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TMI Blog2000 (8) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... ntelligence gathered by the Directorate General of Anti-evasion that the products manufactured by IRLP were skin beautification creams, lotions, moisturisers, shampoos, etc., and were cosmetics and toilet preparations chargeable to duty @ 40% under Chapter 33 of the CETA but were being cleared as ayurvedic medicines on payment of duty @ 10% ad valorem, various premises of IRLP were searched by the officers of Directorate General of Anti-evasion on 17-1-96. Enquiries conducted by the Department revealed the following : 1. That IRLP are actually manufacturing and clearing cosmetics but with the intention of evasion of central excise duty, they are clearing their products as ayurvedic medicines. 2. They have fraudulently obtained a Licence under Drugs and Cosmetics Act 1940 by declaring use of certain herbals in their products but the cosmetics which are being used as essences, foaming agents, binding agents and giving bulk to the hair, cleansing agents, producing more lather, adjusting the PH value, chelating agents, astringents, having antiseptic property, chemical perfumes, humectants, skin softeners, etc., were not declared by them while obtaining licence under Drugs & Cosmetics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d selling products only as cosmetics and that their products are treated as cosmetics in trade parlance. The notice also alleged that M/s. Ishaan Marketing P. Ltd. (herein after referred to as IMPL) through whom IRLP was marketing its products, and IRLP are related persons as per Section 4(4)(c) of the Central Excise Act and that the transactions between them are not at arms length. The notice alleged that since IMPL and IRLP are related persons and normally whole-sale price for goods sold in sizes other than 35 ml. did not exist at the factory gate, the price at which IMPL have sold the products was to be taken as the cum-duty price of the goods manufactured and cleared by IRLP, for levy of duty. The notice proposed recovery of Rs. 3,06,68,074.78 BED and Rs. 34,39,918,89 SED during the period 1-4-91 to 16-1-96 by invoking the extended period of limitation; penal action was also proposed against them. The notice was adjudicated by the Commissioner of Central Excise vide his Order-in-Original No. 5/98 dated 29-1-98, confirmed a duty demand of Rs. 3,10,17,993/- and imposed a penalty of Rs. 1 crore on M/s. IRLP under Rule 173Q, penalty of Rs. 25 lakhs on IMPL and penalty of Rs. 35 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to as cosmetics by hotels to which they were supplied; that they are used as shampoos, moisturisers, etc., and not as medicines; that the literature of the appellants no where describes the products as medicines; that the shape and size of the containers also indicates that the products are cosmetics. She has held that the term "ayurvedic medicines" has been given on the label either above or below in very small size, that they do not claim any cureative or prophylactic properties against any ailment or disease and that, there is no evidence that these were prescribed by doctors or that any clinical trials were conducted thereon. She has further held that the definition of ayurvedic medicine under the Drugs and Cosmetics Act cannot apply to decide classification under the Central Excise Act, and, therefore, the popular meaning of the products is to be taken into account. She has relied upon the decision of the Tribunal in the case of Shri Baidyanath Ayurved Bhawan v. Collector of Central Excise reported in 1985 (22) E.L.T. 844 which has been affirmed by the Apex Court 1996 (83) E.L.T. 492 (S.C.). She has relied upon Note 1(d) to Chapter 30 to conclude that merely because the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritative text books of Ayurveda. I am enclosing the data and the comments for these items alongwith this note. 3. All the 66 products examined by me contain ingredients which are well documented in authoritative ayurvedic text books-references have already been given in each of the product data sheet. Under the Drugs and Cosmetics Act, all these items will be considered as patent or proprietary ayurvedic medicaments in terms of Section 3(h). 