Precautionary Measures Ascertaining the Excise Duty on Skin Related Creams and other Pharma Products

Q: A drug manufacturer under the valid drug license is engaged in manufacturing of various ayurvedic skin creams. Does he require paying the same excise duty on all products he is manufacturing? What are the excise exemption policies in India for such manufacturers?

-Rakesh Kumar

A: Skin related creams can be cosmetic products under the “cosmetics manufacturing license”, Ayurvedic Products under “Ayurvedic Manufacturing License” and Allopathic Products under “Allopathic Manufacturing License”. The excise law system, however, is silent to categorise the creams or any other pharmaceutical products only on the basis of manufacturing license as to determine the kind of duty payable which shows being manufactured under any specific license a product can not be categorised under certain criteria or segment of excise. In other words, it can be said that excise law system has its own independent rules and regulations as to decide the excise duty. As regards excise duty which arises on manufacturing of ayurvedic skin related creams, there are so many factors which ascertain the excise duty to be payable by the manufacturer. Generally, chapter 30 and chapter and 33 of Central Excise Tariff Act, 1985 (CETA) ascertain the duty which has to be paid by the manufacturer on skin creams. The ayurvedic skin creams can fall either in chapter 30 or in chapter 33 depending on the kinds of ingredients used in manufacturing the cream, the purpose of its uses, properties of cream, effect on the skin as a result of its use, whether it is prescribed by medical practitioners or not. Under Chapter 30, the excise duty on almost all the products is 6%, however under chapter 33, the excise duty on almost all the products is 12.5 %. As per chapter 30 under heading 30.04 those ayurvedic creams which can be used as “medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale” will attract the duty as 6%. However, as per chapter 33 under heading 33.04, those ayurvedic creams which are “beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or suntan preparations” will attract the duty as 12.5%. Therefore, it seems that the skin creams prepared to be used as medicaments which have therapeutic or prophylactic properties will fall under chapter 30. And the skin creams which can be used as “beauty or make-up preparations and for the care of the skin” will fall under chapter 33. If we compare above both aspects arises out of both chapters, two determining factors seem to have effect, one is “cure” and other is “care”. Chapter 30 addresses the products which are meant to “cure” the skin ailments and chapter 33 addresses the products which are meant to care the skin. Therefore one has to establish that his products should qualify the criteria either to provide the “care” to the skin or to give the “cure” from skin ailments. In many cases, it has been discussed, that the products which qualify the criteria as to provide only “care” to the skin will come under the purview of chapter 33 of CETA and the products which qualify the criteria of being under the ambit of “Cure” will fall under the criteria of chapter 30. The products, which fall under the category of chapter 30 of CETA attract less excise duty than the duty of chapter 33 or NIL in some certain cases.

In a very renowned case, Puma Ayurvedic Herbal (P) Ltd. vs. Commissioner, Central Excise, Nagpur (08.03.2006 – SC), the contention of revenue (excise department) about the ayurvedic products declaring them under the chapter 33 of CETA since the same were found by them as useful only for the “care” of the skin was turned down by the court stating that the purpose of these ayurvedic products are to treat the ailments of the skin and to change the medical condition of the skin, therefore such products will fall under chapter 30 and attract less excise duty. In one more recent case, Commissioner of Central Excise, Mumbai IV vs Ciens Laboratories, Mumbai (14.08.2013 – SC), the contention of Central Excise was this that the product which is in fact a skin cream is mainly used for care of the skin and thus, it is to be classified as cosmetic or toilet preparations and are to be treated under Heading 33.04. It is further contended that even if such cosmetic products contain certain subsidiary pharmaceutical contents or even if they have certain subsidiary curative or prophylactic value, still, they are to be treated as cosmetics only. It is also contended that the product is sold across or under the counter and the same can be purchased without prescription of a medical practitioner and hence it is not medicament. However, finally it was held that the said cream is prescribed by the dermatologist for treating the dry skin conditions and that the same is also available in chemist or pharmaceutical shops in the market. 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. Therefore, the excise duty payable will fall under chapter 30 of CETA. In India, time to time, through the notifications, government brings excise exemption schemes. Such schemes have been active in Northeastern States, J&K, Himachal Pradesh and Uttarakhand. Besides, the excise exemption scheme has been active for Small Scale Industries (SSI) also.

Dr. Javed Hasan, Advocate
(from New Delhi)
For, Drugs & IPR Laws
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