2017 (11) TMI 608 - AT - Central Excise

Classification of goods - whether the product Reishi Gano and Ganocelium are classifiable under chapter 3003.39 of the First Schedule to the Central Excise Tariff Act, 1985, as contended by appellants or as food supplements under 2108.99 of CETA?. Held that - the appellants were taking great pains to emphasize the distributors that they should sell the items as food supplements only and not to misrepresent it as a drug. From the facts on record, it also emerges that the statements of various stockists had been taken who have admitted that the impugned goods were sold only as food supplement. Appellants have themselves registered the trade mark REISHI and GANO with the Trade Mark Registry under the category of food supplements even while they have obtained license for manufacture of Ayurvedic drugs. All these facts go to prove that inasmuch as in common parlance test, the impugned goods are definitely products sold and known only as food supplements and certainly not as a drug and most certainly not as an ayurvedic drug. The second clinical trial report which was submitted for issue of Drug Licence was in the name of Dr. S.S. Raviselvan, AMO, Aringnar Anna Government Hospital, Chennai. It emerges that the said Dr. Raviselvan though admits having issued such report nonetheless also admitted that the report was issued at the request of Daeshan without conducting any clinical test. Appellant did not seek examination of any of these two doctors. At the cost of repetition, it is to be noted that even Dr. Athisayaraj has confessed that he had wrongly recommended issuance of drug license to the appellant for manufacture of the impugned products as Ayurvedic medicine. We find from the record that Dr. Athisayaraj even wrote to the Drug Control Authority to cancel the license - The Drug Licence by itself cannot be the basis for classification. The classification for the purpose of collection of revenue is to be on the basis of Excise / Customs legislations. The primary object of Excise Act being to raise revenue, the classification of the product so as to determine the rate of duty has to be considered independent from the Drugs and Cosmetics Act, 1940 and like legislations. Correct classification of goods - Revenue have contended that said goods merit classification under sub heading 2108.99 of the CETA as food supplement requiring assessment of the goods under Section 4A for the purpose of payment of duty of excise in view of N/N. 13/2002-CE (NT) dt. 1.3.2002 notifying the goods falling under that sub heading for assessment under Section 4A - Held that - As per chapter Note 9 (b) of Chapter 21 of the CETA 1975, the Heading No. 21.08, inter alia, includes preparations for use, either directly or after processing (such as cooking; dissolving or boiling in water, milk or other liquids), for human consumption . From the HSN Chapter Note 16 of the Harmonised System of Nomenclature (HSN), it is indicated that Preparations often referred to as food supplements, based on extracts from plant, fruit concentrates, honey, fructose etc. and containing added vitamins and sometimes minute quantities of iron compounds often put up in packagings with indication that they maintain general health or well being would be included within that entry FOOD PREPARATIONS NOT ELSEWHERE SPECIFIED OR INCLUDED.HSN further goes on to elucidate that such similar preparations however intended for the prevention of treatment of diseases or ailments are excluded from that entry and would feature in 30.03 or 30.04 - From the facts and the findings and discussions herein above, both the impugned goods fail both the twin tests for being considered as Ayurvedic Medicament. On the other hand, from application of both these tests, the indubitable conclusion that has resulted is that the products in question are nothing but a food supplement promoted mainly only for general health or well being and therefore meriting classification only under 2108 of the CETA and more specifically in 2108.99 as it stood at the appointed time, and assessed accordingly under Section 4A of the Act for discharge of duty liability. The issue of classification is thus held in favour of Revenue and against assessee. Extended period of limitation - Held that - the intention of changing the classification and claiming the products to be Ayurvedic Proprietary Medicines was only to evade payment of duty. The appellants have consciously declared on the labels that the products contain Chatrakh & Bhuchatra as an endeavour to create an impression that the products are different from that what was earlier imported by them - But for the investigation conducted by department, the misdeclaration and undervaluation would not have come to light. Hence in our view, the invocation of extended period is not without grounds. The argument of the appellants on this count fails - extended period rightly invoked. Penalty - Section 11AC - Held that - Having found that the invocation of extended period is justified, the provisions of Section 11AC will statutorily require to be invoked and hence penalty equal to the duty or differential duty determined will necessarily have to be imposed - penalty upheld. Penalty u/r 25 - Held that - as the equal penalty under Section 11AC has already been imposed, we hold that the same will meet the ends of justice and further penalty on DXN under Rule 25 is uncalled for - penalty u/r 25 set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Classification of Reishi Gano (RG) and Ganocelium (GL) capsules under the Central Excise Tariff Act, 1985 (CETA).
2. Whether these products are Ayurvedic Proprietary Medicines (APM) under Chapter 3003.39 or food supplements under Chapter 2108.99.
3. Validity of drug licenses obtained for these products.
4. Invocation of extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Classification of RG and GL Capsules:
The primary issue revolves around whether RG and GL capsules should be classified as Ayurvedic Proprietary Medicines under Chapter 3003.39 of CETA or as food supplements under Chapter 2108.99. The appellants argued that the products are Ayurvedic medicines based on their ingredients and therapeutic properties. They provided various documents, including expert opinions, literature, and drug licenses, to support their claim. However, the department contended that these products were initially imported and marketed as food supplements and that the subsequent classification as Ayurvedic medicines was intended to evade duty.

