9911796707
TMI Blog2009 (9) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... n]. The applicant states that it is an Indian subsidiary Company of a foreign holding company. Though the name of the foreign holding company was given as Guthy Renker Corporation, USA in the original application, in the written submissions filed on behalf of the applicant on 4th August, 2009, it is stated that the applicant is a 100% subsidiary of a Mauritius-based Company known as M/s. Guthy Renker India, Port Louis. It is clarified that upto 22-4-2009, it was a subsidiary of Global Synergy International, LLC (USA). On 22-4-2009, the said Company transferred the entirety of shares to Guthy-Renker India (Mauritius). A certificate from the Chartered Accountant has been enclosed with the written submissions which shows that Guthy Renker India, Mauritius holds 10,296,274 equity shares in the applicant-Company and the other shareholder - Guthy Renker Global Holdings, LLC - an USA company holds one share as a nominee of Guthy Renker India. The applicant is therefore eligible to seek advance ruling. 2.The applicant desires to enter into the business of import and sale of acne treatment products imported from USA. For this purpose, the applicant will import four products, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequently heal blemishes fast. It is designed to cleanse the skin. It contains 2.5% Benzoyl Peroxide as an active ingredient. 3. Proactiv Solution Repairing Lotion It helps to heal blemishes and prevents new ones from forming. It contains 2.5% Benzoyl Peroxide as an active ingredient. It has a therapeutic and prophylactic effect against acne. 4. Proactiv Solution Refining Mask It contains 6% Sulphur as an active ingredient for treatment of Acne. It reaches deep into pores where blemishes begin. It clears up blemishes and helps reduce the appearance of pore size. 2.2It is stated that the content of two drugs, namely Benzoyl peroxide and sulphur in items of 2 to 4 is of sufficiently high level to have a primary therapeutic or prophylactic effect against acne. 3.Questions raised in the application relate to their classification under the Customs Tariff Act and the method of valuation of goods in question for the purpose of levy of additional customs duty (described as countervailing duty-CVD in the application). The following questions are formulated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XX XX XX XX XX XX XX XX XX XX XX 3004 90 99 Other kg. 10% 10% 4.1Now, we shall refer to Chapter 33 on which the Revenue seeks to place reliance. CHAPTER 33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations Notes : xx xx xx xx xx xx xx xx 3. Headings 3303 to 3307 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as beauty cosmetic preparations of a kind sold by retail for such use. Tariff Item Description of goods Unit Rate of duty Standard Preferential Areas 3304 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Ferodo Ltd v. Collector of CE - 1997 (89) E.L.T. 16 it was further observed that if the Revenue leads no evidence, then the onus is not discharged. The most familiar test which is often applied in determining the classification among the two competitive Entries in a taxation Schedule is what is known as popular or commercial parlance test. It has been often emphasized that the scientific or technical meaning of the goods in the taxation Schedule should give way to the meaning ordinarily ascribed to them by those who deal with or use those goods, be it traders or consumers. In Indian Aluminum Cables Ltd. v. UOI - 1985 (21) E.L.T. 3 Chandrachud, CJ speaking for a three Judge Bench observed : This Court has consistently taken the view that, in determining the meaning or connotation of words and expressions describing an article in a Tariff Schedule, one principle which is fairly well-settled is that those words and expressions should be construed in the sense in which they are understood in the trade, by the dealer and the consumer. The reason is that it is they who are concerned with it and, it is the sense in which they understand it which constitutes the definitive index of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shan Research Lab - 2008 (230) E.L.T. 7 the Supreme Court pointed out that the common parlance test is not be all and end all of the matter . For instance, where the primary therapeutic use or effect of the product has to be considered before classifying the same as medicament in terms of what is stated in the Entry, it would be difficult to apply common parlance test. 5.4Certain pertinent observations made by the Supreme Court while deciding the question whether a particular product is a medicament or a cosmetic preparation may also be noticed. The mere fact that a product is sold across the counter and not under a doctor s prescription does not by itself lead to the conclusion that it is not a medicament. Merely because the percentage of medicament in a product is small, it does not ipso facto mean that the product is not a medicament. The therapeutic quality of the ingredient cannot be ruled out even if the minimum prescribed percentage is deployed in the product. The labels which give the warning, precautions and directions for use are relevant. The formula may not be according to the text books, it can also be under a patented formula. These propositions are laid down in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en if they have therapeutic or prophylactic properties. There is an apparent contradiction between the bracketed words - other than medicaments in the