Supreme Court Upholds Classification of Homeopathic Hair Oil as Medicament: Commissioner of Customs vs. Ashwani Homeo Pharmacy (2023)

Introduction

Date of the Judgment: May 3, 2023

Citation: Not Available

Judges: Dinesh Maheshwari, J., Vikram Nath, J.

Can a product containing homeopathic medicines, labeled as hair oil, be classified as a medicament rather than a cosmetic? The Supreme Court of India recently addressed this question, focusing on the correct classification of “Aswini Homeo Arnica Hair Oil” (AHAHO) for excise duty purposes. The core issue revolved around whether AHAHO should be taxed as a medicament under Chapter 30 or as a cosmetic under Chapter 33 of the Central Excise Tariff Act, 1985.

The bench comprised Justices Dinesh Maheshwari and Vikram Nath, with Justice Dinesh Maheshwari authoring the judgment. The court examined the arguments presented by both the Commissioner of Customs and Ashwani Homeo Pharmacy, ultimately ruling in favor of the latter, thus upholding the classification of AHAHO as a medicament.

Case Background

Ashwani Homeo Pharmacy (the respondent) manufactures AHAHO, classifying it as a medicament under Tariff Item 3003 90 14 of the Central Excise Tariff Act, 1985, and paying excise duty at a concessional rate. This classification was accepted by the Department multiple times between 1994 and 2004. However, in 2014, the Department issued a show-cause notice, arguing that AHAHO should be classified as a cosmetic under Tariff Item 3305 09 19, leading to a demand for differential duty. The respondent contested this, maintaining that AHAHO was a medicament due to its therapeutic properties and homeopathic ingredients.

The dispute arose from a show-cause notice dated December 26, 2014, which claimed that AHAHO should be classified as a cosmetic under Chapter 33 of the Central Excise Tariff Act, 1985, instead of a medicament under Chapter 30. The Commissioner of Customs and Central Excise, Hyderabad (the appellant), sought to recover differential excise duty, along with interest and penalties, from Ashwani Homeo Pharmacy. The respondent, on the other hand, contended that AHAHO was a medicament due to its therapeutic properties and homeopathic ingredients, and that its classification as such had been consistently accepted by the Department since 1994.

Timeline

Course of Proceedings

The Commissioner of Customs and Central Excise, Hyderabad, ruled that AHAHO was a cosmetic and not a medicament, leading to a demand for differential duty. The Commissioner stated that the changes in the tariff entries in 2012 necessitated a re-look at the classification. The Commissioner also noted that AHAHO was sold in general stores, not prescribed by a doctor, and did not specify dosages, which were not the characteristics of a medicament.

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) overturned the Commissioner’s order, holding that AHAHO was a medicament. The Tribunal noted that the product was made of four homeopathic medicines, was licensed as a drug, and was understood as a homeopathic medicine in the market. The Tribunal also pointed out that the product was used to treat hair loss, insomnia, dandruff and headache and that the label indicated the product as homeopathic medicine.

Legal Framework

The core legal issue revolves around the interpretation of the Central Excise Tariff Act, 1985, specifically the classification of goods under Chapter 30 (Pharmaceutical Products) and Chapter 33 (Essential Oils and Resinoids, Perfumery, Cosmetics or Toilet Preparations).

Section 11-A (10) of the Central Excise Act, 1944, allows for the recovery of unpaid excise duties. Section 11-AA of the same Act deals with the payment of interest on such unpaid duties. Rule 25 of the Central Excise Rules, 2002, provides for penalties for contravention of the rules.

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

The relevant tariff entries under consideration are:

• Tariff Item 3003 90 14: Medicaments of Homeopathic system.
• Tariff Item 3305 90 19: Other hair oils.

Arguments

Appellant’s Arguments (Commissioner of Customs):

• The appellant argued that the 2012 amendments to the tariff entries necessitated a re-look at the classification of AHAHO.
• The appellant contended 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 unit containers for retail sale.
• The appellant stated that the mention of the Drugs and Cosmetics Act, 1940, and various pharmacopeia was deleted from Chapter 30.
• The appellant argued that “Hair oil” under Chapter 33 gained focus with subsidiary headings of “perfumed hair oil” and “others.”
• The appellant submitted that AHAHO did not meet the criteria under Chapter 30, as it was not prescribed by a doctor, was available freely, and did not specify dosages.
• The appellant argued that AHAHO was a cosmetic due to its common parlance as a general cosmetic requisite.
• The appellant relied on Alpine Industries v. Collector of Central Excise, New Delhi: (2003) 3 SCC 111, to argue that subsidiary therapeutic or prophylactic use would not change its nature as “Hair oil.”
• The appellant argued that the product was advertised as a hair oil and not a medicament.

