M/S. MULLER AND PHIPPS (INDIA) LTD.versusTHE COLLECTOR OF CENTRAL EXCISE, BOMBAY-I

                MIS. MULLER AND PHIPPS (INDIA) LTD.                        A
                                      V.

          THE COLLECTOR OF CENTRAL EXCISE, BOMBAY-I,

                                MAY 5, 2004

              [RAJENDRA BABU, CJ. AND G.P. MATHUR, J.]                     B
         Central Excise Tariff Act, 1985-Tariff Heading 30.03 and 33.04-
    Excise duty-Levy oF-Classification ofPrickly Heat Powder and Processed
    Talc-As Proprietary medicines or cosmetics/toilet preparations-Held :
    When State authorities take up commodity taxation, Court is to be guided C
    by the manner of classification of goods and not by the etymological
    meaning of the product or expert's opinion thereto-On facts, products in
    question has been treated throughout by various departments as drug, has
    been utilised with reference to commercial parlance and understanding as
    drug and also for the purpose ofDrug Act and Sales Act classified as drug,
    hence to be classified as medicinal preparations and not as toilet D
    preparations-Central Excise Act, 1944.

         Question arose with regard to the classification of Prickly Heat
    Powder and Processed Talc-whether as 'patent or proprietary
    medicines' or as 'cosmetics or toilet preparations" for the purpose of E
    excise duty. Collector (Appeals) held that in view of the medicinal
    ingredients in the product which are meant to cure the disease called
    Mi/aria Rubra/prickly heat, prickly heat powder is classifiable as a drug
>   or a medicinal preparation under the erstwhile Tariff Item 14E (upto
    28.2.1986) and under Heading No. 30.03 (from 1.3.1986). Appellate F
    Tribunal took into account that the Central Excise Tariff is now based
    on Harmonized System Nomenclature (HSN) and the opinion and
    recommendation of the Committee that prickly heat powder is
    preparation for the care of skin cannot be brushed aside simply
    because similar products are manufactured or sold under drug licence G
    and held that the product is a preparation for the care of the skin and
    not medicament as claimed by the appellant-Company. Hence that
    present appeals.

        Appellant-Compaily contended that prickly heat powder contains
    range of medkines and are used only for the treatment and prevention H
                                      39
    40                 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.
A of a skin ailment known as Mi/aria Rubra!prickly heat; that prickly
  heat powder is manufactured under a Drug Licence which is issued
  under the Drugs Act; that the Drug Controller has opined that due to
  the high content of boric add the product would be classifiable as drug;
  that the Central Government, Sales Tax Tribunal and also the
B Pharmacology Department has held that the product was a drug; that
  from 1970 till 1985 prickly heat powders have been classified as 'Patent
  or Proprietary Medicines' and the Collector (Appeals) also held the
  same whereas the Tribunal set aside the order; and that in the
  commercial parlance the product is known and understood as patent
C or proprietary medicine used for the prevention and treatment of the
  disease.

         Allowing the appeals, the Court

          HELD : I.I. In the matters where commodity taxation is taken
D   up by the State authorities the Court should be guided by the manner
    of classification of the goods which are brought to tax rather than the
    etymological of the product in question or expert's opinion thereto.
                                                                         146-81

          1.2. When the Central Excise Tariffs are based on internationally
E   accepted nomenclature fom1d in the Harmonized System Nomenclature
    (HSN), any dispute relating to tariff classification must so far as possible
    be resolved with reference to nomenclature indicated by HSN unless
    there be an express different intention by the Central Excise Tariff Act,
    1985 itself and when the Central Excise Tariff Act is enacted on the basis
F   and pattern of the HSN the same expression used in the Act must as far
    as practicable be construed to have the meaning which is expressly giwn
    to it in the HSN when there is no indi~ation in the Indian tariff of a
    different intention. However, in the instant case throughout the meaning
    given to prickly heat powder by the departments like Drug Controller
G   and Central Sales Tax authorities is that the product in question is a
    medicinal preparation. 147-G-H; 48-A-CI

         Collector of Centra! Excise, Shillong v. Wood Craft Products Ltd..
    119961 3 sec 454, referred to.