heading 3304 and the Note 1(d) to Chapter 30. These two provisions have to be reconciled so as to give effect to both of them. The best way to reconcile them is to retain in 3304 such of those skin care preparations whose therapeutic or prophylactic value/effect is only subsidiary or incidental and to relegate the other skin care preparations with pharmaceutical ingredients having substantial therapeutic or prophylactic use/effect to 3004. In other words, it is not simply sufficient that the make-up or skin care preparation in some measure or in a small way or incidentally helps the control of skin disease. But, its curative or preventive value must be substantial and the product must be manufactured primarily with a view to control or cure a skin-related disease by adding suitable pharmaceutical ingredients. That is to say, if preparations for care of skin contain sufficient level of medicinal ingredient so as to offer cure for skin ailments, they stand excluded from the purview of 3304. Broadly, they may be skin care preparations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illong v. Woodcraft Products Ltd. 1995 (77) E.L.T. 23. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central Excise Tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to reduce disputes on account of tariff classification . Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central Excise Tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI. This proposition was reiterated by the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cleanser which contain Benzoyl Peroxide and the Refining Mask which contains Sulphur can be classified as medicaments. 7.2The applicant has placed before us the samples of the Proactiv Solution products proposed to be imported and sold by them. The bottles of Renewing Cleanser and Repairing Lotion bear the inscription Benzoyl Peroxide Acne Treatment while the package of Refining Mask bears the inscription Sulphur Acne Treatment . Detailed information about each of the aforesaid three products has been provided on the labels under the title Drug Facts wherein apart from indicating the active ingredient (Benzoyl Peroxide or Sulphur) and purpose (Acne treatment), the directions for use and warnings have also been specified. On all the three products, precautions to be taken if any other topical acne medication is being used, have been specified. Instructions on the first product, namely Revitalizing Toner do not carry the heading Drug Facts . All the four products also bear the inscription combination therapy on the label. Copies of registration certificate and the licence issued authorizing the import of the products in question by the Licensing Authority (Dru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en used judiciously, may prevent the progression of noninflammatory acne. Benzoyl peroxide and tretinoin are gaining preference over the older sulfur-containing and salicylic acid-resorcinol formations. A large variety of over-the-counter preparations contain one or more keratolytic agents. 7.5The applicant has filed alongwith the application relevant extracts from the CFR/Federal Register published by Food Drug Administration of the Department of Health and Human Services of USA. The first one appears under the title: Topical Acne Drug Products for over-the-counter Human Use and it is a Tentative Final Monograph . Sub-part (D) deals with Topical Acne Drug Products . Under the sub-heading Acne active ingredients , it is stated, thus : The active ingredients of the product consist of any of the following when labelled according to 333.350. (a) Benzoyl peroxide 2.5 to 10 percent (b) Resorcinal 2% when combined in accordance with 333.320(a) (c) Resorcinal monoacetate 3% when contain in accordance 333.320(b) (d) Salicylic acid 0.5% to 2% (e) Sulphur 3 to 10 percent (f) Sulphur 3 to 8 percent combined in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Repairing lotion), it cannot be said that their therapeutic propensities are minimal or subsidiary. No doubt, the applicant has not furnished material to clarify the latest view of the F D Administration in USA. However, it is fairly clear that the products containing Benzoyl peroxide are sold across the counter for treatment of acne and has therapeutic value though certain safety related aspects are open to debate. The fact that products containing Benzoyl peroxide of 2.5% are allowed to be manufactured in USA and the manufacturers are permitted to exhibit the label acne treatment would go to show that Benzoyl peroxide is still recognized as a useful drug for the treatment of mild acne in USA. In India, as already noted, the Central Drug Standard Control Organization of the Ministry of Health, Govt. of India, has recognized Benzoyl peroxide as a drug and the licensing authority permitted the import of Proactiv Solution Repairing Lotion and Proactiv Solution Renewing Cleanser with Benzoyl peroxide (less than 2.5 per cent) as active ingredient. One more point deserves notice. The Indian Standard (I.S.4707-2) published by Bureau of Indian Standards, gives a list of substances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthoritative medical books and the Drug Control authority s view. It is noteworthy that the report does not even contain an analysis of the composition of the product. The Chemical Examiner s report is directed more towards the classification of product rather than scientific analysis and explanation. In this context, we may quote the observations in paragraph 9 of the Judgment of the Supreme Court in Puma Ayurvedic case (supra) : We may note here that the Chief Chemist had opined about the classification of these products under the Chapter 33 i.e. Cosmetic , but the opinion of the Chief Chemist on the question of classification has no relevance. We agree with the Collector (Appeals) that the opinion of the Chief Chemist has no relevance for determining classification of the products. The role of the Chief Chemist is only to supply the analytical data. On the other hand the opinion of the Directorate of Ayurved, Maharashtra referred to above is of great relevance. This report does not therefore come to the aid of the Revenue in discharging the burden which lies on it to bring the product under a classification that casts higher tax burden on the importer. 