Respondent’s Arguments (Ashwani Homeo Pharmacy):

• The respondent argued that AHAHO’s classification as a medicament had attained finality, having been examined four times.
• The respondent contended that AHAHO’s composition was of four homeopathic medicines in a base oil medium.
• The respondent submitted that AHAHO was licensed for manufacture and sale as a homeopathic medicine.
• The respondent argued that AHAHO cures/prevents alopecia, dandruff, and hair fall due to its therapeutic and prophylactic properties.
• The respondent stated that AHAHO’s label indicated its nature as a homeopathic medicine under Schedule K to the Drugs and Cosmetics Rules, 1945, with ingredients, composition, indications, and mode of application.
• The respondent submitted that the changes in tariff structure in 2012 did not warrant its reclassification as a cosmetic because the ingredients and manufacturing process did not change.
• The respondent relied on BPL Pharmaceuticals v. Collector of Central Excise, Vadodara: 1995 Supp (3) SCC 1 and Commissioner of Central Excise, Nagpur v. Vicco Laboratories: (2005) 4 SCC 17, to argue that some differences in tariff entries would not change the product’s character.
• The respondent argued that the product was not advertised as “Hair Oil” but as “Aswini Homeo Arnica Hair Oil.”
• The respondent relied on Commissioner of Central Excise, Calcutta v. Sharma Chemical Works: (2003) 5 SCC 60, to argue that sale across counters and without a prescription does not mean it is not a medicament.
• The respondent relied on Meghdoot Gramodyog Sewa Sansthan, U.P. v. Commissioner of Central Excise, Lucknow: (2005) 4 SCC 15, to support the argument that products sold under cosmetic names can still be medicines.
• The respondent relied on Bakson Homeo Pharmacy (P) Ltd. v. Collector of Central Excise, New Delhi: (2001) 136 ELT 485, where a similar product was held to be a medicament.

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

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered 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 Court used the authorities cited to support its reasoning, particularly distinguishing cases that were not applicable to the facts of the present case and relying on those that were directly relevant. The Court relied on BPL Pharmaceuticals and Vicco Laboratories to emphasize that a product’s classification should not be changed without a change in its nature. The Court distinguished Alpine Industries, noting that the product there was primarily a cosmetic, whereas AHAHO was a medicament. The Court also relied on Sharma Chemical Works and Meghdoot Gramodyog to support the view that a product can be a medicament even if sold across the counter. The Court also relied on the decision of the Tribunal in the case of Bakson Homeo Pharmacy, wherein a similar product was held to be a medicament.

What weighed in the mind of the Court?

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

Sentiment Analysis of Reasons:

Fact:Law Ratio:

The court gave more weight to the factual aspects of the case, such as the composition of the product, its licensing, and how it is understood in the market.

Logical Reasoning:

The Court considered the therapeutic and prophylactic properties of the product, its ingredients, its licensing, and its common understanding in the market. The court also rejected alternative interpretations, such as the argument that it was a cosmetic because it was sold across the counter.

The court emphasized that the product’s composition, its licensing as a homeopathic medicine, and its common understanding in the market all pointed towards its classification as a medicament.

The court rejected the argument that the product was a cosmetic because it was sold across the counter, stating that this did not negate its medicinal properties.

The court also highlighted that the product was not simply a hair oil but a homeopathic medicine that was applied using oil as a medium.

The court quoted from the judgment:

“The product in question, being undoubtedly covered by Serial No. 35 of Schedule K to the Rules of 1945 and being manufactured in terms of the license issued under the Act of 1940, in our view, clearly satisfies the ingredients test.”

“The substance of the matter remains that in common parlance, the product in question would be approached essentially for its claimed medicinal qualities and not as another hair oil.”

“Viewed thus, we are inclined to accept the submissions on behalf of the respondent that even with reference to its packaging, the product AHAHO would remain a homeopathic medicament and would be covered under Chapter 30, where it could be placed in Sub-Heading 3004 90 14.”

There were no dissenting opinions in this case.

Key Takeaways

✓ Homeopathic hair oils, containing therapeutic ingredients and marketed as such, are to be classified as medicaments, not cosmetics, for tax purposes.

✓ The common parlance test is crucial in determining the classification of products, but it is not the only factor. The ingredients and the manner in which the product is licensed are equally important.

✓ The mere fact that a product is sold over the counter does not automatically disqualify it from being classified as a medicament.

✓ Changes in tariff structure alone are not sufficient grounds to reclassify a product if the product’s nature and character have not changed.

Directions

No specific directions were given by the Supreme Court in this judgment.

Specific Amendments Analysis

The 2012 amendments to the Central Excise Tariff Act, 1985, were a key point of contention in this case. The appellant argued that these amendments necessitated a re-look at the classification of AHAHO. The Court, however, rejected this argument, stating that the changes in tariff structure did not alter the fundamental character of the product.

The amendments included changes in the wording of Chapter 30, which removed the distinction between patent/proprietary and generic medicaments and classified them based on whether they are put up in unit containers for retail sale. The mention of the Drugs and Cosmetics Act, 1940, and various pharmacopeia was also deleted from Chapter 30. The appellant argued that these changes meant that AHAHO no longer qualified as a medicament under Chapter 30.

The Court, however, held that these changes did not change the essential nature of AHAHO as a homeopathic medicine. The Court noted that AHAHO continued to contain homeopathic medicines with therapeutic and prophylactic properties, was licensed as a drug, and was understood as a homeopathic medicine in the market. Therefore, the Court concluded that the 2012 amendments did not justify a reclassification of AHAHO.

Conclusion

The Supreme Court’s ruling in Commissioner of Customs vs. Ashwani Homeo Pharmacy is a significant judgment that clarifies the classification of homeopathic hair oils for tax purposes. The Court’s decision emphasizes the importance of considering the therapeutic properties of a product, its ingredients, its licensing, and its common understanding in the market when determining its classification. The Court also clarified that changes in tariff structure do not automatically warrant a reclassification if the fundamental nature of the product remains unchanged.

The Court’s decision upheld the classification of “Aswini Homeo Arnica Hair Oil” as a medicament, settling the dispute between the Commissioner of Customs and Ashwani Homeo Pharmacy. This ruling will have a significant impact on the classification of similar homeopathic products and will serve as a guiding principle for future cases.