2. Evidence and Documents Submitted:
The appellants submitted several documents, including expert opinions from Dr. K.S. Viswanatha Sharma, literature on Ganotherapy, extracts from Ayurvedic texts, and international pharmacopoeias. However, the tribunal found that these documents did not conclusively establish that RG and GL are Ayurvedic medicines. For instance, Dr. Sharma's opinion highlighted the medicinal properties of mushrooms but did not specifically identify Ganoderma lucidum as an Ayurvedic medicine. The literature provided by the appellants also failed to demonstrate that these products are recognized as Ayurvedic medicines in common parlance.

3. Common Parlance Test:
The tribunal applied the common parlance test, which requires that the product should be known as a medicament in common usage and that its ingredients should be mentioned in Ayurvedic texts. The labels and pamphlets of RG and GL did not indicate that they cure any specific disease or have therapeutic properties. Instead, they were marketed as products for general health and well-being. Statements from stockists and distributors confirmed that the products were sold as food supplements and not as medicines.

4. Drug Licenses and Clinical Trials:
The appellants obtained drug licenses from the Food and Drugs Administration (FDA) in Tamil Nadu and Pondicherry, classifying RG and GL as Ayurvedic medicines. However, these licenses were based on forged clinical trial reports. Dr. P. Selvakumar, who purportedly issued one of the clinical reports, denied doing so. The tribunal found that the drug licenses were obtained fraudulently and could not be used to justify the classification of the products as Ayurvedic medicines.

5. Classification under Chapter 2108.99:
The tribunal concluded that RG and GL capsules are food supplements based on their ingredients and the manner in which they were marketed. The products were classified under Chapter 2108.99, which covers edible preparations not elsewhere specified or included. This classification requires assessment under Section 4A of the Central Excise Act for duty purposes.

6. Invocation of Extended Period and Penalties:
The tribunal upheld the invocation of the extended period of limitation, finding that the appellants had intentionally misclassified the products to evade duty. Penalties were imposed under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2002. However, the penalties on individuals and other entities involved were reduced from ?25 lakhs to ?5 lakhs and from ?10 lakhs to ?1 lakh, respectively.

Conclusion:
The tribunal held that RG and GL capsules are not Ayurvedic Proprietary Medicines but food supplements. The products were correctly classified under Chapter 2108.99 of CETA. The extended period of limitation was invoked, and penalties were imposed for misclassification and duty evasion. The drug licenses obtained based on fraudulent clinical trials were invalidated. The appeals were disposed of, and the penalties were adjusted accordingly.