11.Coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumers as cosmetic or skin care product rather than as medicament. The customers and traders in all likelihood regard them as medicinal products rather than as cosmetic preparations. 13.In the result, Question No. 1 is answered as follows : We agree with the applicant s classification of the four products. Excepting revitalizing toner which is classifiable admittedly under heading 3304, residual sub heading 3304 99 and tariff item 3304 99 90, the other three products are classifiable under heading 3004, residual sub heading 3004 90 and the tariff item 3004 90 99 of the Customs Tariff Act. 14.Question No. 2 The additional duty under Section 3(1) of the Customs Tariff Act is liable to be paid at the time of import of the Category I products on the value based on the maximum retail sale price declared on the package in view of the proviso to Section 3(2) of the Customs Tariff Act and the applicant will be entitled for 35% abatement in terms of the said proviso read with Notification No. 49/2008-C.E., dated 24-12-2008 issued under Section 4A(2) of the Central Excise Act. We may mention that on this point, there is no dispute. It is the specific case of the applicant tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that percentage of the value of imported article. Then, sub-section (2) of Section 3 lays down the manner in which the additional duty on an imported article under sub-sections (1) and (3) shall be calculated. It lays down that where the additional duty is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in section 14 of the Customs Act be the aggregate of (i) value of the imported article determined under sub-section (1) of section 14 of the Customs Act, or the tariff value of such article fixed under sub-section (2) of Section 14, as the case may be and (ii) any duty of customs chargeable under Section 12 of Customs Act. The Explanation to Section 3(1) explains inter alia what the excise duty would be in case the like article is not manufactured in India. The proviso to sub-section (2) is important. It lays down : Provided that in case of an article imported into India, - (a) in relation to which it is required, under the provisions of the Standards of Weights and Measures Act, 1976 (60 of 1976) or the rules made thereunder or under any other law for the time being in force, to declare on the pac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from such retail sale price as the Central Government may allow by notification in the Official gazette. Explanation I. - For the purposes of this section, retail sale price means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like and the price is the sole consideration for such sale : Provided that in case the provisions of the Act, rules or other law as referred to in sub-section (1) require to declare on the package, the retail sale price excluding any taxes, local or otherwise, the retail sale price shall be construed accordingly. 15.3 In accordance with section 4A, the Central Government issued notification No. 49/2008-C.E. (N.T.), dated 24-12-2008. The Notification, in short, specifies the goods falling under the appropriate Chapter or heading or tariff item of the First Schedule to Central Excise Tariff Act as the goods to which the provisions of sub-section (2) of section 4A shall apply and allows abatement at the specified percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like article manufactured in India or if it is not manufactured in India, the notification should cover the articles of the same class or description to which the imported article belongs. These two conditions in clauses (a) (b) are cumulative. 15.5 There is no doubt that the first limb of clause (b) of the proviso is satisfied in the present case for the reason that the notification under Section 4A(1) of the CE Act covers preparations for the care of the skin as also medicaments other than those used in ayurvedic, unani etc. systems. The second limb of cl. (b) relates to abatement. The notification specifies the percentage of abatement. But, the percentage of abatement in the case of medicaments is related to retail sale price that has to be exhibited under DPCO. The discussion that follows on the applicability of cl. (a) of the proviso to Section 3(2) will make it clear that even the second limb of cl.