H        1.3. Applying the principles enunciated in BPL Phurmaceuticals
         MULLER AND PHIPPS (lNDIA) LTD. v. C.C.E. [RAJENDRA BABU, CJ.] 41

     Ltd. case and taking into consideration various circumstance as to the A
     manner in which prickly heat powder had been treated on the earlier
     occasions by various departments, the product having been utilized
     with reference to the commercial parlance and understanding, that it
     had been treated as a drug it would not cease to be one notwithstanding
     the fact that new Tariff Act has come into force. What is to be seen B
     in such cases is when in the common parlance, for purpose of the Drug
     Act, Sales Tax Act and in various findings recorded on earlier
     occasions by the department itself having been noticed, the conclusion
     is inevitable that the products in question must be treated as medicinal
     preparations. (48-D-E]
                                                                                   c
           BP L Pharmaceuticals Ltd. v. CCE, [1995( Supp. 3 SCC I,
     relied on.

          State ofA.P. v. Koduri Satyanarayana & Co., (1988) STC 233 (AP),
     referred to.                                                          D

          CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 779-783
     of 1997.

          From the Judgment and Order dated 26.9.96 of the Central Excise,         E
     Customs and Gold (Control) Appellate Tribunal, New Delhi in F.O. No.
     618-621/96-C in A.Nos. E/3036, 3578, 3579 and 4116/90-C with E/Misc.
     Nos. 296/93-C and 34, 35/96-C and A. No. E/3710/87-C.
>
          Ashok Desai, D.B. Shoff, Ms. Shirin Khajuria, Ms. Puja Sharma,           F
     Ajay Aggarwal and Rajan Narain for the Appellant.

         T.L.V. Iyer, G. Venkatesh Rao, T.A. Khan and B.K. Prasad for the
     Respondent.

          The Judgment of the Court was delivered by                               G

           RAJENDRA BABU, CJ. : In these appeals arising out of an order
'>   passed by the Customs, Excise and Gold (Control) Appellate Tribunal
     (hereinafter referred to as the 'Tribunal') question raised for our consideration
     is whether Johnson's Prickly Heat Powder and Phipps Processed Talc are H
    42                  SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A patent or proprietary medicines classifiable for the purposes of excise duty
    under the erstwhile tariff item 14E (as prior to 1.3.1986) and Heading 30.03
    (subsequent to 1.3.1986) as claimed by the appellants or whether they are
    cosmetics or toilet preparations falling under the erstwhile tariff item 14F
    (prior to 1.3.1986) and Heading 33.04 (after 1.3.1986) as claimed by the
B Department.
          The Tribunal held that the products in question are 'cosmetics' and
    not 'medicament" on the basis that boric acid, salicylic acid and zinc oxide
    present in the product are subsidiary pharmaceutical or antiseptic constituents
C   and their curativt> and prophylactic value is subsidiary and, therefore, the
    product is a preparation for the care of the skin and is classifiable under
    tariff item l 4F upto 28.2.1986 and under heading No. 33.04 from 1.3.1986
    and there is no legal infirmity in the order issued under Section 378 of
    the Centrnl Excise Act, 1944.

D        The relevant entries of tariff item 14F and Heading No. 33.03 are as
    follows :-

             J4F. Cosmetics and toilet preparations not containing alcohol
             or opium, Indian hemp or other narcotic drugs or narcotics,
E            namely:-

             (i)    Preparations for the care of the skin, beauty or make-up
                    preparations and manicure or pedicure preparations, such as
                    beauty creams, vanishing creams, cold creams, make-up
                    creams, cleansing creams, skin foods and skin talcs, face
F                   powder~, baby powders, toilet powders, talcum powders and
                    grease paints, lipsticks, eye-shadow and eye-brow pencils,
                    nail polishes and varnishes, cuticle removers and other
                    preparations for use in manicure or chiropody, sun-burn
                    preventive preparations and sun-tan preparations, barrier
G                   creams to give protection against skin irritants, personal
                    (body) deodorants, depi latorics.

             (ii)   Preparations for the care of the hair, such as : brilliantines,
                    perfumed hair oils, hair, lotions, pomades and creams, hair
H                   dyes, shampoos whether or not containing soap or organic
    MULLER AND PHIPPS (INDIA) LTD. v. C.C.E. [RAJENDRA BABU, CJ.] 43

              surface active agents.                                          A

        (iii) Shaving creams, whether or not containing soap or organic
              surface active agents.

