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TMI Blog2017 (11) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iseases. (ii) that from February 2002, RG and GL were marketed as Ayurvedic Proprietary Medicine (APM) in Kerala State. (iii) that from March 2002, RG and GL were marketed as APM all over India. (iv) that subsequently DXN established manufacturing unit at Pondicherry and filed applications to various Government organizations like Electricity Department, District Industry Centre, Pollution Control Board, Director of Industries and Commerce etc. declaring that they were manufacturing food supplement capsules made from natural mushrooms; that they had even obtained a No Objection Certificate from Department of Agriculture, Pondicherry for manufacture of food supplement capsules from natural mushrooms. (v) that DXN declared the products RG & GL as APM to the Food & Drugs Administration (FDA), Pondicherry and obtained drug licence for manufacturing the same. In the application for drug licence, DXN had declared that ingredients of RG and GL are Chatrakh and Bhuchatra with corresponding botanical names respectively as Ganoderma Lucidium and Agaricus Campestris. DXN also stated in the application that they had already got a drug license for manufacturing the same products in Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on payment of redemption fines as imposed. Penalty equal to duty liability of ₹ 2,03,04,544/- was imposed on DXN under Section 11AC of the Act and a further penalty of ₹ 1,00,000/- under Rule 25 of the Central Excise Rules, 2002 was also imposed. Penalties were also imposed on other persons, inter alia, ₹ 25 lakhs each on Dr. Lim Siow Jin, Daehsan and Roshan, and ₹ 10 lakhs on Shri K. Thevaraj. 4.1 Aggrieved, these appellants preferred appeals before the Tribunal which was disposed of vide Final Order No.25 to 29/2006 dt. 30.12.2005 and as reported in 2006 (199) ELT 533 (Tribunal). 4.2 The appellant however preferred appeals to the Hon'ble Apex Court vide Civil Appeal No.1215 of 2006 inter alia contending that although plethora of materials was given to the Commissioner as well as CESTAT to support the argument that RG & GL are Ayurvedic Proprietary Medicines used in curing many diseases, however said material has not been taken into consideration. 4.3 The Hon'ble Supreme Court vide an order dt. 07.08.2015 [2015 (325) E.L.T. A41 (S.C.)], set aside the order passed by CESTAT and remanded the case for fresh examination considering the materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty demand of ₹ 53,79,870 as well as other demands being duty on inputs removed as such. Penalties were imposed on Roshan, MP, Daeshan, Dr.Lim Siow Jin, Ms.Liew Sheue Liang, Sh. A.M.Suhaman, Sh.Thevaraja) and Sh. Abdul Rahmat Puvarsan. Hence these appeals. 6. When the matter came up for hearing, on behalf of appellant in appeal nos.E/365 to E/269/2005, Ld. Senior Advocate Shri V. Lakshmi Kumaran made oral and written submissions which can be broadly summarised as under:- (i) The main issue is whether Reishi Gano and Ganocelium capsules manufactured by the Appellant are classifiable under Chapter 21 of the First Schedule to the Central Excise Tariff Act, 1985 as a food supplement or under Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985 as Ayurvedic Proprietary Medicines. The applicable rate of duty is the same for both the competing tariff entries and the only difference is that products classifiable under Chapter Heading 2108 are liable to be assessed under Section 4A of the Excise Act as compared to Section 4 for products falling under Chapter Heading 3003. (ii) Reishi Gano and Ganocelium are both parts of the mushroom Ganoderma lucidum. RG and GL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicating authority as well as the Tribunal in the first round of litigation. They have not been considered. (xi) With regard to the second test, it is submitted that the Ayurvedic textbooks mention mushrooms in generic category as Bhuchatra. When authentic Ayurvedic texts refer to medicine in a generic manner, it is submitted that all species and varieties are also covered. (xii) Adjudicating Authority, at internal page 25 and Para. 57.2 of the Order-in-Original dated 22.03.2005, has noted that the opinion of Dr.Sharma nowhere says that the products in question are ayurvedic. This observation is incorrect as Dr.Sharma, vide the last para of his opinion has concluded that the product is an Ayurvedic oushadham. (xiii) Therefore, the relevant material like the expert opinion, drug licences, literature etc. has not been looked into by adjudicating authority to arrive at the conclusion and only the irrelevant material like Clinical Trial Reports (CTR) and past actions of the Appellant has been looked into. In the light of the same, no demand can be sustained against the Appellant. (xiv) Chapter Note 1 to Chapter 21 excludes medicament falling under Chapter 30 from the amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Counsels pleaded that the extended period is not invokable and that penalties imposed are unwarranted. 