CESTAT Delhi: Ayurvedic Products with Therapeutic Purpose Not Cosmetics; Relief Granted to Shahnaz Ayurvedics

March 13, 2026 : The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled that classification of products as medicaments or cosmetics must be determined by their primary function, holding that products with a therapeutic or prophylactic purpose cannot be treated as cosmetics merely because they offer incidental cosmetic benefits.

In a significant decision, the Tribunal granted excise relief to M/s Shahnaz Ayurvedics (Dehradun), holding that 18 disputed products were Patent and Proprietary (P&P) Ayurvedic medicines classifiable under Chapter 30 of the Central Excise Tariff, and not cosmetics under Chapters 33 or 34.

The Division Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) was adjudicating appeals arising from classification disputes for the period after expiry of area-based exemption in July 2014. The core issue before the Tribunal was whether the products were Ayurvedic medicaments or cosmetic preparations.

The Tribunal noted that the appellant had furnished detailed evidence demonstrating that the products were manufactured using active ingredients derived from authoritative Ayurvedic texts, supported by licences issued under the Indian System of Medicine (ISM). These factual assertions were not disputed by the Revenue.

Rejecting the Revenue’s argument that the presence of chemicals or non-Ayurvedic ingredients disqualified the products as medicines, the Tribunal clarified that excipients, fillers, and stabilisers are integral to all pharmaceutical formulations and do not determine the essential character of a product. It observed that classification must depend on the active medicinal ingredients, not ancillary components.

On the interpretation of statutory provisions, the Tribunal held that reading the law to exclude products containing any non-active ingredient would lead to “absurd conclusions,” noting that even conventional medicines contain non-therapeutic substances for formulation purposes.

The Bench further examined the scope of Chapter Notes excluding cosmetics from Chapter 30 and relied on settled judicial principles to emphasise that the term “subsidiary” is decisive. It held that:

• If therapeutic value is subsidiary to cosmetic use, the product remains a cosmetic;
• If therapeutic or prophylactic use is primary, the product qualifies as a medicament.

Applying this test, the Tribunal found that the products were marketed and labelled as Ayurvedic medicines, with clear indications of the ailments they were intended to treat or improve. It also noted that the appellant held valid ISM manufacturing licences and that the composition of the products supported their medicinal character.

Accordingly, the Tribunal held that the classification adopted by the Department was unsustainable and set aside the impugned orders. The demands of duty, interest, and penalties were also quashed, and both appeals were allowed with consequential relief.