Face wash to treat acne, cream to reduce skin blemishes, shampoo to treat dandruff: these all will be medicines or will be cosmetic/toilet preparations under Customs Law?
This is an eternal question faced by importers of personal care products into India. The above are just examples of few products, however, the same question can apply to numerous products which serve dual purpose of improving the physical appearance of a person, while also treating the root cause of the problem.
Under Customs Law, pharmaceutical products (products that serve a therapeutic or prophylactic purpose) are classified under Chapter 30, toilet / cosmetic preparations under Chapter 33 and Soap, shaving cream and shaving gel etc. are covered under Chapter 34. Import duty applicable on each product, when imported into India, is dependent on its classification. Thus, determining the right classification of each product is of utmost importance. However, when it comes to personal care products as discussed above, the decision is rarely simple or straightforward. This article attempts to demonstrate this challenge by examining a few relevant case law dealt with by the Supreme Court of India on this issue.
In the case of Commissioner v. Ashwani Homeo Pharmacy [2023 (385) ELT 6 (SC)], the question before Hon’ble Supreme Court was that whether the product in question, known as ‘Aswini Homeo Arnica Hair Oil’ (‘AHAHO’) will be classified as ‘medicament’ under Tariff Item 3003 90 14 (as contended by the assessee) or being Hair oil, should be classified as ‘cosmetic’ under Tariff Item 3305 90 19 (as contended by Tax Authority). In this case the contention of the tax authority was as under:
a. The product is not prescribed by doctors;
b. It is sold over the counter in both pharmacies and general stores;
c. It does not treat specific medical conditions like alopecia or insomnia;
d. The packaging, which features a woman with long, black hair, suggests it is marketed for cosmetic purposes. Thus, the goods should be classified as Cosmetics under Chapter 33.
In this case, the Hon’ble Supreme Court applied twin condition test i.e.,
a. Common Parlance Test - Whether the product is commonly perceived by the public as a medicament?
b. Ingredient-Based Test - Whether the ingredients are listed in authoritative Ayurvedic or homeopathic texts and are known for their therapeutic properties?
Applying the above test in present case, the Hon’ble Supreme Court held that the product is manufactured as drug after being duly licensed by competent authorities. The composition of the product is outlined in Homeopathic Pharmacopoeia of India and also in Dictionary of Practical Materia Medica. The product was clearly indicated to be Homeopathic medicine under Schedule K to Drugs and Cosmetics Rules, 1945. The product is intended to control hair fall as also to prevent dandruff and to induce good sleep, therefore, having therapeutic and prophylactic use. Merely because products are available across shop counter, product in question, AHAHO, would not cease to be medicament. As the product is being manufactured as Homeopathic medicine and the same is marketed and used as Homeopathic medicine would fall under Tariff Item 30049014 and same cannot be branded as cosmetic.
Further, in the case of Alphine Industries v. Commissioner [2003 (152) ELT 16 (SC)], the question before Supreme Court was that whether the product ‘Lip Salve’ which is essentially used as protective/preventive preparation for chapping of lips should be classified as Cosmetics under Chapter 33 or as Medicament under Chapter 30. In this case, the goods were manufactured under drug license. However, the drug issued itself mentions that it is a licence for ‘ointment and cream for external application as a non-pharmacopoeia item’. The Hon’ble Supreme Court did not consider the drug license obtained by the assessee and applied commercial parlance theory and held that Lip Salve is used for the care of the lips. It is a product essentially for ‘care of skin’ and not for ‘cure of skin’. It is, therefore, classifiable as a skin care cream and not a medicament. From the nature of the product and the use to which it is put, it is evident that the product is not primarily used for therapeutic purpose. Thus, it was held that Lip Salve should be classified under Chapter 33 as ‘Cosmetics’ under Heading 33.04 as preparation for the care of skin (other than medicament).
Similarly, in the case of BPL Pharmaceuticals Ltd. v. Commissioner [1995 (77) ELT 485 (SC)], the question before Hon’ble Supreme Court was whether Selsun Shampoo used in the treatment of skin diseases known as `Seborrhoeic Dermatitis’ commonly known as `dandruff’ and `Tinea Versicolour’ which is caused by an organism known as `pytyriasis versicolour’ will be classified as Pharmaceuticals under Heading 33.05 as Preparations for use on the hair, or under Heading 30.03 as Medicaments. The product was manufactured under the drug license. The product in question was not available in the Departmental Stores, but only with Chemists who have a licence under the Drug and Cosmetics Act to sell the same. In this case, Hon’ble Supreme Court applied common parlance test and held that the fact that subject good is manufactured under Drug License, put up as a medicine to be used under doctor’s advice in accompanying literature and sold through chemist shops under doctor’s prescription is understood as medicine. Thus, when the true nature of the product is clear, the fact that it is put up in an attractive plastic bottle is immaterial. It was held that the goods should be classified under Heading 30.03 as medicament.