4. I have read the peculiar definition under the Excise Tariff mentioned in your letter with great interest. According to me, any ayurvedic medicament will be considered as a medicament even if it has cosmetic use but the definition quoted in your letter being peculiar, I have examined the data, the method of use and the lable claim of all these products. As I understand this peculiar definition, any cosmetic product which is used either as a toilet preparation or as a beauty aid (like skin care preparations or hair care preparations) would be treated as cosmetic or toilet preparations even if such products have subsidiary medicinal claims. In other words, unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is anti-itching, anti-toxin and anti-inflammatory. Mangalya - Bahava Prakash has given this as a synomym which indicates overall good effect for user (Bahava Prakash Nigantu P. No. 529). BASE Q.S. (6) SLES Derived from Coconut Oil (7) SLS -do- -do- (Indian Pharmacopoeia (II) P. No. 475 (8) Cocodie -do- -do- (9) Sodium Benzoate Preservative -do- -do (II) P. No. 465 (10) Methyle Paraben -do- -do- -do- (I) P. No. 318 (11) Propyl Paraben -do- -do- -do- (I) P. No. 427 (12) Fragrance V.J.8. From natural sources Note : This product is made out of combination of five Ayurvedic constituents derived from plants sources. This is also authenticated by Pharmco Dynamics (Guna Dharma) as described in Ayurvedic Literature. In view of these ingredients this product is an Ayurvedic Medicine to cure seboric skin disorders and hair problems. This combination is evolved to liquefy the Sebacious discharges and simultaneously clean the scalp from variety of polluents and external microbes. Ayurvedic discipline advocates Siddharthakara Yogas to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of ageing. The Gunakarma (Pharmaco dynamics) of main items at Sl. No. 1 to 4 indicate that it is good for the conditions like Dushtavarana (chronic ulcers) infections and wrinkles. BIO-COCONUT INGREDIENTS 1. NARIYAL PANI (3%) Raktapittanashak - Cures for the diseases where rakta dhatu and pitta doshas are disturbed. (Dravya Gun Vigyan P. No. 117) Varnya - Provides strength to the skin 2. DOODHAL (3.5%) Rupana - Active tissue regeneration Vishnashani - Removes toxins. Bhava Prakash Nighantu P. No. 458 3. MANJISTHA (2.1%) Kushtahara - Removes the skin disorders. Vrananashani - Eradicates the minute ulceration. (Shaligram Nighantu P. No. 154) 4. NIMBAKAMLA (0.5%) Rich in Vit. C and citrous action 5. BADAM TAIL (2%) Stimulant, nutrative nervine tonic Bahav Prakash Nigantu P. No. 588 BASE Q.S.: 6. STEARIC ACID From vegetable oil - (Indian Pharmacopoeia-II) P. No. 481 7. COCONUT OIL Good for skin, excellent 8. EMULSIFYING WAX For emulsion -do- (I) P. No. 186 9. MYTHYL PARABEN Preservative -do- (I) P. No. 318 10. PROPYL PARABEN -do- -do- (I) P. No. 427 11. V.K. DRAKKAR Fragrance 12. PURIFIED WATER Q.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. 427 11. FLAVOUR VK DRAKKAR Natural Sources Note : This product contains four items of plant origin described in Ayurvedic treatises. Their application is emphasized in a clinical conditions called Padadari (Rhagades) both by Bahav Prakash and Raj Nighantu. In this clinical conditions skin cracks and becames painful because of on-going inflammatory changes. This disease is often seen in adults and in elderly people, mostly at the time of change in the season and the products is specially effective in the case of Padadari (Rhagades) inflammatory condition of the feet. The items like stearic acid, glycerin, have their origin from the vegetable oils and are used as base. Cetyl Alcohol and Lanolin, are immolient, to provide soothing and softening effect. The Mythyl Paraben and Propyle Paraben are preservatives and flavour VK Drakkar is added for the purpose of giving a distinctiveness to the product. The clinical efficiency of the first four items in condition of Padadari (Rhagades) as mentioned in Ayurvedic treatises clearly makes it an Ayurvedic Medicine. The other items used do not have any clinical effect other than helping in making the preparation a finished product. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RCH LABORATORIES PVT. LTD. Regd. Office : 901, Nirmal Tower, 26 Barakhamba Road, New Delhi-110001, Phone: 3738011-13 Works: S-35, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI-110020, PHONE: 6912832 21st November, 1997 Dr. V.N. Pandey ABMS, D.A.Y.M., PhD. Ayurveda Ex-Director Central Council for Research Ayurveda & Siddha A-50, South Extn., Part-I, New Delhi-110049 Dear Sir, Please refer to our letter dated 13-11-97. On the same grounds you are requested to give your expert opinion on additional following medicines :- 1. BIO-COCOBUTTER 2. BIO-CUCUMBER Please offer your expert opinion at your earliest convenience supported by references, if any, from authoritative texts on Ayurveda. Thanking you, Yours faithfully For ISHAAN RESEARCH LAB. PVT. LTD. Sd/- AUTHORISED SIGNATORY Dr. V.N. PANDEY ABMS, D.A.Y.M. Ph.D., Ayurveda Ex-Dir, C.C.R.A.S. A-50, South Extn. Part-I, New Delhi-110 049. 5th December, 1997 M/s. Ishaan Research Laboratories Pvt. Ltd. 901, Nirmal Tower, 26, Barakhamba Road, New Delhi - 110001. Dear Sir, Please refer to your letter dated 13-11-97 seeking my opinion and also the reference to four products. 