1991 (5) TMI 153 - AT - Central Excise

Summary

Issues Involved:
1. Reclassification of Melalite Cream from Tariff Item 14E to 14F(1) and subsequently under sub-heading 3304.00.
2. Modification of the assessable value based on the proposed reclassification.
3. Demand for differential duty on Melalite Cream for the specified periods.

Issue-wise Detailed Analysis:

1. Reclassification of Melalite Cream:
The core issue was whether Melalite Cream should be classified as a patent and proprietary medicine (Tariff Item 14E) or as a cosmetic/toilet preparation (Tariff Item 14F(1)). The respondents argued that Melalite Cream was a medicinal product used for treating hyperpigmentation, supported by its manufacture under a license issued by the State Drugs Controller and its sale through licensed druggists on medical prescriptions. The Assistant Collector and the Collector (Appeals) both concluded that the cream's primary function was curative and therapeutic, with its sun screening property being subsidiary. This conclusion was based on evidence such as the product's ingredients (Hydroquinone and Glyceryl Mono Para Amino Benzoate), its classification by the State Sales Tax Department, and expert affidavits. The Tribunal upheld this view, citing various pharmacopoeias and medical literature that supported the cream's medicinal nature.

2. Modification of the Assessable Value:
The show cause notice issued by the revenue authorities proposed modifying the assessable value of Melalite Cream based on its reclassification as a cosmetic. The respondents contended that reclassification, if any, should only be prospective and not for the period already approved. The Assistant Collector and the Collector (Appeals) rejected the reclassification, thereby nullifying the need to modify the assessable value. The Tribunal agreed, emphasizing that the burden of proof for reclassification lay with the revenue, which it failed to discharge.

3. Demand for Differential Duty:
The revenue authorities demanded a differential duty of Rs. 11,36,911.21 for the period from 7th June, 1985 to 19th May, 1986, based on the proposed reclassification. The respondents provided substantial evidence to show that Melalite Cream was a medicine, not a cosmetic. The Assistant Collector and the Collector (Appeals) found no grounds to demand the differential duty, as the product was correctly classified under Tariff Item 14E and later under Heading 3003.19. The Tribunal upheld this decision, noting that the product's curative and therapeutic functions were well-documented and supported by expert testimony and medical literature.

Conclusion:
The Tribunal concluded that Melalite Cream is a medical preparation and not a cosmetic or toilet preparation. The classification under the erstwhile Tariff Item 14E up to 28th February, 1986, and under Heading 3003.19 after 28th February, 1986, was deemed correct. The Tribunal upheld the findings of the lower authorities and dismissed the appeal filed by the revenue.