8. The Department was represented by Shri A. Cletus (ADC) who supported the adjudication and opposed the appeal. He also made oral and written submissions which can be summarized as under : (i) Appellants originally imported the items classifying them under CTH 2108.99 as food supplements. Later, only to evade duty they have misclassified the goods under 3003.39, which is leviable to duty at 16% but chargeable as per Section 4 of Customs Excise Act 1944. The product falling under Chapter 2108.99 would also attract 16% duty but chargeable as per Section 4A of Customs Excise Act 1944. Though appellants contend that products are Ayurvedic Proprietary Medicines they do not claim classification under Chapter 3003.31 which attracts Nil rate of duty. Therefore the issue whether the products are APM is not an issue for consideration in the case. (ii) Prior to manufacture in India, the impugned goods were imported into India by classifying them under Customs Tariff Heading (CTH) 2108 as food supplements and not under 3003 as medicines. According to appellant, a case is said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to as RG) and Ganocelium (referred to as GL) are Ayurvedic Medicaments as accepted by Drug Controller and that they satisfy the twin tests laid down in the decision of Richardson Hindustan Ltd. Vs CCE Hyderabad - 1988 (35) ELT 424 (Tribunal) (maintained by Hon''ble Supreme Court in 1989 (42) ELT A100 (SC), namely, (1) product should be known as medicament in the common parlance (2) ingredients should be mentioned in Ayurvedic text books. Various documents have been submitted by appellant to justify their stand that the impugned goods are classifiable as Ayurvedic medicaments and Ayurvedic text books mention mushrooms in generic category of Bhuchatra. According to appellants, these documents would establish that the products are Ayurvedic medicaments which merit classification under Chapter 3003.39. 9.5 The main ground raised by appellants before the Hon'ble Apex Court was that the Tribunal failed to consider the documents produced by them. This Bench vide Misc.order had directed the appellants to file an affidavit as to the details of documents produced by them. Appellants have subsequently filed an affidavit in this Tribunal on 30.02.2017 wherein, they have affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledged on 19.11.2004 by Central Excise Department Annexure D.2/Sl.no:1 16. Certificate of Renewal of License to Manufacture for Sale of Ayurveda Drug from 01.01.2004 to 31.12.2005 Acknowledged by Central Excise Department on 19.11.2004, Annexure D.2/Sl.no:2 17. Decision dated 31.05.2004 passed by the Karnataka Sales Tax Appellate Tribunal Acknowledged on 22.11.2004 by CCE, Pondicherry. It is therefore proposed to take into consideration seriatum the aforesaid documents, in compliance of the directions of the Hon'ble Apex Court to address the classification issue :- 1) Opinion of Dr. K.S. Viswanatha Sharma: This opinion found in pages 81-91 of paper book submitted by appellant on 26.10.2005 has been issued on 18.11.2004. The perusal of the same indicates that learned Shri K.S. Viswanatha Sharma has discussed the properties of Ganoderma lucidum from a ayurvedic viewpoint in which he inter alia states as follows on page 88 : "Mushrooms have been mentioned in ancient texts, very sporadically and broadly as Chatraka and Bhuchatras. Botanical terms and Latin names have been prevalent only in the last 2 centuries. It is pertinent to mention here that the ancie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such treatable ailments is as unending as a list of English alphabets, purportedly treating any sick condition in every part of the body, from eyes to nostrils, throat, skin to joint ankle feet, urination, diarrhoea as well as constipation, body pain, kidney function etc. In one page of the booklet, contents of GL are shown as (1) Polysaccharide (2) Organic germanium (3) A whole spectrum of vitamins (4) A whole spectrum of minerals. Interestingly, in the last page of the booklet, it has been claimed that Ganoderma brings benefit and has special properties in health maintaining and condition (sic). It is thus noted that while Ganoderma is touted by Dr. Lim Siow Jin as a cure for many ailments while selling the product the benefits thereof are limited to bringing benefit and health maintenance and no claims whatsoever of ayurvedic proprieties or effects have been indicated anywhere in the booklet. 