2. You have added two more products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outic composition (physico-chemical combination). The Dravya (matter) is a source material and Guna is property available in drug material. However, to simplify these qualities, the basis evolved by Ayurvedic philosophers and scientist to describe the Ayurvedic pharmaco-dynamics of medicament is being described in the following order :- 1. Rasa - (Taste) Indicating chemical composition based on taste buds 2. Guna Pharmacodynamics : Procedural details of preparation and its ingredients, how do they operate, act and excreted out of body. 3. Vipaka Metabolic properties : Adsorption, absorption, assimilation, metabolisation, humanisation and bio-transformation. 4. Virya Potency Minimum, optimum and maximum levels of dyanamic property available in the drug material leading to overall effect. 5. Prabhava Specific property, which cannot be explained by known chemico physical laws of the universe. 6. Karma (Action) The ultimate clinical result achieved The whole emphasis in drug action of Ayurveda is to synchronise with guruvadi guna. In other words their effect on Rasa (Plasma and lymph), Rakta (blood), Mans' (muscles), M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The bases which have been added to the main ingredients do not have therapeutic effect since they are used as vehicle or excipients. They simply help in maintaining the proposed combination, their fine presentation. They do help in activating the synergestic action or at time potentiate their effect. The percentage of these vehicles or carriers are mostly to the extent of additional 25% only with slight variation if need be. Rest of the bulk is supplemented with pure water to make it 100%. 5. Charaka and other authorities of Ayurveda have righty said that the therapeutic effect are achieved through Pradhan dravyas (main ingredient) not through the vehicle or excipients. Even if they are added they do not deminish or alter the effect of main ingredients. The percentage of each constituent in a Ayurvedic medicament is not described in treatises of Ayurveda. But on the analysis of the methodology prescribed for Taila preperations as given in formulary of Government of India we have tried to formulate our own percentages for all the items except to the powders, Lepas, Udvartanas (poultice, pack and balm). In giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogical cleansing process. Samundrakai forms a jelly like structure after being dissolved in hot water. Its property as Mruduvirachaka (mild laxative) is used here in a different context. It soaks the discharges released by its hygroscopic action after pealing of the crust by Aristaka, Chhoti duddhi and Shikakai. The total quantity of base material used is approximately 27%. Rest is water. It helps in cleaning and biological healing of the tissues. Normally the local application in such conditions are kept below 10-15% which is inferred from Ayurvedic principle of Ashthamansavshesha (12.5%). [3] BIO-APRICOT It is an Ayurvedic medicament. It contains five medicinal plants mentioned in Ayurveda. Ayurvedic physicians are used to induce Avagahanakarma for overall body treatment of ksudrakushtharoga. In this a combination of Kubani tail 0.5%, Banhaldi 1%, Haldi 1.75%, Kudabeej 2.5% and Aristaka 4.2% are added. Their combination comes to 10% of the total bulk. The bases which are added as preservative, fragrance etc. are almost 25%. Rest is water. This preparation is also worked out as a representative to the reduction achieved through the process of Ashthamansavshesha, 1/8 prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of skin. Dhania dispels bad smell. Majuphal does not allow bad discharges from the skin because of its grahi (capacity to adsorb or absorb discharges). Lastly Pudina tail acts as an disinfectant and induces the feeling of being fresh due to its krimi prabhanjana property. The whole idea is to keep the face clean free from smell and inbuilt mechanism to do away with the local infection of short duration. [6] BIO-COCOBUTTER : It is very interesting that Sushruta the redactor and author of Sushruta Samhita (500 B.C.) makes a cautious appeal to Ayurvedic physicians to save the Ashananya prashva (pregnant women who is likely to deliver the baby soon) especially after seven month, be saved from the problem of kandu (itching) and strie formation on area of stress having stretches and irritation. In view of this important requirement of pregnant woman this preparation has been designed. It contains Cocobutter 4%, Sarson tail 1.15%, Arjuna chhal 2.1%, Mahua chhal 1.9%, Badam tail 2%, Nagkeshar 1%. This combination of pradhan dravya is calculated to 12.5%. Rest of the items such as from S. No. 7 to 14 are added as bases to the extent of 34.5%. Lastly to make it 100% purified water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve or prophlactic value. Applying the test laid down by the Apex Court, let us examine whether the products in dispute in the present case are intended to cure or prevent certain diseases. For this purpose, we reproduce below the description given on the labels of the products : SL.NO. NAME OF THE PRODUCTS DESCRIPTION ON THE LABEL 01. BIO-APPLE : - - Cures scalp infections. Every day use does not effect the pH balance of the hair. 02. BIO-APRICOT : - Removes all microbes and pollutants. 