2003 (1) TMI 408 - AT - Central Excise

Issues Involved:
1. Classification of products manufactured by M/s. Meghdoot Gramodyog Sewa Sansthan.
2. Applicability of extended period of limitation for demanding duty.
3. Imposition of penalties under Section 11AC of the Central Excise Act and Rule 173Q of the Central Excise Rules, 1944.

Detailed Analysis:

1. Classification of Products:
The primary issue was whether the products manufactured by M/s. Meghdoot Gramodyog Sewa Sansthan should be classified as Ayurvedic Medicaments under Heading 30.03 or as "preparations for use on the hair" under Heading 33.05 of the Central Excise Tariff Act. The products in question included Bhringraj Tail, Trifla Brahmitail, Neem Herbal Sat, Sat Reetha, Meghdoot Herbal Sat, and Meghdoot Herbal Powder.

The appellants argued that their products should be classified under sub-heading 3003.30 as Ayurvedic medicaments because the ingredients used were mentioned in authoritative Ayurvedic texts, even though not all products were manufactured according to the exact formula prescribed in these texts. They cited the decision in Himtaj Ayurvedic Udyog Kendra v. CCE, Allahabad, which supported the classification of products containing Ayurvedic ingredients under sub-heading 3003.30.

However, the Revenue contended that the products were not medicaments but fell under Heading 33.05, as they were primarily used for beautification of hair. The Revenue emphasized Note 1(d) to Chapter 30, which excludes preparations of Chapter 33 even if they have therapeutic or prophylactic properties, and Note 2 to Chapter 33, which retains products under Chapter 33 even if they contain subsidiary pharmaceutical constituents.

The Tribunal concluded that the products were not primarily therapeutic or prophylactic. The labels and marketing materials indicated their use for beautification, such as making hair long, black, soft, and shining, which aligned with Heading 33.05. The Tribunal found that the products were marketed in a manner typical of cosmetics and not as medicines, thus classifying them under Heading 33.05.

2. Applicability of Extended Period of Limitation:
The show cause notice was issued on 31-3-1999 for demanding duty for the period from 1-4-1994 to 31-10-98, invoking the extended period under Section 11A(1) of the Central Excise Act. The appellants argued that they had filed a declaration in April 1994, listing the products as Ayurvedic Medicines, which was not disputed by the Revenue. They contended that there was no suppression of facts or intent to evade duty.

The Tribunal agreed with the appellants, noting that the declaration was filed and received by the Department, and there was no evidence of suppression or misstatement. The Tribunal held that the extended period of limitation was not applicable, and the duty could not be demanded beyond the normal six-month period.

3. Imposition of Penalties:
Given the Tribunal's finding that there was no suppression of facts or intent to evade duty, it also held that penalties under Section 11AC of the Central Excise Act and Rule 173Q of the Central Excise Rules, 1944, were not imposable. The penalties imposed on the appellants were set aside.

Conclusion:
The Tribunal concluded that the products manufactured by M/s. Meghdoot Gramodyog Sewa Sansthan were classifiable under Heading 33.05 as preparations for use on the hair and not as Ayurvedic Medicaments under Heading 30.03. The extended period of limitation for demanding duty was not applicable due to the absence of suppression of facts, and consequently, no penalties were imposable. All appeals were disposed of in these terms.

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