3) Ganotherapy Treatment against Diseases with RG & GL This is a ten page booklet. The contents of RG have been indicated as (1) Polysaccharides (2) Organic germanium (3) Adenosine (4) Triterpenoids (5) Ganoderic Essence (6) Protein (7) Fibre. The very first page of the booklet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompendium This is found in pages 66 to 91 of the paper book. This is a write up on "Reishi Mushroom" and "Ganoderma lucidum" indicating standards of analysis, quality control and therapeutics. The write up at page 80 states that "most of the reported activity of reishi mushroom has been centered around four therapeutic actions : immune-enhancing, cardiovascular-regulating, hypoglycemic, and hepatoprotectant." In conclusion of part of the report at page 84, inter alia, states that "there is a tremendous amount of data on the chemistry and pharmacology of reishi mushroom, but relatively little information on its clinical applications. Much of the research has focused on the ability of the reishi polysaccharides to enhance specific and nonspecific immune responses, as a result, a wide array of medical indications associated with immune functions have been claimed but remain to be substantiated" (Emphasis added). Towards the end of the write up, under the head, 'Safety Profile' at page 86, it is indicated that the said mushroom is classified by the American Herbal Products Association as Class 1 Herbs that can be safely consumed when us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dic product. 7. Therapeutic Goods Administration (TGA) Certificate, Australia & Certificate of Medicine Listing This document is found at pages 94 to 100 of the paper book. The document, issued by Department of Health and Ageing, Therapeutic Goods Administration, Australian Government, certifies that both RG and GL are listed in the "Australian Register of Therapeutic Goods". It has categorically stated as under : "The sponsor of the listed medicine must not by any means intentionally or recklessly advertise the medicine for an indication other than those accepted in relation to the inclusion of the medicine in the Register." Interestingly, however, the indications that have been accepted in the said Australian Registry have not been submitted by the appellant. Nor is there any conclusion possible to be drawn from these documents as to whether RG and GL are sold in Australia specifically for certain therapeutic values or for specific ailments or merely as an dietary or food supplement as contended by Revenue. In the circumstances, we are unable to glean any worthwhile information that would be useful in deciding upon the issue at hand. 8. Extract fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the main product can be termed as "Ayurvedic Medicine". 10. Extract from Chinese Herbs by Henry C. Lu, Ph.D. Principal of the International College of Traditional Chinese Medicine, Vancouver, Canada. This document found on page 126 to 130 of the paper book contains "Recipes for Health and Healing". GL has been listed under Chinese name Ling-zhi and various healing actions and indications have been listed. 11. Reishi Mushroom Herb of Spiritual Potency and Medical Wonder, Terry Willard, Ph.D. Research by Kenneth Jones 12. GanodermaLucidum, Ling Zhi Mystical Remedy of the Ancientsby Dr. Clarence S. Stanislaus The appeals were heard on 20.04.2017 and 24.06.2017 and reserved for orders. Thereafter since certain clarification were needed these appeals were relisted and heard on 22.09.2017. The Bench then informed the Learned Counsel Sh. Lakshmi Kumaran for appellant, that the documents 11 & 12 in the affidavit is not seen as part of the records. The Learned Counsel assured to provide copies of these documents within two days. Nothing has come forth. Therefore we have not been able to peruse these documents. 13. Copies of Bill of Entry Among other it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence on page 379 of paper book (Annexure-D1). It is seen that the licence has been issued to manufacture following ayurvedic products (i) Reishi Gano (RG) capsules (2) Ganocelium (GL) capsules. In the annexure to the licence, the contents of RG and GL have been given as Chatrakh and Bhuchatra. This document on page 381 of paper book (Annexure-D1) indicates that the original licence for manufacture of RG & GL has been renewed from 1.1.2004 to 31.12.2005. However we find that the issue of the drug licence is also mired in controversy since the department alleges that they have been obtained on the basis of forged clinical trials. 