03. BIO-ALOEVERA : - - Effective in eczema and psoriasis. Use every morning after moisturing. Protect skin from microbes pollutants, protective and antiseptic. 04. BIO-BERBERRY : - - - Cure skin blemishes. Use skin freshener to remove last traces of dirt. Follow with freshener and then moisturiser. 05. BIO-BRINGRAJ : - - It penetrates hair shafts and nourishes scalp. Leave for 1/2 hrs. before washing. 06. BIO-CLOVE : - - - Anti-blemish face packs. Not recommended for sensitive skin. May cause burning sensation due to effective ingredients. Follow with freshner and then moisturises. 07. BIO-CHLOROPHYLL : - - - Its antiseptic and antiflammatory. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... patchscane etc. Follow with Freshner and moisturiser. 26. BIO-LOTION : - Cures skin infection. 27. BIO-MUD : - - - Astringent and antiseptic. Stimulates blood circulation and protects skin from infection. Cures white patches, freekles etc. Follow with freshner and then moisturiser. 28. BIO-MYRISTICA : - - - Cure pimples, acne and other skin blemishes. Pimple and acne pack. May cause temporary burning sensation. 29. BIO-MARGOSA : - - Antiseptic cleanser for hair and scalp. Revitalise hair while making the scalp infections free and healthy. 30. BIO-NYCTANTHES : - Cures skin infections, leaves dry dehydrated cracked and brittle skin smooth and soft. 31. BIO-NEEM : - Helps removes microbes and pollutants. 32. BIO-NUT : - - Remove deep seated microbes and pollutants and remove blackhead, whiteheads and dead epithelial cells. Can follow with a face pack. 33. BIO-OIL : - - To deep cleanse the skin of microbes, pollutants and makeup. Follow with freshner and moisturiser. 34. BIO-PEACH : - - - Treat pimples, acne and other skin infections. Deep impurity and dead cell remover. Not recommended for sensitive skins. 35. BIO-PRO : - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aby's delicate skin. 60. BIO-THYME : - Help revitalise hair and scalp, stop hair loss. After shampoo conditioner. 61. BIO-GRASS : - A light after shave gel. 62. BIO-ORRIS : - It removes microbes and pollutants from skin making it healthy. 63. BIO-PLANTAIN : - Heals minor cuts 5.1.4 From the above, it emerges that some of the products are intended to cure certain ailments or diseases : Product at Sl. No. 1 - Bio-apple It is intended to cure scalp infections Product at Sl. No. 3 - Bio-Aloevera It is intended to cure eczema and psoriasis (skin diseases) Product at Sl. No. 8 - Bio-cucumber It is intended to cure pigmentation which is a skin disease Product at Sl. No. 9 - Bio-coconut It removes pigmentation Product at Sl. No. 10 - Bio-costus It is intended to cure foot infections Product at Sl. No. 17 - Bio-fruit It is intended to cure pigmentation of skin, eczema, psoriasis Product at Sl. No. 20 - Bio-henna It is intended to cure alopecia which is a disease in which there is excessive hair fall, due to scalp infections. Product at Sl. No. 21 - Bio-henna leaf It prevents hair loss Product at Sl. No. 23 - Bio-kelp It is intended to cure alopecia P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and IMPL are related persons is inter alia based upon the fact that 99.9% of the shares of IRLP are held by Smt. Vinita Jain and her husband, Shri Pradeep Jain who are Directors of IRLP, and 100% of shares of IMPL are held by Smt. Vinita Jain and her brother, Rajiv Agarwal who are Directors of IMPL, that the employees of IRLP were looking after the affairs of IRPL and vice versa, that IMPL was looking after all aspects of sales made directly by IRLP to various hotels, that the prices agreed upon between the two companies in 1993 were not reviewed despite increase in prices of all raw materials, even 3 years after the agreement, whereas the sale price of IRPL for the same goods went up substantially during this periods etc. We note that there was no mutual share holding between IRLP and IMPL. Commonness of Directors cannot be a ground to hold that both the companies are related persons, as held by the Hon'ble Bombay High Court in the case of Cosmos (India) Rubber Works P. Ltd. v. Union of India reported in 1988 (36) E.L.T. 102 (Bom). Even if they are considered as related persons, the price charged by IRLP cannot be discarded unless and until it is established that the relationship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.71 Bio Apple 120 ml 20.50 20.50 20.50 20.50 11.00 Bio Apricot 120 ml 20.50 20.50 20.50 20.50 