CESTAT New Delhi Holds Shahnaz Ayurvedics Products Are Ayurvedic Medicines, Quashes Excise Demand on Cosmetic Classification

CESTAT New Delhi Holds Shahnaz Ayurvedics Products Are Ayurvedic Medicines, Quashes Excise Demand on Cosmetic Classification

Introduction

The Customs Excise and Service Tax Appellate Tribunal, New Delhi Bench, held that products manufactured by Shahnaz Ayurvedics are Ayurvedic Patent and Proprietary medicines and not cosmetics. The Tribunal ruled that the excise duty demand, along with interest and penalties, was unsustainable.

Factual Background

The dispute concerned classification of 18 products manufactured by Shahnaz Ayurvedics, including items such as creams, shampoos, and lotions. The Department treated these products as cosmetics under Chapters 33 and 34 of the Central Excise Tariff, alleging that they were primarily meant for beautification and personal care.

The assessee, however, contended that the products were Ayurvedic medicines manufactured using ingredients derived from authoritative Ayurvedic texts and under licences issued under the Indian System of Medicine.

Procedural Background

Show cause notices were issued for different periods following the expiry of area-based exemption available to the assessee’s Dehradun unit. The adjudicating authority and Commissioner (Appeals) upheld the demand. Aggrieved, the assessee filed appeals before the Tribunal.

Issues

1. Whether the disputed products were classifiable as cosmetics or Ayurvedic Patent and Proprietary medicines.

2. Whether the presence of excipients or fillers alters the essential character of Ayurvedic products.

3. Whether the excise duty demand, interest, and penalties were sustainable.

Contentions of the Parties

The Revenue argued that the products were marketed as beauty and personal care items highlighting cosmetic benefits such as fairness and anti-aging effects, and therefore should be classified as cosmetics. It contended that the presence of Ayurvedic ingredients alone was insufficient to establish medicinal character.

The assessee submitted that the products were Ayurvedic medicines, with active ingredients derived from recognised texts and manufactured under valid licences. It argued that non-active ingredients such as fillers, preservatives, and stabilisers are standard in pharmaceutical formulations and do not change the essential nature of the product.

Reasoning and Analysis

The bench of Justice Dilip Gupta and Technical Member P.V. Subba Rao observed that classification must be based on the essential character of the product, including its composition, intended use, and manner of marketing. It noted that the Department had not disputed the detailed evidence produced by the assessee regarding the Ayurvedic nature of the active ingredients and their therapeutic properties.

The Tribunal held that the presence of excipients or fillers, which are commonly used in pharmaceutical formulations, cannot by itself change the classification of a product. It rejected the interpretation that Ayurvedic medicines must contain only active ingredients, observing that such a view would lead to impractical and absurd results.

It further examined product labels and found that the goods were marketed as Ayurvedic medicines with specific claims relating to treatment or improvement of conditions, rather than merely for cosmetic use. The existence of licences under the Indian System of Medicine further supported the assessee’s claim.

Based on these factors, the Tribunal concluded that the products retained their essential medicinal character and could not be classified as cosmetics.

Decision

The CESTAT New Delhi allowed the appeals, set aside the classification of the products as cosmetics, and consequently quashed the excise duty demand along with interest and penalties.

In this case the appellant was represented by Vivek Kohli, Senior Advocate and Ashwani Sharma, Advocate. Meanwhile the respondent was represented by Din Dayal Mangal, Authorized Representative.