2009 (4) TMI 6 - SC - Central Excise

Classification of Dant Manjan Lal (DML) appellant sought classification u/sh 3003.31 as a medicament - Department sought classification u/ch 33.06 as cosmetic/toiletry preparation/tooth powder Chapter SH 3003.31 does not contain definition of Ayurvedic Medicine and the product DML in nature, character and uses remains the same as it was prior to amendment classification cannot be changed without change in the nature & use of the product - Department s appeals are allowed

Summary

Issues Involved:
1. Classification of "Dant Manjan Lal" (DML) under the Central Excise Tariff Act, 1985.
2. Application of common trade parlance test versus statutory definitions for classification.
3. Impact of previous judicial decisions and statutory amendments on the classification.

Detailed Analysis:

1. Classification of "Dant Manjan Lal" (DML):
The primary issue in these appeals is whether DML, manufactured by Baidyanath Ayurved Bhawan Limited, should be classified as a medicament under Chapter Subheading 3003.31 or as a cosmetic/toiletry preparation/tooth powder under Chapter Heading 33.06 of the Central Excise Tariff Act, 1985. Baidyanath contends that DML is a medicament due to its Ayurvedic formulation, while the Department argues it is a toiletry product.

2. Application of Common Trade Parlance Test:
The classification of DML has seen fluctuating opinions among different benches of the Tribunal. The West and East Regional Benches of the Tribunal classified DML as a medicament, while the Larger Bench classified it as a toiletry product. The Supreme Court previously upheld the common trade parlance test in Baidyanath I, determining that DML is not known as an Ayurvedic Medicine in common parlance and thus classified it as a toilet requisite. The Court reiterated that the common parlance test remains relevant even after the enactment of the New Tariff Act and its amendments.

3. Impact of Previous Judicial Decisions and Statutory Amendments:
The Court noted that the factual position that DML is manufactured according to the formulae in the Ayurved Sar Sangraha and sold under the specified name has not been disputed. However, the Court emphasized that merely because there is some difference in the tariff entries, the product's classification cannot change without a change in its nature or use. The Court held that Chapter Subheading 3003.31 does not provide a specific definition of Ayurvedic Medicine but rather describes the process of manufacture and sale. Therefore, the common parlance test, which considers how the product is understood by consumers, remains applicable.

Detailed Legal Reasoning:

- Common Trade Parlance Test: The Court maintained that the common trade parlance test is crucial for classification, as it reflects the consumer's understanding and use of the product. The decision in Baidyanath I, which applied this test, remains pertinent because the product DML has not changed in composition, character, or use.

- Statutory Interpretation: The Court examined the relevant provisions of the Central Excise Tariff Act and the Drugs and Cosmetics Act. It concluded that the description in Chapter Subheading 3003.31 is not a definition but a description of goods. Therefore, the classification must be determined according to the terms of the headings and relative Section or Chapter Notes, as per Rule 1 of the Rules for Interpretation of the Schedule.

- Judicial Precedents: The Court referred to several previous decisions, including Puma Ayurvedic Herbal (P) Ltd. and BPL Pharmaceuticals Ltd., which affirmed the application of the common parlance test. It emphasized that without a statutory definition, the product's classification should not change based on the new tariff entries alone.

- Res Judicata and Consistency: The Court addressed the principle of res judicata, noting that while it is a cogent factor, it is not an absolute bar in taxation matters. The Court reiterated that the classification should remain consistent unless there is a significant change in the product's nature or use.

Conclusion:
The Supreme Court dismissed Baidyanath's appeals and upheld the Department's classification of DML as a toiletry product under Chapter Heading 33.06. The Court reaffirmed the application of the common trade parlance test and held that the product's classification cannot change without a change in its nature or use. The parties were directed to bear their own costs.