TMI Blog2005 (12) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... . 366/2005. M/s. Daehsan Trading (I) Pvt. Ltd. [Daehsan for short] and M/s. Roshan Commercial Trades (P) Ltd. [Roshan for short] are the marketing agents for DXN s products. They are the appellants in Appeal Nos. 367/2005 368/2005 respectively. The appellant in Appeal No. 369/2005, Shri K. Thevaraj, is a Director of Daehsan. 2. From the results of the investigations made by officers of the Directorate-General of Central Excise Intelligence [DGCET], it appeared to the department that M/s. DXN, Pondicherry had classified RG GL capsules as APM under SH 3003.39 and were paying duty of excise thereon by assessing the goods under Section 4 of the Central Excise Act during the period March to July, 2002; that, prior to the said period, they were importing RG and GL in bulk quantities from Malaysia and marketing the same in India as food supplements classifiable under SH 2108.99 and assessable to duty of excise on the basis of Maximum Retail Price [MRP] under Section 4A of the Central Excise Act, subject to abatement in terms of Notification No. 13/2002-C.E. (N.T.), dated 1-3-2002; that M/s. DXN themselves had declared to various Govt. bodies in Pondicherry that they were manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. DXN, some functionaries of M/s. Daehsan, distributors/stockists of DXN products, drug control authorities and experts. M/s. DXN contested the allegations raised in the show-cause notice. Their defence was adopted by their co-noticees. Some of the persons whose statements/letters were relied upon in the show-cause notice were cross-examined before the adjudicating authority. Learned Commissioner of Central Excise, in adjudication of the disputes, passed an order after due process of law, the operative part of which reads as under :- (1) I order that the products Reiki Gano (RG) and Ganocelium (GL) capsules be classified as food supplement under Chapter sub-heading 2108.99 of the Central Excise Tariff Act, 1985 and assessable under Section 4A of the Central Excise Act, 1944 for payment of Central Excise Duty (2) I demand the Central Excise duty of ₹ 2,03,04,544/- (Rupees two crores three lakhs four thousand five hundred and forty four only) cleared during the period from March, 2002 to July, 2002 under proviso to Section 11A(1) of Central Excise Act, 1944 from DXN with appropriate interest under Section 11AB of Central Excise Act, 1944 and appropriate ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I order confiscation of the excisable goods viz. 62000 bottles of RG90, 60750 bottles of GL90, 88800 bottles of RG30 and 65600 bottles of GL 30 totally valued at ₹ 15,44,70,060/- manufactured and kept ready for despatch by DXN and detained/seized on 12-8-2002 at the factory of DXN, Pondicherry and released as per the directions of the Hon ble High Court of Judicature, Chennai in W.P. Misc. Petition No. 52354/2002 in W.P. 35179/2002 under Rule 25 of the Central Excise Rules, 2002. However, I impose a redemption fine of ₹ 1,50,00,000/- (Rupees one crore fifty lakhs only) in lieu of confiscation and as the said goods have been provisionally released on execution of bond/stock security the same may be enforce. (9) I impose a penalty as below on the following noticees under Rule 26 of Central Excise Rules, 2002 : (a) Dr. Lim Siow Jin, CEO Director, DXN - ₹ 25,00,000/- (Rs. twenty-five lakhs only) (b) M/s. Daehsan Trading (India) Pvt. Ltd. - ₹ 25,00,000/- (Rs. twenty-five lakhs only). (c) M/s. Roshan Commercial Trades (P) Ltd. - ₹ 25,00,000/- (Rs. twenty-five lakhs only). xxxxxxx (g) Shri K. Thevaraja, Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts by the users thereof. She submitted that both the products were presented in the market by stockists/distributors, as food supplements only and were accepted as such by the buyers. Therefore, in common parlance, the products were known as food supplements. Learned SDR, in this context, relied on the very decisions cited by learned Counsel (vide supra). 5. Learned counsel referred to a good number of Bills of Entry covering importation of RG and GL powders in bulk by M/s. DXN for a period subsequent to the period of dispute and submitted that the imported goods had been classified by the customs authorities under SH 3003.39 of the First Schedule to the Customs Tariff Act. All such Bills of Entry had been finally assessed and the above classification was not questioned by the department. The imported goods were repacked into capsules and cleared from the Pondicherry factory. There was no reason why these products should be differently classified under the Central Excise Tariff Act. Learned SDR argued that, classification of goods under the CETA being independent of that under the CTA, the classification done under the latter Act was not necessarily to be followed under the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available in India since ancient times. Relying on the expert s opinion, learned counsel submitted that mushrooms figured in the original ayurvedic texts and hence the subject products merited classification as APMs under Heading 30.03 of the CETA Schedule. 