(b) of the proviso becomes applicable here. 15.6 Now, the question is whether clause (a) of the proviso to Section 3(2) of the Tariff Act is attracted in respect of the three .products classified as medicaments. This issue leads us primarily to the examination of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rollers and the Government indicating changes, from time to time. Retail price means the retail price of a drug arrived at or fixed in accordance with the provisions of this Order and includes a ceiling price [vide cl.2(s)]. Maximum retail price is defined to mean the retail price arrived at or fixed in accordance with the DPCO and includes a ceiling price at which the drug may be sold to the ultimate consumer and where such price is mentioned on the pack, the words Maximum or Max. retail price inclusive of all taxes shall be printed on the pack [vide cl. 2(mm)]. The other important definition to be noticed is that of non-Scheduled formulation . Non-Scheduled formulation means a formulation not containing any bulk drug specified in the First Schedule. Cl.2 (h) defines formulation . It means a medicine processed out of, or containing one or more bulk drug or drugs with or without the use of any pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include .......... (iii) any substance to which the provisions of Drugs and Cosmetics Act, 1940 do not apply. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainer and if that be so, the first part of the standard in the Second Schedule is satisfied. This proposition is not seriously disputed by both sides. The next point to be addressed is whether these patented or proprietary medicines have to comply with any other prescribed standard. That leads us to the consideration of Rule 124-B of the Drugs and Cosmetics Rules. The said Rule lays down the standards for all patent or proprietary medicines as per Schedule V, without prejudice to the standards laid down in the Second Schedule to the Act. Now, we come to Schedule V which speaks of standards for patent or proprietary medicines. Having gone through the entire set of standards incorporated in Schedule V, we find that none of them have any application to the patent or proprietary medicines with which we are concerned. Even if it is assumed that the general requirements referred to in para 4.1 applies, it cannot be said that the imported medicinal products are lacking in such general requirements such as colour consistency, clarity, stability, freedom from contamination with foreign matter. In fact, it is nobody s case that there is infringement of any of the standards laid down in Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t individually. The eventual contract of sale would extend to all the contents in the kit and the kit cannot disguise their distinct identity. 16.4 The recourse to the definition of manufacture , in our view, is inappropriate. The opening part of cl.15 of DPCO refers to (a) manufacturer, (b) importer and (c) distributor. The context requires that the definition manufacture should be applied in relation to manufacturer. It cannot be aligned to the expression importer . Therefore, irrespective of whether the drugs imported ultimately undergo a process of manufacture by way of repacking and labeling, they are still intended for sale. We repeat that the articles ultimately sold after such repacking will not be different articles. 16.5 We are, therefore, of the view that cl. 15 of the DPCO comes into play and by virtue of that provision the maximum retail price has to be displayed on the label of the container of the formulation and the minimum pack thereof. If so, the retail price based valuation has to be adopted under the proviso to Section 3(2) of the Customs Tariff Act and moreover, the applicant-importer will be entitled to abatement as per the notification issued unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service industry. (b) Industrial consumer. - Means those consumers who buy packaged commodities directly from the manufacturers/packers for using the product in their industry for production, etc. 3.Chapter to apply to packages intended for retail sale. - The provisions of this Chapter shall apply to packages intended for retail sale and the expression package , wherever it occurs in this Chapter shall be construed accordingly. Retail sale , in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumer; [vide R2(q)] Rule 6 which bears the heading Declaration to be made on every package lays down that : 6(1) Every package shall bear thereon or on a label securely affixed thereto, a definite, plain and conspicuous declaration, made in accordance with the provisions of this Chapter as to, (a) xx xx xx xx (b) xx xx xx xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed articles as they are used by the applicant for production and therefore Chapter II of PC Rules is excluded. In this context, the expression production is sought to be equated to deemed manufacture under Section 2(f) of the Central Excise Act. We find it difficult to appreciate how the applicant can claim itself to be an industrial consumer within the meaning of clause (b) of the Explanation to Rule 2A. The imported products/packaged commodities are not meant to be used in any industry of the applicant with the object of producing some other goods. They are not in the nature of raw materials or consumables or other inputs used in an industry for manufacturing purposes. Neither the plain language of the definition of industrial consumer nor the objective of providing exemption supports the interpretation sought to be placed by the applicant. It would be wholly inappropriate to take resort to a special and enlarged definition of manufacture under the Central Excise Act. The word production occurring in the definition of industrial consumer cannot, by any norm of interpretation, be equated to manufacture as defined in Section 2(f) of Central Excise Act for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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