2024 (7) TMI 923 - AT - Central Excise

Classification of goods - White Petroleum Jelly variants - to be classified as petroleum jelly under CTH 2712 or cosmetics, under CTH 3304? - whether the products in question are drug or Cosmetic and the addition of ingredient would result in any change in their classification? HELD THAT - It is relevant to refer to both to Chapter Headings; Chapter 27 of CETA refers to Mineral Fuels, Mineral Oils and Products of their distillation; Bituminous Substances; Mineral Waxes. Entry at 2712 gives the description of goods as Petroleum jelly, paraffin wax, microcrystalline petroleum wax, ozokerite, etc. obtained by synthesis or by other processes, whether or not coloured . This gives an indication to be covering petroleum jelly per se, in pure form, obtained by synthesis or by other processes, without any additives. Interestingly, Heading 27.12 of HSN at (A) has provided for specific exclusion, as noted earlier, for petroleum jelly suitable for use for the care of skin, which is also indicated to be covered under heading 33.04. The products in question viz, petroleum jelly Baby and petroleum jelly Aloe Vera are those meant exclusively for the care of skin, petroleum jelly meant for skin care specifically excluded from CTH 2712 and therefore, they are cosmetics which are correctly classifiable under CTH 3304. Hence, the appellant should succeed. The impugned order upholding wrong classification cannot sustain for which reason, the same is set aside - appeal allowed.

Issues Involved:
1. Classification of White Petroleum Jelly variants.
2. Invocation of extended period of limitation.
3. Applicability of Harmonized System of Nomenclature (HSN) explanatory notes.
4. Determination of product as cosmetic or medicament.

Issue-wise Detailed Analysis:

1. Classification of White Petroleum Jelly Variants:
The appellant was manufacturing White Petroleum Jelly I.P. under Food and Drugs License and classified it under CTH 2712. They later started manufacturing variants, namely Petroleum Jelly – Baby and Petroleum Jelly – Aloe Vera, and classified these under CTH 3304 as cosmetics for skin care. The respondent issued a show cause notice in 2014, proposing a demand for duty on the grounds that the classification should remain under Tariff item 2712 90. The appellant argued that the products were meant for skin care and thus correctly classified under Chapter 33, supported by the Explanatory Notes to Chapter 27 of the HSN, which excludes Petroleum Jelly used for skin care from Chapter 27.

2. Invocation of Extended Period of Limitation:
The appellant contended that there was no suppression of facts as they had informed the jurisdictional superintendent about the manufacturing of the variants and had corresponded with the Department through letters dated 01.11.2010, 07.07.2010, and 29.04.2011. The revenue argued that the classification was changed to Chapter 33 only when the duty structure was favorable, and this fact came to light only during the investigation, justifying the invocation of the extended period for suppression of facts.

3. Applicability of Harmonized System of Nomenclature (HSN) Explanatory Notes:
The appellant relied on several Supreme Court judgments to argue that the Central Excise Tariff should be aligned with the HSN Explanatory Notes, which are persuasive aids for correct classification. The HSN notes specifically exclude Petroleum Jelly suitable for skin care from Chapter 27, suggesting classification under Chapter 33. The revenue countered that when entries in HSN and the tariff were not aligned, reliance on HSN for classification was not appropriate, referencing the Apex Court decision in Camlin Ltd. vs. Commissioner.

4. Determination of Product as Cosmetic or Medicament:
The court referred to the Heinz India Ltd. case, which outlined a three-step test to determine if a product is a medicament or cosmetic. The primary function of the product, not the proportion of ingredients or the need for a prescription, is decisive. The appellant claimed that the products were for skin care, acting as a barrier cream, and thus classified as cosmetics. The revenue argued that adding a negligible quantity of perfume to petroleum jelly did not change its basic character or classification.

Judgment:
The court concluded that the products in question, Petroleum Jelly – Baby and Petroleum Jelly – Aloe Vera, were meant exclusively for skin care. The HSN Explanatory Notes, which are crucial for classification, specifically exclude petroleum jelly used for skin care from Chapter 27, suggesting classification under Chapter 33. Therefore, the products were correctly classified as cosmetics under CTH 3304. The impugned order upholding the wrong classification was set aside, and the appeal was allowed.

Conclusion:
The court ruled in favor of the appellant, recognizing the products as cosmetics under CTH 3304 and dismissing the extended period of limitation invoked by the revenue. The judgment emphasized the importance of HSN Explanatory Notes in classification matters.

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