24.00 Bio Apricot 120 ml 20.50 - 20.50 - - Bio Neem 35 ml - 7.50 - - - Bio Basil 120 ml - 20.50 - - - Bio Neem 35 ml - 20.50 - - - Bio Gel 35 ml - - 7.50 7.50 10.71 Bio Gel 120 ml - - 20.50 - 17.00 Bio Apricot 35 ml - - 7.50 7.50 10.71 We also note that some 35 ml. pack supplied to hotels as well as to IMPL are priced identically, and that sale of 120 ml. pack to hotels are in bulk e.g. the number of pieces sold to hotels are in the range of 1000 pieces, 900 pieces, 500 pieces, etc. 5.2.1 The finding that IMPL was incorporated with an intention to evade payment of duty by adopting the price charged by IRLP to IMPL is unjustified since incorporation of IMPL as a company took place in August, 1993 which is prior to the date of levy of duty on ayurvedic medicines in question viz. 1-3-94. Further the question of charging duty on the maximum retail price, which has been done in Order-in-Original Nos. 49-50/98 dated 31-8-1998, 24/98 and 30/98 dated 30-4-1998 and 51/98 dated 31-8-1998 cannot arise. In terms of Notification issued und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Parlours, Hotels, etc., describing the use of these products as cosmetics, that letters to the Purchase Managers of Taj Palace Hotel and Taj Mahal Hotel, requesting them not to mention the name "shampoo", "moisturiser", etc. and place orders only for Bio-apple, Bio-lotion, etc. as there may be excise problems, shows that the manufacturers were clearly aware that their products were herbal cosmetics and not medicines and yet described the products as P & P medicaments in the classification lists; that the appellants procured the drug licence fraudulently; that the appellants had used various chemicals which were neither declared nor got approved by the Drugs Control Department while applying for grant of licence to manufacture ayurvedic medicines and they also did not declare the use of these chemicals on the labels of the products and, therefore, the drug licence was obtained fraudulently by suppressing use of chemicals, etc. The finding that the drug licence was obtained fraudulently, however, no longer holds good as the Drug Control authorities themselves had permitted the appellants (who had submitted detailed information with regard to the formulae and manufacturing process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el of the products. In the meantime till such decision of the Board is communicated by Drugs Controller (India), conditions imposed in the aforesaid show cause notice "to stop forthwith the manufacture of products under licence No. 243/A&U in Form 25D" is withdrawn subject to the condition that the firm shall delete the printed statement on the label "contains no artificial fragrance and chemicals" but instead bear the statement "the product is not a cosmetic item" and duly get verified by Drugs Inspector (Ay.) before release the product for marketing. The claim of the appellants that they are still carrying on their manufacturing activity under a drug licence has not been controverted by the Revenue. We also find that the classification list filed by the appellants was approved by the Central Excise authorities after altering the classification of only one item out of 59 items viz. Bio-soap Berry from Chapter 30 to Chapter Heading 33.04, although, change of classification was proposed in respect of 3 products viz. Bio-dandelion, Bio-chestnut and Bio-soap Berry. This clearly shows that the authorities clearly applied their mind before according approval. We also note that in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities that the preparation satisfies the following conditions : (a) The medicament has been prepared in accordance with the formulae prescribed in authoritative text books; and (b) the ingredients added other than those prescribed in the authoritative text books, do not have any therapeutic value, The above clarification will apply only to ayurvedic medicaments which are sold under generic name as specified in the authoritative text books and as far as branded medicaments are concerned, they will continue to be ineligible for the exemption under Notification No. 75/94-CE dated 29-3-94. This issues with the approval of the Commissioner, Central Excise. This would also go to show that a dispute prevailed in the matter of classification of such products. In the above circumstances, the appellants cannot be held to be guilty of suppression or mis-statement and hence the charge of suppression is not sustainable. We, therefore, hold that the proviso to Section 11A(1) of the Central Excise Act is not applicable to these 3 cases, and hence set aside the demand covered by adjudication order No. 5/98 as time- barred. 5.3.1 To conclude our findings are summed up as follows : (a)& ..... X X X X Extracts X X X X X X X X Extracts X X X X
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