2024 (11) TMI 948 - AT - Customs

Classification of hCG Pregnancy Rapid Test Strip and hCG Pregnancy Rapid Test Cassette - Exemption from duty of customs provided to diagnostics test kits specified in List 4 - whether the hCG Pregnancy Rapid Test Strip and hCG Pregnancy Rapid Test Cassette deserve classification under CTH 3002 and whether basic customs duty @ Nil rate as required to be paid under the Exemption Notifications?- According to Rapid Diagnostics, the disputed goods are rapid chromatographic immunoassay for detection of hCG in urine to aid in the early detection of pregnancy. HELD THAT - The disputed goods are prepared using agglutinating serum/sera. As the agglutinating sera used in the preparation of the disputed goods provide the essential character to the disputed goods. Further, agglutinating sera is the most essential and only active component on which test reaction is based. The other components like membrane sheet, plastic cassette and absorbent are passive components which provide longer shelf life and stability to the kit. As the disputed goods are based on agglutinating sera, the benefit of the Exemption Notifications would be available to Rapid Diagnostics. The decision of the Tribunal in Inter Care 1996 (10) TMI 201 - CEGAT, NEW DELHI , wherein the benefit of the Exemption Notifications was allowed to the pregnancy test kits which were based on agglutinating sera, supports the aforesaid view. The Commissioner, in the impugned order, has dropped the demands proposed in the show cause notices for the reason that the disputed goods are classifiable under CTH 3002 and so basic customs duty would have to be paid at Nil rate of duty. To arrive at this conclusion, the Commissioner held that the disputed goods are based on agglutinating sera which is the chief component of the test kit that produces the result regarding the pregnancy. Thus, as agglutinating sera is the only active component and the rest of the components are passive, the pregnancy detection kits have their essential character defined by agglutinating sera only. Thus, the imported goods would be covered under the Exemption Notifications. The aforesaid findings recorded by the Commissioner are based on an earlier decision of the Tribunal in Inter Care supra and do not suffer from any infirmity.

Issues Involved:

1. Classification of "hCG Pregnancy Rapid Test Strip" and "hCG Pregnancy Rapid Test Cassette" under Customs Tariff Heading (CTH) 3002.
2. Eligibility for exemption from customs duty under Notification No. 12/2012-Cus and Notification No. 50/2017-Cus.
3. Determination of whether the disputed goods are "agglutinating sera" or complete pregnancy test kits.
4. Validity of the demands and penalties proposed in the show cause notices.

Issue-wise Detailed Analysis:

1. Classification of Goods:

The primary issue was whether the "hCG Pregnancy Rapid Test Strip" and "hCG Pregnancy Rapid Test Cassette" imported by Rapid Diagnostics should be classified under CTH 3002. Rapid Diagnostics argued that the goods are diagnostic test kits based on agglutinating sera, thereby classifiable under CTH 3002, which covers "Human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses; antisera, other blood factions and immunological products." The Commissioner agreed with this classification, noting that the essential character of the goods is derived from agglutinating sera, which is the active component responsible for the antigen-antibody reaction necessary for pregnancy detection.

2. Eligibility for Exemption:

The next issue was whether the imported goods were eligible for exemption under Notification No. 12/2012-Cus and Notification No. 50/2017-Cus, which provide exemptions for diagnostic test kits specified in List 4. Rapid Diagnostics claimed the goods were eligible for exemption as they are based on agglutinating sera. The Commissioner upheld this claim, stating that the goods' essential character is defined by agglutinating sera, making them eligible for the exemption. This decision was supported by the test reports from AIIMS and the National Institute of Immunology, which confirmed the presence of agglutinating sera in the kits.

3. Determination of Goods as "Agglutinating Sera" or Complete Kits:

The Department contended that the goods were complete pregnancy test kits and not merely "agglutinating sera," thus not eligible for exemption. However, the Commissioner found that while the goods are complete kits, their essential character is provided by agglutinating sera, which is the active component. The other components, such as the membrane sheet, plastic cassette, and absorbent, are passive and serve to provide stability and shelf life. Therefore, the goods were deemed to be based on agglutinating sera, aligning with the exemption criteria.

4. Validity of Demands and Penalties:

The show cause notices issued to Rapid Diagnostics alleged misclassification and proposed demands for differential duty, interest, and penalties under various sections of the Customs Act. However, the Commissioner dropped these demands, concluding that the goods were correctly classified under CTH 3002 and eligible for exemption. The decision was based on the premise that the essential character of the goods is derived from agglutinating sera, as supported by the Tribunal's earlier decision in Inter Care, which allowed similar exemptions for pregnancy test kits based on agglutinating sera.

Conclusion:

The appeals filed by the Department were dismissed, upholding the Commissioner's order that the disputed goods are classifiable under CTH 3002 and eligible for exemption under the relevant notifications. The judgment emphasized that the essential character of the goods is derived from agglutinating sera, thus justifying the exemption claimed by Rapid Diagnostics.

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