2009 (4) TMI 759 - AT - Central Excise

Issues Involved:
1. Classification of ENO Fruit Salt as Ayurvedic or Non-Ayurvedic Medicament.
2. Appropriate classification under the Central Excise Tariff Act.
3. Imposition of penalties on the appellants.

Detailed Analysis:

1. Classification of ENO Fruit Salt as Ayurvedic or Non-Ayurvedic Medicament:
The primary issue was whether ENO Fruit Salt should be classified as a "P or P Ayurvedic Medicament" or a non-ayurvedic medicament. The appellants contended that ENO Fruit Salt, manufactured under a drug license as an Ayurvedic product, should be classified as such. They argued that the main ingredients, Svarjikshara and Nimbukamlam, are listed in authoritative Ayurvedic texts and certified by the Drug Controller. The appellants also cited several Supreme Court decisions supporting their claim that products recognized by Ayurvedic texts and licensed as Ayurvedic medicaments should be classified accordingly, even if they contain ingredients also used in modern pharmaceuticals.

The revenue authorities argued that the ingredients were synthetic and not naturally sourced, thus not qualifying as Ayurvedic. They relied on chemical analysis reports and the opinion of the Government Ayurvedic Hospital, which indicated that the ingredients used were synthetic.

The Tribunal found that the product labels and drug licenses clearly indicated ENO Fruit Salt as an Ayurvedic product. The Tribunal referred to the Supreme Court's decision in CCE, Delhi v. Ishaan Research Lab Ltd., which emphasized that the classification should consider the product's labeling and the claims made by the manufacturer. The Tribunal also noted that the Drug Controller had renewed the licenses, indicating continued recognition of the product as Ayurvedic.

2. Appropriate Classification under the Central Excise Tariff Act:
The Tribunal examined whether ENO Fruit Salt should be classified under sub-heading 3003.10 (non-ayurvedic medicament) or 3003.39/3004.90 11 (ayurvedic medicament). The appellants argued that the product met the criteria for Ayurvedic medicaments as outlined in authoritative texts and supported by expert opinions. They also highlighted that the product was manufactured under a valid drug license for Ayurvedic products.

The revenue authorities contended that the product did not meet the common parlance test and ingredient test for Ayurvedic medicaments. They emphasized that the ingredients were synthetic and not naturally sourced, as required for Ayurvedic classification.

The Tribunal concluded that the product should be classified as an Ayurvedic medicament under sub-heading 3003.39/3004.90 11. They found that the product labels, drug licenses, and expert opinions supported the classification as Ayurvedic. The Tribunal also noted that the classification of raw materials as Ayurvedic by another commissionerate should be respected.

3. Imposition of Penalties on the Appellants:
The revenue authorities imposed penalties on the appellants under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2002. The appellants argued that the duty demand itself was not sustainable, and thus, penalties and interest should not be levied. They also contended that the penalties were unjustified as the classification issue was a matter of interpretation and not intentional evasion.

The Tribunal, having decided the primary issue in favor of the appellants, held that the penalties imposed were not sustainable. They noted that the appellants had a valid basis for their classification and had acted in accordance with the drug licenses and expert opinions.

Conclusion:
The Tribunal ruled in favor of the appellants, classifying ENO Fruit Salt as a "P or P Ayurvedic Medicament" under sub-heading 3003.39/3004.90 11. Consequently, the duty demands and penalties imposed by the revenue authorities were set aside. The Tribunal emphasized the importance of drug licenses, product labeling, and expert opinions in determining the classification of Ayurvedic medicaments. The appeals were allowed with consequential relief.

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