7. Learned SDR filed a host of documents and, relying thereon, submitted that M/s. DXN had claimed their products to be food supplements before various other Government departments/bodies and obtained certificates on that, basis. These documents include (i) certificate of registration dated 17-1-2002 issued to M/s. DXN by the Deputy Commercial Tax Officer - Registrations, Pondicherry under the Central Sales Tax Act, (2) similar certificate under the Pondicherry General Sales Tax Act, (3) trade licence dated 30-3-2002 issued to M/s. DXN by the Commissioner, Mannadipet Commune Panchayat, Pondicherry, under the Pondicherry Village Commune Panchayats Act. (4) letter dated 25-3-2002 issued to M/s. DXN by the Electricity Department, Govt. of Pondicherry, allowing power supply to the company for its proposed industry, (5) No Objection Certificate (NOC) dated 5-2-2002 issued by the Pondicherry Pollution Control Committee, Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Head of the Department, Ayurveda to the effect that Chatraka and Buchatra were basically food supplements, which could not, by themselves, be used independently to cure any disease. In support of her claim for classification of the subject products under Heading 21.08 of the CETA Schedule [corresponding to Heading 21.06 of the HSN], learned SDR relied on Note 16 under HSN Heading 21.06 as well as Note 1(a) in Chapter 30 of the CETA Schedule. Finally, learned SDR relied on the following decisions of the Tribunal :- 21.08 Edible preparations, not elsewhere specified or included 2108.10 - Preparations for Lemonades or other Beverages intended for use in the manufacture of Aerated water 2108.20 - Sharbat 2108.30 - Prasad or Prasadam 2108.40 - Sterilised or Pasteurised Miltone - Other 2108.91 -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, intended for the prevention or treatment of diseases or ailments are excluded (Heading 30.03 or 30.04) . We find that, on the facts of this case, it is not in dispute that RG and GL are made from mushroom, a kind of plant. It has been pleaded by the appellants themselves that, in terms of composition and quality, there is no difference between RG/GL in capsules (goods under consideration) and RG/GL powder imported from Malaysia. From the documents recovered from the appellants premises, the investigators found the nutritional content of RG and GL as shown below :- RG GL Protein 13.81 g 17.8 g Carbohydrate 75.3 g 72.1 g Fats 1.58 g 4.3g Calcium 20.4 mg. 11.6 mg. Potassium 124.9 mg. 82.5 mg. Iron 12.1 mg. 18.2 mg. Sodium 16.89 mg. 10.0 mg.. Vit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chemical literature, we find that polysaccharides (mentioned by Shivakumar, Balakrishna and others in their statements) are carbohydrates and that calcium, potassium, iron and sodium are minerals (mentioned by Shivakumar, Balakrishna and others in their statements). Test reports of M/s. SGS (India) Pvt. Ltd. relied on by DXN themselves indicate the presence of fats and proteins in RG/GL powders. The undisputed composition of the goods which makes them fit for use as general health supplements or tonics is substantially congruous with the description of food supplements given under Note 16 ibid. 8.1 The dispute now shifts to the last sentence of Note 16 which reads as : Similar preparations, however, intended for the prevention or treatment of diseases or ailments are excluded (Heading 30.03 or 30.04) . M/s. DXN have claimed in their appeal that RG/GL can prevent, mitigate and cure diseases. But they have not named any disease. It was also argued by learned Counsel for the appellants that the products in question had both preventive and curative properties and that the buyers treated the goods as ayurvedic medicines. In this connection, learned Counsel referred to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebutted and overrides am oral evidence to the contra given by any Daehsan functionary or stockist/distributor in cross-examination. It is trite law that documentary evidence would prevail over oral evidence. 8.2 Before various public authorities also, M/s. DXN declared their industrial activity as manufacture of food supplements . The certificate of registration dated 17-1-2002 issued by the Central Sales Tax authorities to M/s. DXN mentions their business as manufacture of food supplement capsules made from natural mushroom . This certificate indicates that it is valid from 17-1-2002 till its cancellation. M/s. DXN have not claimed that the above certificate was cancelled at any point of time. The trade licence issued to M/s. DXN by the Commissioner, Mannadipet Commune Panchayat under the Pondicherry Village and Commune Panchayat Act on 30-3-2002 is also in respect of manufacture of food supplement capsules made from natural mushroom . This licence is seen to be valid upto 31-3-2003 covering the entire period of dispute. It is noticed that, on 24-9-2004, the Panchayat upon the licensee s application altered the name of the goods to ayurvedic drug in the licence. This amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permission/NOC from the governmental bodies/departments/agencies concerned. DXN cannot turn their back on the stark reality of having acted upon, and derived the benefit of, such licence, permission etc. during the period of dispute. 