent for similar products containing homeopathic medicines, which may now be classified as medicaments rather than cosmetics.
• No change in the product warrants re-classification: The court has emphasized that if the product remains the same, then changes to the tariff structure should not be a ground for re-classification.

Conclusion

The Supreme Court’s judgment in the case of Commissioner of Customs vs. Ashwani Homeo Pharmacy is a significant ruling that clarifies the classification of homeopathic products under the Central Excise Tariff Act, 1985. The court’s emphasis on the therapeutic properties of the product, its licensing as a homeopathic medicine, and its understanding in common parlance as a medicine, underscores the importance of a holistic approach to classification. This decision provides much-needed clarity for manufacturers and regulators alike and sets a precedent for future cases involving similar products. The ruling highlights that changes in tariff structure alone are insufficient to reclassify a product if its essential nature and use remain unchanged.