Cosmetics with a healing touch may no longer burn a deep hole in your pockets. Waiving higher excise duty on cosmetics containing therapeutic ingredients such as moisturising cream, the Supreme Court in a recent decision held that cosmetics which cure the skin diseases are “medicament” on which only 15 per cent excise duty would be payable.
This is a huge waiver considering the fact that the duty applicable earlier was 70 per cent.
The nearly 55 per cent cut in excise duty would mean that products such as moisturising cream, anti-ageing, anti-acne cream among others that were sold as cosmetics earlier would now be available for cheap, if the manufacturers decide to pass on the duty cut benefit to the customers.
A moisturising product under the brand name “Moisturex” had challenged the high excise rate, initially before the Customs and Excise Appellate Tribunal, which ruled in its favour. Popularly known for softening the skin, the product in question contained urea, lactic acid or propylene glycol, etc, which constituted pharmaceutical constituents. On the strength of these constituents, the manufacturer argued that the cream was meant to treat or cure dry skin conditions of the human skin, common among them being fissure feet, dry scaly skin conditions, ichthyosis, etc.
The Central Excise Tariff Act 1985 had a separate classification for medicaments to deal with products comprising two or more constituents mixed or compounded together for therapeutic or prophylactic uses. Against the tribunal order, the Commissioner of Central Excise approached the apex court. The issue under dispute was whether a product with a curing effect should be classified as medicament for charging excise duty. The Act prescribed 15 per cent duty rate for medicament.
To declare Moisturex as a medicament, the Court faced a predicament. Such a distinction, no doubt would translate into cost benefit for consumers. At the same time, such a classification would open a flood gate as cosmetic companies would queue up to claim similar exemption by adding one or two pharmaceutical ingredients in their products.
But the bench applied the test of “care or cure” to lay down general guiding principles for all times to come. “Courts have to see what the people who actually use the product understand the product to be. If a product’s primary function is “care” and not “cure”, it is not a medicament,” said a bench of Justices SJ Mukhopadhaya and Kurian Joseph.
It did not matter what proportion of the curative ingredient was present in the product, said the Court. What is of importance will be the curative attributes of such ingredients that may distinguish a medicament from a cosmetic, the bench decided. The Excise Commissioner further argued that a medicament has to be necessarily sold on prescription. But cases decided in the past by the apex court allowed medicaments to be sold over the counter at any shop.