             Explanation. I. "Alcohol", "Opium", "Indian Hemp'', B
        "Narcotic Drugs" and "Narcotics" have the meanings respectively
        assigned to them in section 2 of the Medicinal and Toilet
        Preparations (Excise Duties) Act, 1955.

              Explanation fl- This Item includes cosmetics and toilet
         preparations whether or not they contain subsidiary phannaceutical   c
         or antiseptic constituents, or are held out as having subsidiary
         curative or prophylactic value.

              Explanation III.- this Item includes, unmixed products, only
         when they are in packing of a kind sold to the consumer and put D
         up with labels, literature or other indications that they are for use
         as cosmetics or toilet preparations or put up in a form clearly
         specialised to such value."

         "33.04 : Beauty or make-up preparations and preparations for th~ E
         care of the skin (other than medicaments), including sunscreen
         and suntan preparations; manicure or pedicure preparations."

      The case put forth before us on behalf of the appellants is that jlrickly
heat powder contains a range of medicines and are used only for the F
treatment and prevention of a skin ailment known as ,~fi/aria Rubra
commonly known as prickly heat; that prickly heat powders..are manufactured
under a Drug Licence issued under the Drug and Cosmetics Act, 1940 and
have been treated as a drug and not a cosmetic by the authorities under
the Drugs Act; that on a reference made by the Finance Ministry, the Drug
Controller oflndia has opined that due to the high content of 5% boric acid G
in a prickly heat powder, it would be classifiable as a drug or medicament
and not as cosmetics; that from 1970 till 1985 prickly heat powders have
been classified and assessed under tariff item 14E of the old tariff as "Patent
or Proprietary Medicines"; that the Collector (Appeals), disagreeing with
the authorities, has taken the view that in view of the medicinal ingredients. H
    44                 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A namely, salicylic acid and boric acid which are meant to cure the disease
    called ,'vii/aria Rubra, prickly heat powder is a drug and, therefore,
    classifiable as a drug or a medicinal preparation; that whereas the Tribunal
    reversing the order of the Collector took the view that prickly heat powders
    are cosmetics and not 'medicament'. It is contended that prickly heat
B powder not only relieves prickly heat faster but actually helps prevent it;
    that when a person perspires profusely the sweat stays on the skin too long
    and the person becomes a potential victim of prickly heat; that specially
    formulated prickly heat powder absorbs the sweat better and faster and
    prevents the build-up of bacteria on the skin; that, therefore, the person
    avoids getting a red rash, itching and burning; that no person who requires
C ordinary talc for the purposes of beautifying her or himself would use the
    said products, which contain the aforesaid active therapeutic ingredients;
    that the said products are known as prickly heat/Mi/aria Rubra; that the
    sale of the said products are much higher in hot summer months when this
    disease frequently erupts. It is further submitted that the Central Government
0   by its order dated 22.3.1970 held that the product was a drug; that the Sales
    Tax Tribunal by its order dated 4.2.1970 held that the product was a drug
    and not a cosmetic; that the Central Board of Excise and Customs had also
    passed an order dated 17.1.1981 holding that selsum shampoo was not a
    cosmetic but was a drug and the basis for arriving at that decision was that
E Johnsons' prickly heat powder and NYCIL have been recognised as a drug
    and selsum stood on a stronger ground. Our notice was drawn to the
    decision of this Cou1t in BPL Pharmaceuticals Ltd v. CCE, (1995] Supp.
    (3) SCC 1, and the decision of the Andhra Pradesh High Court in State
    of A.P. v. Koduri Satyanarayana & Co, (1988) STC 233 (AP) wherein
p it was held that Sales Tax Tribunal was right in considering Johnson's
    prickly heat powder as falling under Entry 3 7 (drugs) and not under Entry
    36 (cosmetics). It is further contended that the price of the product was
    fixed under the Drug Price Control Order, 1970 as it had been manufactured
    under a Drug Licence issued under the Drugs Act; that under the Drug Act
    there are two regimes, namely, one for drugs and the other for cosmetics;
G   that before a drug licence is issued various conditions as required by Rule
    17 of the Drugs and Cosmetics Rules, 1945 have to be complied with; that
    the product is known and understood in commercial parlance as a patent
    or proprietary medicine used for the prevention and treatment of the
    disease, prickly heat; that the Head of the Pharmacology Depa1tment of
H   the Grant Medical College. Mumbai has also opined that !ohnson's prickly
         MULLER AND PHIPPS (INDlA) LTD. v. C.C.E. [RAJENDRA BABU, CJ.]      45