17. Decision dated 31.05.2004 passed by the Kerala Sales Tax Appellate Tribunal This decision dt. 31.05.2004 is found in page 70 of the paper book. The decision thereon is not passed by Karnataka Sales Tax Tribunal as mentioned in the affidavit but by Kerala Sales Tax Appellate Tribunal. Possibly, a typographical mistake may have occurred while submitting the affidavit. However, in the synopsis submitted by the appellant on the date of hearing, the order of Sales Tax Appellate Tribunal, Kerala has been indicated. We find that the issue in that decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he products are Ayurvedic Proprietary Medicines, on perusal of the label of the product we cannot find anything suggesting so. Bottles of the products GL were placed before us by Ld. Sr. Advocate. For ready reference, a scanned copy of the bottle label is reproduced below: This space is purposely put blank. The label indicates the product to be an Ayurvedic Proprietary Medicine. It is shown that each capsule contains Chatrakh and Shiitake. The dosage is mentioned as one capsule three times daily. The label however does not indicate that it would cure any particular disease. The label also does not indicate that the capsule is to be taken for any particular symptom. Label on a product is the basis which has to satisfy the first test of common parlance, since, it is the label which conveys to the customer the disease that can be cured using the medicament. Merely by mentioning it as APM or by stating that the product contains some quantities of Chatrakh & Shiitake the appellant cannot contend that it is a medicament. The only inference that can be drawn from the indications in the label is that the product is only meant for general well being. As stated earlier, it is also a fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d supplement and are non-prescription drugs; that RG and GL capsules which had come as food supplement till December 2001, had started to market as APMs only from 2002; that however there is no change in composition or quality of RG and GL. 11.4 Earlier, while marketing the said products, the accompanying pamphlets for both RG & GL highlighted a common tag line An ounce prevention is better than a pound of cure. In respect of RG, the claim was made that the commodity contains more than 200 active elements divided into three categories consisting 30% water soluble elements, 65% organic soluble elements and 5% volatile elements. The contents were indicated as Polysaccharides, Organic germanium, Adenosine, Triterpenoids, Ganoderic Essence, Protein, Fibre. Nowhere in these pamphlets was a claim made that they were ayurvedic medicines, or for that matter that they had any ayurvedic preparations. The pamphlets also do not make any claim that the items are Ayurvedic preparations. On the other hand, it was only claimed that in respect of RG the contents were Ganoderma Lucidum harvested exactly the 100th day of growth and in case of GL that the product was Myceilum of Ganoderma Lucidum har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment makes for illuminating reading : "38. We endorse the view that in order to determine whether a product is covered by cosmetics or medicamentsor in other words whether a product falls under Chapter 30 or Chapter 33 : twin test noticed in Puma Ayurvedic Herbal (P) Ltd., continue to be relevant. The primary object of the Excise Act is to raise revenue for which various products are differently classified in New Tariff Act. Resort should, in the circumstances, be had to popular meaning and understanding attached to such products by those using the product and not to be had to the scientific and technical meaning of the terms and expressions used. The approach of the consumer or user towards the product, thus, assumes significance. What is important to be seen is how the consumer looks at a product and what is his perception in respect of such product. The users understanding is a strong factor in determination of classification of the products. We find it difficult to accept the contention of the learned senior counsel for Baidyanath that because DML is manufactured exclusively in accordance with the formulae described in Ayurveda Sar Sangrah which is authoritat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue with some other drug to be given for identified diseases and that these items cannot be used independently to cure any disease" 12.3 One of the documents relied upon by the appellant in their defence while espousing their case is a booklet called Ganotherapy Ganoderma (Linghzhi) as brought out in para (7.1) herein above, Dr. Lim Siow Jin is the Chief Executive Officer and Director of Daeshan Trading (India) Ltd., who is the appellant in E/3662005. From the statement of Dr. Jin, which was never retracted, it has been admitted that there is no difference between RG & GL in capsules (goods under consideration) and RG and GL powder imported from Malaysia. Dr. Jin has also stated that there was no change in nutritional contents of the products even when their classification was changed as ayurvedic medicines. In a statement dt. 18.9.2002, Dr. Jin deposed that the classification of RG and GL products as Ayurvedic Proprietary Medicines was taken on the advice of some consultants; that the name of Chatrakh and Bhuchatra was mentioned in the labels of their RG and GL products as he was told that they are the Sanskrit words for mushrooms; however he has gone through the literature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently retracted. 