By TIOL News Service

NEW DELHI, AUG 05, 2015: RESPONDENT is the manufacture of 'Ketoconazole Shampoo' and 'Nizral Shampoo' which are sold in the bottles of 50 ml and 5 ml. Dispute is about the classification of the aforesaid product for the purposes of payment of central excise duty. The respondent had filed the declaration classifying the said product under CSH 3003.10 of the Central Excise Tariff Act, 1985 on the ground that it is basically a medicine. However, as per the appellant/Revenue, the appropriate classification of this product is under CSH 3305.99 as it perceives the product as 'preparation for use on hair'.

At the outset, the Supreme Court mentioned that the product known as 'Nizral Shampoo' gives the nomenclature of the product as shampoo. However, the respondent claim that it is a patent or proprietary medicament as its essential characteristics is therapeutic in nature. It is the common case of the counsel for the parties the pre-dominant use of the product in question is to be taken into consideration while deciding the classification issue. Therefore, it is to be determined as to whether the product in question is primarily used as a shampoo or it is used as a medicament. To find answer to this question, it is necessary to keep in mind the essential characteristics of the product. When the matter is examined from the aforesaid perspective the Supreme Court came to the conclusion that the respondent is correct in submitting that the essential properties of the product are medicinal in nature.

The Supreme Court noted:

The use is suggested only on the advice of a Doctor and there is a suggestion that Doctor should be consulted for any further information. The respondent has also provided the literature/material showing that dandruff is a disorder which affects the hairy scalp. It is generally triggered by a single celled organism which is kind of fungus, with scientific name 'Pityrosporum Ovale'. For treatment of this disease, Nizral Shampoo 2% (i.e. shampoo containing 2% 'Ketoconazole') is shown as 'a new medicine' use whereof cures clears a dandruff. It is suggested that it should be used once a week and on other days, normal shampoos may be used which clearly shows that 'Nizral Shampoo' is to be used like a medicine, unlike other normal Shampoos.

We also find that in order to show that the product was used only as a medicament for curing dandruff and not for using the same for the purpose of cleaning hair, the assessee filed affidavits of various Doctors.

The Supreme Court also observed that the Tribunal has summed up the entire legal proposition in para 5 of its judgment with which it entirely agreed. This para reads as under:

"5. We have carefully considered the submissions made by the learned Counsel and the learned DR. We find from the extracted literature that the item comprises of 20 mg Ketoconazole in one ml and the pamphlet clearly indicates that it is for the use only of a Registered Medical Practitioner or a Hospital or a Laboratory. The pamphlet claims that the item is used for treatment and prophlaxis of infections in which the yeast pityrosporum is involved such as pityriasis versicolor (localized), seborrhoeic dermatitis and pityriasis capitis(dandruff). The procedure for treatment and the adverse reactions on such treatment due to overdose is also stated in the pamphlet. The Apex court, in the case of Muller & Phipps (India) Ltd. v. CCE, - 2004-TIOL-48-SC-CX has clearly held that once the item has been manufactured under a Drug licence and the Department has treated the item as a Drug, it would not cease to be one notwithstanding the fact that new Tariff Act has come into force. The Apex Court again held in the case of CCE v. Pandit D.P. Sharma, - 2003-TIOL-57-SC-CX that once in the common parlance the item is treated as a medicament and manufactured under drug licence and the evidence is produced by the party with regard to the item being a medicament, then it should be treated as such and should not treat 'Himtaj Oil' as 'perfumed hair oil'. The Apex Court's ruling in the case of B.P.L. Pharmaceuticals Ltd. v. CCE, - 2002-TIOL-63-SC-CX has held that 'Selsun' and anti-dandruff preparation containing 2.5% selenium sulphide which is full therapeutic limit permissible as per pharmacopoeia and manufactured under Drug Licence and certified by Food and Drugs Administration as a medicine, and the same is put up as a medicine to be used under Doctor's advise in accompanying literature and sold through chemist shops under doctor's prescription should be considered as a medicament under Sub-Heading 3003.19 of CE Act and not as a cosmetics. In the present case also, same evidence is relied which are identical to the facts of B.P.L. Pharmaceuticals Ltd. The item also acts as an anti-dandruff preparation with 2% Ketoconazole. The same is sold on doctor's prescription and by the chemists and understood as a medicine in common parlance as per the enormous literature and affidavit produced. Therefore, there was no necessity for the Commissioner to have distinguished this Apex Court judgment which applies on all fours to the facts of the present case. We also find that the judgment of the Apex Court rendered in the case of CCE v. Vicco Laboratories, - 2004-TIOL-109-SC-CX-LB also applies to the facts of the case. In this case, the Apex Court has clearly noted that the common parlance test should be applied for determining whether a product is classificable as a pharmaceutical product under Chapter 30 of CET Act or as a cosmetics under Chapter 33 ibid as laid down by the Supreme Court in the case of Shree Baidyanath Ayurved Bhavan Ltd., - 2002-TIOL-204-SC-CX. As there is enormous evidence produced by the appellants with regard to the use of Ketoconazole Shampoo for treatment of several disorders and diseases mentioned in the pamphlet and the same is sold by a chemist under a prescription issued by a Registered medical Practitioner or a Hospital or a Laboratory, therefore, the appeal is required to be allowed with consequential relief, if any."

Appeal is dismissed with cost.

(See 2015-TIOL-175-SC-CX)