Apex Court Decision on whether Product is Medicine or Cosmetic

A pharmaceutical product is a "medicament" under the Central Excise Tariff Act, 1985 in case its primary function is to cure ailments or diseases and is a "cosmetic" respectively in case its primary function is to take care of the skin. This was held by the hon’ble Supreme Court of India in a recent dispute that arose before it in regard to classification of the product called "Moisturex" under the categories of "medicament" or "cosmetic" under the Act for the purpose of imposition of excise duty. The Central Excise department of the Ministry of Finance had moved appeal petition to the Apex Court challenging the decision of the Customs and Excise Appellate Tribunal holding that the alleged product "Moisturex" to be medicament and not cosmetic.

The Central Excise Tariff Act, 1985 is the law dealing with the dispute. This Act provides for imposition of excise duties on various products including pharmaceutical products that include skin creams. The Act under Chapter 30 provides that 15% rate of excise duty was to be imposed on the product in case the product was held to be medicament and 70%  was to be imposed in case the product is held to be cosmetic i.e. beauty preparation or preparation for taking care of the skin. The Act had further provided definition for medicament and stated it to products comprising of two or more constituents mixed together or compounded together for therapeutic or prophylactic uses under Heading 30.03. The Act also provided that medicinal preparations that were used to treat certain skin complaints were to be covered under the heading 30.03 i.e. medicaments. Heading 33.04 of the chapter provided for the imposition of 70% of rate of excise duty on beauty and make up preparation that were to include preparations for taking care of skin other than medicament.

The Excise department had contended that the alleged product was mainly used for the care of the skin and were thus liable to be classified as cosmetic and Toilet preparations and were to be therefore treated under entry 33.04. It also contended that even if the said products contained some subsidiary pharmaceutical contents than also it was to be treated as cosmetics only and it cannot be held to be containing with certain subsidiary curative or prophylactic value. The excise department submitted that "Moisturex" is a moisturising cream and is used for softening skin. The excise department also submitted the alleged product could not be considered as medicament also on the account of it being sold across and under the counter without the necessity of production of prescription from a medical practitioner.

The respondents on the other hand contended that the very presence of the ingredients in the pharmaceutical substances changes the identity of the product since the constituents are used not for care but for cure of certain diseases relating to skin. The Apex Court after hearing the arguments from both sides and relying upon the precedents of the courts on the same issue held that Moisturex is a medicament.

The court held that Moisturex was medicament. The Apex Court observed that very presence of pharmaceutical ingredients in products was significant for the product to be classified as medicament and the percentage of the same in the product was not a decisive factor in deciding the question as to the whether the product is cosmetic or medicament. The Apex Court also rejected the contention of the Excise department that the alleged product was to be treated as cosmetic and not medicament as it was being sold without the use of medical prescription and was sold across counter. The Court said that mere fact that the product is being sold across counter and not under a doctor prescription does not in itself lead to the conclusion that it is not medicament. The court said that the main criteria for determining classification is normally the use it is put by customers who use it and observed further that it is not necessary for the product to be sold under medical prescription so as to qualify as medicinal preparation or medicament. The Court also said that there are several products that are sold over/across the counter and are medicaments.

The apex court also said that court while deciding on to the question as to whether a product is medicament or cosmetic are required to see what people who actually use the product understand of it to be and if the product primary function is "care" and not "cure" then it is medicament. The court said that medicinal products are used for treating or curing some medical conditions and cosmetics are used for enhancing appearances so if a product is used mainly for curing or treating ailments or diseases and contains curative ingredients even in small quantities than it is branded as medicament.

The court, on 14th August 2013, relying on the above held that the alleged product "Moisturex" is medicine and not cosmetic for the purpose of the Act. The cream is not primarily intended for protection of skin and the ingredients present in the product do indicate that it is used for prophylactic or therapeutic purposes. The Court also said that the Central Excise Tariff Act has also clarified as to what medicament is and provides it to be used for curing ailments relating to skin and was medicament that was liable to be classified under heading 30.03. The Apex Court dismissed appeal of Central Excise.