     heat powder contains active ingredients like salicylic acid and boric acid A
>
     and it is of medicinal value and can be used in the treatment of skin
     disorders. Various text books have been referred. in support of the
     argument. In analysing and understanding the meaning of the relevant
     entries of the tariff items our attention is drawn to various tariff items. It
     was noticed by the Secretariat of the HSN that it had no specific B
     information concerning a classification practice with regard to prickly heat
     powders in other countries and that a product known as Dakosan, which
     was described as prickly heat powder had been classified under heading
     33.07, that is, deodorant. The Government, however, pointed out to
     the Secretariat of the HSN that Dakosan could not be compared with C
     the prickly heat powder whose classification was under scrutiny
     because of the 5% content of boric acid. It was pointed out that the
     Government had consulted the Drug Controller who had opined that
     because of the high concentration of boric acid the product may be treated
     as a drug.
                                                                                 D
           The view of the Secretariat of HSN is under strong attack before us.
     It is stated that the question to be considered is whether the product had
     the essential character of preparations of heading 33.03 or medicaments
     of heading 30.04. The Secretariat thereafter purported to consider ce11ain
     examples given in Martindale's Extra Pharmacopoeia and came to the E
     conclusion that in those examples the active ingredients were higher. It is
     stated that boric acid was described in pharmaceutical literature as having
     feeble antibacterial and antifungal properties and that the Euronean
     Committees had issued a directive relating to cosmetic products indicating
f.
     that boric acid could be used in cosmetics in specified maximum F
     concentration limited to 5% Salicylic acid was described as a keratolytic
     substance having bacteriostatic and fungicidal properties used in the
     treatment of fungus infections of the skin, zinc oxide was stated to be
     applied externally in dusting powders and a mild astringent, Chlorphensin
     which is the active ingredient in Nycil was described as having antibacterial
     antifungal and antitrichomanal prope11ies and was used in dusting powders G
     in concentration of 1%. In that view, the Secretariat questioned the
     classification of Johnson's prickly heat powder and Shower to
     Shower as a medicament and stated that in view of its use and composition
     it would lean towards classification of these two products as
     preparations for the c.are of the skin falling under Heading 33.04. however, H
    46                  SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A   it is stated that Nycil should be considered as a medicament falling under
    Heading 30.04.

          What is required to be considered in the matters of this nature where
    commodity taxation is taken up by the State authorities the court should
B   be guided by the manner of classification of the goods which are brought
    to tax rather than the etymological meaning of the product in question or
    expert's opinion thereto.

           The Tribunal in the present cases has heavily relied on Explanation
    II to tariff Item No. l 4F of the Tariff Act which reads as ''this item includes
c   cosmetics and toilet preparations whether or not they contain subsidiary
    pharmaceutical or antiseptic constituents, or are held out as having
    subsidiary curative or prophylactic value''. This Court in BPI
    Pharmaceuticals Ltd. held that selenium sulfide product not intended for
    cleansing, beautifying, promoting attractiveness or altering appearance and
D   having regard to preparation, label, literature, character, common and
    commercial parlance understanding and earlier decisions of the Central
    Board of Excise and Customs held the product was a drug or medicinal
    product covered by Sub-heading 3003.19 and there was no good reason
    to change the classification merely on ground of coming into force of the
E   Tariff Act. Value of earlier understanding and precedents was emphasised.

