Spot the difference

INDIRECT TAXES/ FISCAL LAW

Is it medicine, or a cosmetic? Courts here are busy.

The fiscal law with regard to the pharmaceutical industry is fraught with many controversies. Mainly as the Customs and Central Excise Tariffs have prescribed different duty rates for different types of pharmaceutical products. The tariffs based on Customs Cooperation Council Nomenclature distinguishes between medicines, medicaments, drugs, pharmaceutical substances, ayurvedic drugs, pharmaceutical goods and so on. The concepts sometimes overlap.

The overall duty rates have come down and considerable uniformity has been achieved. Customs rates are generally 12.5 per cent and Central Excise rates are 16 per cent. But what's retained the complications are the numerous exemptions. The overlapping concept of medicine with cosmetics also creates complications. In Customs the duty for cosmetics is 30 per cent in a large number of cases. The temptation is, therefore, always there to declare cosmetic as a medicine. Because of these differences the number of litigations from the original stage right up to the Supreme Court is frightfully large.

Pharmaceutical is a broad term that includes not only all types of drugs and medicinal and curative products, but also ancillary products such as tonic, dietary supplements, vitamins, and deodorants. Medicine is a more specific concept within the broad term pharmaceutical. Further, bulk drugs and pharmaceutical products are different concepts. For tariff, medicine and pharmaceuticals are used in an overlapping manner and an exemption given for either of these expressions often create complications. The Tribunal in the case of CCE vs. Eupharma Labs "� 2002(148) ELT 301(T), held that an exemption for pharmaceutical products could not be denied to medicines as they are overlapping concepts and in fact medicine can be treated as one of the varieties of pharmaceutical products.

Pharmacopoeial standard and pharmaceutical standard again are two overlapping concepts and it has been a subject matter of court cases. USP, BP, DAB and IP belonging to USA, Britain, Germany and India respectively are most commonly acceptable pharmacopoeia in our country but the our government has taken a decision in the case of United Exports "� 1993 (68) ELT 709 (GOI) that Indian standard should prevail over the foreign one, in case of doubt or conflict between Indian and foreign standards. Pharmaceutical standard can even be purer than the pharmacopoeial standard.

There are many Court decisions regarding the difference between pharmacopoeial drugs, which are generic names and patent, and proprietary medicines, which need specific brand identification to distinguish them from the generic. Meanwhile, in the case of Calcutta Chemicals Co. Ltd. vs. Commissioner - 2003 (154) ELT 326 (SC), the Supreme Court held that even if the formula prescribed in authoritative ayurvedic books is followed, but a brand name is given such as 'Maha Bhringraj Oil' which does not occur in the literature, the exemption for ayurvedic preparation cannot be allowed.

Another controversy has been about distinction between medicines and cosmetics, which bear a different rate of duty. In a famous judgement in case of B.P.L. Pharmaceuticals Ltd. vs. Collector of C. Excise, 1995(77) ELT485(SC), the Supreme Court observed that the basis for the distinction should be based on the definitions given in the Drugs and Cosmetics Act 1940.

The only way to clamp controversy in fiscal law is to standardise duty rate for pharmaceutical products, medicines, cosmetics and all related items, and remove all exemptions.

The writer is former member, Central Board of Excise & Customs