12.7 In any case, based on the information as garnered by Revenue and conveyed in the written submissions dt. 22.6.2017, the said drug license has been cancelled by the FDA Pondicherry. The relevant portion of the submissions filed by Revenue read as follows : "In this regard, an enquiry was made with the Department of Drugs Control, Government of Pondicherry in the case of license issued to M/s.DXN Herbal Manufacturing India Ltd. and its reply dated 18.5.2017 (copy enclosed) as follows : "Whereas it is to inform that from the available records, it is ascertained that the firms licences has been renewed only from 01.01.2012 to 31.12.2014 and it has applied for renewal on 06.11.2014 and thereafter it was not renewed as the firm did not comply with the norms of Schedule M of Drugs and Cosmetics Act and Rules for the memo vide No.DDC/Drugs/U.II/2015/2128 dt.30.03.2015" With regard to M/s.Roshan Commercial Traders Pvt. Ltd. and M/s.Daeshan Trading India Pvt. Ltd., enquiry was made with the Director of Drugs Control, Tamil Nadu. It was learned from them that licensing pertaining to Indian Medicine has been separated from Director of Drugs Control a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Hon'ble Apex Court in the case of Shree Baidyanath Ayurved Bhawan Ltd. (supra) opined in para 41 as under : "41. True it is that Section 3(a) of the Drugs and Cosmetics Act, 1940 defines Ayurvedic, Sidha or Unani Drugbut that definition is not necessary to be imported in New Tariff Act. The definition of one statute having different object, purpose and scheme cannot be applied mechanically to another statute. As stated above, the object of Excise Act is to raise revenue for which various products are differently classified in New Tariff Act." Based on the discussions herein above, we are therefore of the considered opinion that the impugned goods in question cannot be claimed to be Ayurvedic Proprietary Medicines for the purpose of classification in the Central Excise Tariff Act. 13. The next issue is where then would these goods be correctly classified 13.1 Revenue have contended that said goods merit classification under sub heading 2108.99 of the CETA as food supplement requiring asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld in favour of Revenue and against assessee. So ordered. 14. The Ld. Counsels appearing for appellants have also argued on the ground of limitation. The facts as narrated above would show that appellants had imported the products rightly classifying them as food supplements. Later, they have obtained drug licence which was obtained on forged / incorrect clinical trial reports. The classification of a product cannot change on obtaining a drug licence when the character and nature of the product remains the same. Thus 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. The facts and evidence placed in the case of E/331/2006 to E/405/2006 would prove otherwise. It is categorically established that the bulk powder imported was made into capsules, repacked and relabelled by M/s.Roshan. The period involved in these appeals is 2/2002 to 3/2002 whereas the period involved in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. Evidently, these goods have been detained / seized at the warehouse / branch office of the appellants. However, no evidence has been put forth by the department to indicate that DXN kept these goods in the warehouse with the expressed intent of removing them clandestinely. There is also no allegation that clearance of these goods have not been accounted for in the concerned records. At the most, if these goods had not been seized, they would have possibly been removed as APM, and hence only resultant short payment of duty would have arisen. However, in the circumstances, confiscation of these goods and imposition of huge redemption fines for their release are certainly an overkill. For these reasons, the order of confiscation and redemption fine in paras, 5, 6 & 7 of the impugned order cannot sustain and is therefore set aside. 20. In respect of second batch of appeals E/331-334, 404,405/2006, in Appeal E/331/2006 for the reasons as discussed above, the classification of impugned products under CETA 2108.99 and their assessment under Section 4A of the Act, for discharge of duty liability is upheld. The differential duty demand of ₹ 53,79,870/- on clearances of RG & GL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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