Similarly, in the cases of Commissioner v. Ciens Laboratories [2013 (295) ELT 3 (SC)], the question before Hon’ble Supreme Court was whether the product ‘Moisturex’ which is used to treat Ichthyosis vulgaris, Fissure foot, Dry Scaly Skin conditions will be classified under Heading 30.03 as medicament or under Heading 33.04 as preparations for the care of skin, beauty or make-up preparations. In this case the facts were silent as to whether the product was manufactured under Drug license or not. In this case, the Hon’ble Supreme laid down the following principles to determine the classification of Moisturex:
a. When a product contains pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, the proportion of such ingredients is not invariably decisive. What is of importance is the curative attributes of such ingredients that render the product a medicament and not a cosmetic.
b. Just because the product is sold without prescription doesn’t mean it is cosmetic.
c. How the product is commonly perceived as by the public.
d. If a product’s primary function is ‘care’ and not ‘cure’, it is not a medicament.
Applying the above principles in present case the Hon’ble Supreme Court held that the cream is not primarily intended for protection of skin. The ingredients in the cream, the pharmaceutical substances do show that it is used for prophylactic and therapeutic purposes. Having regard to the pharmaceutical constituents present in the cream ‘Moisturex’ and its use for the cure of certain skin diseases, the product was classified under Heading 30.03 as medicament.
Further, in the case of Puma Ayurvedic Herbal (P) Ltd. v. Commissioner [2006 (196) ELT 3 (SC)], the assessee were manufacturers of Ayurvedic products which are intended to cure certain ailments of the human body. The products are Puma neem facial pack (Neemal), Puma anti-pimple herbal powder (Pimplex), Puma herbal facial pack (Herbaucare), Puma herbal remedy for facial blemishes, Puma hair tonic powder (Sukeshi), Puma anti-dandruff oil (Dandika), Puma shishu rakshan tel and Puma neem tulsi. The products were meant to give relief in body ailments. Additionally, the assessee was also manufacturing Puma Herbal Massage Oil, Puma Herbal Massage Oil for Women and Puma Scalp Tonic Powder (Scalpton). All the products were manufactured under ayurvedic drug license. Prior to the matter coming before Supreme Court, the CESTAT in the same case [2003 (155) ELT 561 (Tri-Delhi)] had held that the above products are classified as cosmetics except Puma anti-dandruff oil (Dandika). This Order was challenged before the Supreme Court.
In this case the Supreme Court applied the twin condition test i.e., Common Parlance Test and Ingredient-Based Test as discussed above. It was held that the products in question have a special use. They are not items of common use. Only those who want to treat a particular ailment will go for the particular product of the assessee. Further, the relevant ayurveda text were also placed on record. Thus, the twin conditions were satisfied. It was held that Puma Herbal remedy for Facial Blemishes, Puma Hair Tonic Powder (Sukeshi), Puma Anti-Dandruff Oil (Dandika), Puma Shishu Rakshan Tel and Puma Neem Tulsi were clearly medicinal products, classifiable under Heading 30.03. However, Puma Herbal Massage Oil, Puma Herbal Massage Oil for Women and Puma Scalp Tonic Powder (Scalpton) were held to not have any medicinal properties and thus were classified as ‘cosmetic’ under Heading 33.04. Thus, the fact that they were all manufactured under the ayurvedic drug license was not a deciding factor for classification under this decision.
The Hon’ble Supreme Court has passed the above decision even after expressly noting that Chapter Note 1 (d) to Chapter 30 excludes preparations of Chapter 33 even if they have therapeutic or prophylactic properties. Thus, the interpretation of the Supreme Court seems to be that if a product is principally a cosmetic and has an ancillary function as medicament, in such case the good will be classified as Cosmetic under Chapter 33. However, if the primary function of the product is as a medicament in such a case the product will be classified as medicine under Chapter 30, even if it is in the general form of a cosmetic.
Conclusion
From the foregoing discussion, it is clear that numerous factors have been considered by the Supreme Court for deciding whether a product is a medicament or is a personal care product. Mere manufacturing or non-manufacturing under drugs license is not a determinative factor for classification. While courts have at times gone by the license issued, at other times by the commercial understanding of the product, ingredients. The above judicial precedents indicate that there is no straight jacket formula for classification of such products and the test applied is inherently flexible. Therefore, determining whether a product is a medicament or a cosmetic requires a holistic analysis and cannot be decided through a rigid formula. Thus, the same needs to be examined on a case-to-case basis. Manufacturers, importers, exporters of such products must necessarily consider the vast jurisprudence available on this topic while finalising the classification for their product.
[The authors are Partner and Senior Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, Mumbai. They can be reached at srinidhi.ganeshan@lakshmisri.com and madhur.azad@lakshmisri.com respectively.]
