2016 (11) TMI 7 - AT - Central Excise

Classification of goods - Roop Amrit - Complete solution - cosmetic under heading 3304 or medicament under heading 3003? - Held that - To classify a product under Central Excise tariff the first and foremost test should be the common parlance understanding, unless a specific definition is provided in the entry itself. It is nobody s case that the cosmetic or toilet preparations should not have curative property. Similarly, PP ayurvedic medicament may have incidental outcome of beauty enhancement. In such situation, it is necessary to go by the common parlance of the practice of trade - reliance placed on the decision of Puma Ayurvedic Herbal P. Ltd. vs. CCE 2006 (3) TMI 141 - SUPREME COURT OF INDIA where it was held that cosmetic products are meant to improve the appearance of a person, whereas a medical product or a medicament is meant to treat some medical condition. The Hon ble Supreme Court held that Puma Herbal Massage Oil (which is similar to complete solution) is not a medicament - products classified as cosmetic or toilet preparations, the valuation done under Section 4A of Central Excise Act, 1944 read with Notification No. 13/2002-CE (NT) dated 01.03.2002. Denial of SSI exemption - Held that - the appellant-assessee had produced certificate from the local surpanch of the village which was cross verified by the jurisdictional Assistant Commissioner to ascertain the fact. In fact, the appellant-assessee also had a certificate issued by Tehsildar confirming that the factory is located in rural area. As such, we find that denial of SSI exemption to the appellant on this ground is not sustainable. Extended period of limitation - Held that - no justification for the alleged bonafide belief. No verification or enquiry has been made by the appellant with the jurisdictional Central Excise officer regarding the correct classification or duty liability while they have taken efforts to get the registration certificate from the Drug Controller etc. It is not clear as to type of effort regarding clarifying the excise duty liability - bonafide belief alone cannot be the ground for not invoking demand for extended period. Imposition of penalties on partners - Held that - since penalty of equal to duty amount has been imposed on the firm, there is no justification to impose penalty on the partners of the firm. In any case, we note that penalty imposed on the partners have been set-aside by the Commissioner (Appeals) in his order dated 20.12.2007. As such, the penalties on partners are liable to be set-aside. Appeal disposed off - decided partly in favor of appellant.

Summary

Issues Involved:
1. Correct classification of "Roop Amrit" and "Complete Solution" – whether Ayurvedic medicines or cosmetic/toilet preparations.
2. Valuation of the products – under Section 4 or Section 4A.
3. Availability of SSI exemption for the appellant-assessee for the period when the unit was located in Indore.
4. Sustainability of demand for the extended period and imposition of penalties on the appellant-assessee and partners.

Issue-wise Detailed Analysis:

1. Classification of "Roop Amrit" and "Complete Solution":
The main issue was whether "Roop Amrit" and "Complete Solution" should be classified as Ayurvedic medicines under heading 3003 or as cosmetic/toilet preparations under heading 3304. The original authority classified these products as Ayurvedic medicines based on their registration with the Drug Controller and the ingredients listed in authoritative Ayurvedic texts. However, upon review, it was determined that the products were marketed for cosmetic purposes, such as enhancing appearance and beauty. The Supreme Court's decisions in similar cases (e.g., Alpine Industries vs. Collector, Central Excise, Shree Baidyanath Ayurved Bhavan Ltd. vs. CCE) emphasized that products with subsidiary curative properties but primarily used for cosmetic purposes should be classified under Chapter 33. Thus, the products were ultimately classified under heading 3304 as cosmetic/toilet preparations.

2. Valuation of Products:
Since the products were classified as cosmetic or toilet preparations, their valuation had to be done under Section 4A of the Central Excise Act, 1944, in accordance with Notification No. 13/2002-CE (NT) dated 01.03.2002. This section pertains to the valuation of goods based on the retail sale price.

3. Availability of SSI Exemption:
The appellant-assessee claimed SSI exemption for the period when the unit was located in Indore, supported by certificates from local authorities confirming the rural location of the factory. The denial of SSI exemption by the lower authorities was found to be unsustainable, as the appellant-assessee had provided sufficient evidence to qualify for the exemption.

4. Sustainability of Demand for Extended Period and Imposition of Penalties:
The appellant-assessee contested the demand for the extended period, arguing a bona fide belief that their products were Ayurvedic medicines. However, the tribunal found that mere bona fide belief was insufficient to avoid the extended period demand. The appellant-assessee had not sought clarification from the Central Excise authorities regarding the correct classification or duty liability. Consequently, the demand for the extended period was upheld. However, penalties imposed on the partners of the appellant firm were set aside, as penalties equal to the duty amount had already been imposed on the firm, and the Commissioner (Appeals) had previously set aside these penalties.

Conclusion:
The appeals filed by the Revenue and the appellant-assessee were partly allowed. The products were classified as cosmetic/toilet preparations under heading 3304, valued under Section 4A. The SSI exemption for the Indore unit was upheld, but the demand for the extended period was sustained. Penalties on the partners were set aside. The cross-objection was disposed of accordingly.

Pronounced on 05.10.2016.