2000 (8) TMI 861 - AT - Central Excise

Medicine - Ayurvedic Medicaments - Patent and Proprietary - Valuation Related persons - Demand - Limitation

Issues Involved:
1. Classification of products as ayurvedic medicines or cosmetics.
2. Valuation of products for excise duty purposes.
3. Applicability of the extended period of limitation for duty demand.

Issue-wise Detailed Analysis:

1. Classification:
The core issue was whether the products manufactured by M/s. IRLP should be classified as ayurvedic medicines under CET sub-heading 3003.30 or as cosmetics under Chapter 33 of the CETA. The Commissioner's order classified the products as cosmetics based on their description, usage, and packaging. However, the Tribunal noted that the ingredients used were specified in recognized ayurvedic texts and had curative/prophylactic properties. Expert evidence from Dr. V.N. Pandey supported that most products were ayurvedic medicines. The Tribunal applied the test from the Apex Court's decision in BPL Pharmaceuticals Ltd., which emphasized the intended use of the product (curative or preventive) over packaging and appearance. Consequently, the Tribunal classified 22 products as ayurvedic medicines (e.g., Bio-apple, Bio-aloevera, Bio-coconut) and the remaining as cosmetics.

2. Valuation:
The valuation issue revolved around whether IRLP and IMPL were related persons under Section 4(4)(c) of the Central Excise Act, which would affect the assessable value of the products. The Commissioner found them related, citing common directors and financial transactions. However, the Tribunal, referencing the Bombay High Court's decisions in Cosmos (India) Rubber Works P. Ltd. and Ralliwolf Ltd., concluded that common directors alone do not establish relatedness, and there was no evidence that the relationship influenced the price. The Tribunal held that the price at which IRLP sold products to hotels should be the basis for valuation, not the price at which IMPL sold them. The Tribunal also noted that the price charged to IMPL was not depressed and should be accepted for duty computation.

3. Limitation:
The extended period of limitation was applied by the Commissioner based on alleged suppression of facts by IRLP. The Tribunal found this unjustified, noting that IRLP had disclosed all relevant information, including obtaining a drug license legitimately and complying with Central Excise approvals. The Tribunal highlighted that the Drug Control authorities allowed the continued manufacture of products after initial scrutiny. Additionally, the classification list was approved by Central Excise authorities, and similar products of other manufacturers were classified under Chapter 30. Consequently, the Tribunal ruled that the extended period of limitation was not applicable, making the demand for the period April 1991 to January 1996 time-barred.

Conclusion:
(a) 22 products were classified as P&P ayurvedic medicaments under CET sub-heading 3003.30.
(b) Remaining products were classified as cosmetics under Chapter 33.
(c) IRLP and IMPL were not related persons under Section 4(4)(c), and the price charged by IRLP should be the basis for valuation.
(d) The extended period of limitation was not applicable.

Requantification and Penalties:
The duty demand on products classified as cosmetics was to be recalculated for the normal six-month limitation period using IRLP's prices. The Tribunal left the decision on the appropriate penalty for IRLP to the Commissioner. Penalties on IMPL, IRL(M), and Smt. Vinita Jain were set aside, and the confiscation of land, building, plant, and machinery was also overturned. The appeals were disposed of accordingly.

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