2018 (6) TMI 778 - AT - Central Excise

Classification of manufactured goods - recombinant erythropoietin (r-EPO) - whether classified under heading no. 2937 00 of the First Schedule of the Central Excise Tariff Act, 1985 as hormones or as other blood fractions under heading no. 3002 00 of the Schedule? - extended period of limitation - penalty - Held that - The production of the impugned goods was at a nascent stage with no precedent to assist in classifying the particular heading of the First Schedule of the Tariff that it would fall under. It is also on record that the Central Government considered the goods to be classifiable under chapter 30 of the First Schedule of the Customs Tariff Act, 1975 for assessment of duty on imports. There is no evidence of deliberate intent of evading duty and the ample scope for confusion also precludes invoking of the extended period. The impugned product is not a blood fraction . Neither is it a hormone. In the absence of a valid and acceptable alternative after discarding its classification as a blood fraction , the consequent recovery ordered by original authority, and upheld by the first appellate authority, fails to meet the test of law and must be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues: Classification of recombinant erythropoietin (r-EPO) under Central Excise Tariff Act, 1985

Issue 1: Classification of r-EPO
The appeal challenged the classification of 'recombinant erythropoietin (r-EPO)' under the Central Excise Tariff Act, 1985. The original authority classified it as 'hormones' under heading no. 2937 00 instead of 'other blood fractions' under heading no. 3002 00, leading to a demand notice for recovery of duty, interest, and penalties. The appellant contended that the product should be classified as 'blood fractions' exempt from duty.

Analysis:
The appellant argued that the disputed product, r-EPO, should be classified as 'blood fractions' under heading no. 3002 00, emphasizing the physiological deprivation it addresses and the manufacturing process. However, the authorities upheld the classification as 'hormones' under heading no. 2937 00 based on the statement of the company director and explanatory notes of the Harmonised System of Nomenclature. The appellate tribunal noted the lack of appreciation for the technology employed in manufacturing r-EPO at the time of tariff legislation in 1985. The lower authorities' failure to scrutinize the manufacturing process and reliance on the director's statement led to an incorrect classification as 'hormones'.

Issue 2: Expert Opinions and Classification Principles
The tribunal analyzed expert opinions and classification principles to determine the correct classification of r-EPO. The appellant's argument that 'erythropoietin' is not unambiguously a 'hormone' but possibly a cytokine or growth factor was considered. The tribunal highlighted the target and production location of 'erythropoietin,' concluding that it does not fit the criteria of hormones based on medical research and definitions.

Analysis:
The tribunal reviewed scholarly works presented and expert opinions on the nature of 'erythropoietin' to ascertain its classification. Contrary to the lower authorities' decision, the tribunal found that 'erythropoietin' does not fit the definition of 'hormones' based on its production and target location. The lack of conclusive evidence supporting its classification as 'hormones' or 'blood fractions' raised doubts about the correctness of the original authority's decision.

Issue 3: Legal Basis for Classification
The tribunal considered the legal basis for classification under the Central Excise Tariff Act, 1985, and the Customs Tariff Act, 1975. The absence of a clear classification for r-EPO, the nascent stage of its production, and the Central Government's classification for import duty assessment were crucial factors in determining the correct classification.

Analysis:
The tribunal emphasized the need for a valid and acceptable alternative classification for r-EPO after discarding 'blood fractions' and 'hormones.' The lack of precedent for classifying the product and the confusion surrounding its classification supported setting aside the recovery order. The absence of deliberate duty evasion and the complexity of classifying a novel product further justified overturning the original authority's decision.

In conclusion, the tribunal set aside the impugned order, allowing the appeal based on the incorrect classification of r-EPO as 'hormones' and the lack of a valid alternative classification. The judgment highlighted the importance of thorough scrutiny in classifying unique products under the tariff laws and the need for clear legal basis and expert analysis in such determinations.