          The Tribunal in the present cases adverted to BPI Pharmaceuticals
    Ltd. and differentiated the same on the basis that facts that arose for
    consideration by this Court in that case were different from the one they
F   had to decide. The Tribunal stated that the label affixed to the containers
    of the prickly heat powder did not indicate that it was a medicine to be
    used under a doctor's advice or under a doctor's prescription. The Tribunal
    also noted that the product is not known as a prominent medicine but only
    as an aid to prevent prickly heat. The Tribunal enumerated various
    arguments advanced on behalf of the appellants and took the view that :
G
             "Now examining the product before us, we find that the composition
             of the product 'prickly heat powder' is salicylic acid 0.8% to
             1.5%, boric acid 5%, z!nc oxide 10% to 16%, talc base of hydrate
             Magnesium silicate. Now the question is whether salicylic acid
H            0.8% to 1.5% boric acid 5% and zinc oxide 10% to 16% are
    MULLER AND PHIPPS (INDIA) LTD. v. C.C.E. [RAJENDRA BABU. CJ.] 47

        subsidiary pharmaceutical or antiseptic constituents. The assessees A
        represented that these ingredients were not subsidiary but were
        significant ingredients. In support of their contention, they cited
        and relied upon the Drug Controller's opinion wherein the Drug
        Controller in the case of shower to shower had opined that because
        of high cone. of boric acid, the product cannot be used as talcum B
        powder. Against this, we find that Secretariat of the C.C.C.N. in
        their note in para 28 opined "that "In researching the question of
        the classification of the prickly heat powders of concern to the
        Indian administration, the Secretariat has determined that certain
        'dusting powders' containing boric acid and zinc oxide or salicylic C
        acid are used for their therapeutic value in the treatment of certain
        skin diseases. However, in such preparations, according to examples
        cited in the Mai1indale Extra Pharmacopoeia, the level of active
        ingredients is rather high. For example, 'compound zinc durting
        powder' specified in the section on dennatological agents on page
        460, contains zinc oxide (25%), boric acid (5%), sterilised D
        purified talc (35%) and starch (3%). Another cited preparation-
        zinc and salicylic acid dusting powder-containing zinc oxide
        (20%), salicylic acid (5%) and starch (75%) but no boric acid".
        Then again in para 30, the Secretariat had opined that the cone.
        of boric acid in talc is limited to 5%. Regarding salicylic acid, the E
        Secretariat opined that they would Jean towards classification of
        shower to shower and Johnson's prickly heat powder as
        preparations for the care of skin in heading No. 33.04."

      After noticing the finding of the Harmonized System Committee the F
Tribunal noted that the Central Excise Tariff is now based on HSN and
the opinion and recommendation of the Committee cannot just be brushed
aside simply because similar products are manufactured or sold under drug
licence.

      Indeed, the effect of Hannonised System of Nomenclature (HSN) G
classification came up for consideration before this Court in Collector of
Central Excise, Shillong v. Wood Craft Products Ltd., (1995] 3 SCC 454.
This Court stated therein that when the Central Excise Tariffs are based
on internationally accepted nomenclature found in the HSN, any dispute
relating to tariff classification must so far as possible be resolved with H
    48                 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A reference to nomenclature indicated by HSN unless there be an express
    different intention indicated by the Central Excise Tariff Act, 1985 itself
                                                                                  •
    and it was further emphasised therein that when the Central Excise Tariff
    Act is enacted on the basis and pattern of the HSN the same expression
    used in the Act must as far as practicable be construed to have the meaning
B   which is expressly given to it in the HSN when there is no indication in
    the Indian tariff of a differem intention.

          But in the present case when throughout the meaning given to            '
    products in question not only by the department itself but also cy other
C   departments like Drug Controller and the Central Sales Tax authorities is
    that the product in question is a medicinal preparation should be accepted.

          Applying the principles enunciated in BPL Pharmaceuticals Lid. case
    and taking into consideration various circumstances as to the manner in
    which the goods had been treated on the earlier occasions by the
D   department and the product having been utilised with reference to the
    commercial parlance and understanding, that it had been treated as a drug
    it would not cease to be one notwithstanding fa: fact that new tariff act
    has come into force. Wliat is to be seen in such cases is when in the
    common parlance, for purpose of the Drug Act, for purpose of Sales Tax
E   Act and In various findings recorded on earlier occasions by the department
    itself having been noticed, the conclusion is inevitable that the products
    in question must be treated as medicinal preparations.

         Therefore, we have no hesitation in reversing the view of the Tribunal
F   and restore that of the Collector.

           The appeals are allowed accordingly.

    N.J.                                                     Appeals allowed.