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Commissioner of Customs, Central Excise and Service Tax, Hyderabad vs Ashwani Homeo Pharmacy

Civil Appeal · 2023 INSC 483Decided 3 May 2023
Civil Appeal No. 9525 of 2018
Dinesh Maheshwari · Vikram Nath

Background

The respondent manufactured a homeopathic product called "Aswini Homeo Arnica Hair Oil" (AHAHO), which had been classified and taxed as a "medicament" (a lower duty category) since 1994, a classification the tax department itself had repeatedly accepted in the past. In 2015, the Commissioner of Customs and Central Excise reopened this classification, relying on 2012 amendments to the tariff schedule, and reclassified the product as a "cosmetic" (hair oil) instead, demanding over Rs. 2.72 crore in differential duty plus interest and a Rs. 54 lakh penalty. The Customs, Excise and Service Tax Appellate Tribunal reversed this and restored the "medicament" classification, prompting the department to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court applied the settled "twin test" for determining whether a product is a medicament: namely, whether it is understood in common parlance as a medicine (rather than an ordinary cosmetic used by everyone regardless of ailment) and whether it is manufactured predominantly for therapeutic or prophylactic use, and held that AHAHO satisfied both tests, being a homeopathic preparation used to treat specific hair and scalp conditions, sold mainly through pharmacies, and containing curative ingredients recognized in homeopathic pharmacopoeia. The Court rejected the department's argument that the 2012 tariff amendments (which reworded certain headings in Chapters 30 and 33) justified reopening a settled classification, holding that merely rewording or rearranging tariff entries does not change a product's inherent character, and that a change in classification requires proof that the product itself has changed, not just a change in how tax headings are drafted. It therefore dismissed the department's appeal and upheld the Tribunal's classification of the product as a medicament.

Lesson Learnt

Tax authorities cannot reclassify a product for higher taxation merely by pointing to cosmetic-sounding rewording of tax law entries; unless the product's actual composition, character, or use has genuinely changed, an already-settled tax classification (especially one accepted by the department itself for years) should not be casually reopened.

Official source (sci.gov.in)View Judgment (PDF)

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