8.3 According to the tests laid down by the Hon ble Supreme Court to identify an ayurvedic medicine, a given product can be held to be ayurvedic medicine classifiable under Heading 30.03 of CETA Schedule if (a) it is treated as ayurvedic medicine by the public and (b) its ingredients find mention in authoritative textbooks on ayurvedic medicines vide Naturelle Health Products and other judgments cited in para (4) of this order. We shall proceed to apply the first test (common parlance test) now. It is an admitted fact that M/s. DXN were importing RG and GL powders and marketing the same in India as food supplements prior to the period of dispute. Their Managing Director, Shri Lee Hock Lye has stated that, even during the period of dispute, they have not advertised that the RG/GL capsules have therapeutic properties. Their Chief Executive Officer, Dr. Lim has also stated to this effect. Shri Abdul Rahman Puvarasan B. Abdulla, Director Country Mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, Velachery, Chennai (copy produced by SDR), which places Shitake , Agaricus and other mushroom products under the category of food supplement . This ad is reproduced below : <!--[endif]--> 8.4 Coming to the second test, we note that M/s. DXN declared the product ingredients viz. Ganoderma and Shiitake as Chatrakh and Bhuchatra respectively before the Food and Drugs Administration Pondicherry for obtaining drug licence for manufacturing RG and GL capsules. They declared likewise before the Central Excise authorities also for obtaining registration with the Department. Ld. Commissioner, in the impugned order, has found no mention of Ganoderma and Shiitake in any authoritative textbook on Ayurvedic medicines, prescribed under the Drugs Cosmetics Act, 1940. He has also enquired as to whether these ingredients of the subject products have clinical applications. In this context, Ld. Commissioner appears to have held that the source of both the ingredients is the Reishi mushroom botanically known as Ganoderma lucidum . This finding, which appears to be based on the technical literature submitted by the assessee, also gets support from the statement of Shri Abdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts. He was cross-examined before the adjudicating authority. It appears from his depositions (in cross-examination) that he did not consider Ganoderma and Shiitake as ayurvedic medicines. Further, from a letter written by the Director of Drugs Control, Tamil Nadu, in reply to certain queries made by DGCEI, it appears that the opinion offered by the Head of the Department of Ayurveda regarding the nature of RG GL capsules was communicated to the investigating agency. This opinion reads as under :- These items (Chatraka Buchatra) are basically food supplements may be used to give therapeutic value with some other drug to be given for identified diseases and that these items cannot be used independently to cure any disease It is clear from the above opinion that Chatraka Buchatra , which were claimed by M/s. DXN to be present in the subject products, do not have therapeutic value of their own. A test report on samples of RG GL capsules, issued by the National Botanical Research Institute (NBRI) Lucknow stated that, according to Bhavaprakasa Nigantoo, Chatrakh and Bhuchatrak were used as synonyms and attributed to Agaricus campestris Linn. (Family Agaricace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the report was issued at the request of Daehsan personnel without conducting any clinical test. We note that neither of these doctors was sought to be cross-examined in this case. M/s. DXN have not chosen to salvage the above clinical trial reports from the prospect of decrial. We further note that Dr. Athisayaraj, having come to know the faulty nature of the clinical reports produced by M/s. DXN, confessed that he had wrongly recommended issuance of drug licence to them for manufacture of RG GL capsules as APMs. Further, he wrote to the Drug Control Authority to cancel the licence. It is also noticed that the above licence was issued to DXN without verification of RG GL formula with the prescribed ayurvedic texts. The licence was granted by FDA, Pondicherry, merely following the precedent of the Drug Control Authority, Tamil Nadu, having issued a similar licence to M/s. Daehsan. The Asst. Commissioner, FDA, Pondicherry has admitted these facts in his statement. Significantly, he also was not sought to be cross-examined before the adjudicating authority. It is also noticed that the drug control authorities are taking action against the licensees under the Drugs Cosmetics Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of customs appears to have fallen into their trap, oblivious of the fact that the same commodity imported by the appellants prior to the period of dispute had been classified as food supplement under the Customs Tariff Act. In any case, we do not think that the Central Excise authorities are precluded from classifying a product independently under Central Excise Tariff Act. In our view, they are entitled to ignore the classification done by the assessing officer of customs inasmuch as such classification was vitiated by the above circumstances. We, therefore, are not inclined to accept Ld. Counsel s plea to follow the Customs precedent in the matter of classification of the subject products under the CETA Schedule. 8.8 Yet another document relied on by Ld. Counsel is a judgment of the Kerala Sales Tax Appellate Tribunal. The question before the Tribunal was whether RG/GL capsules were APMs falling under Entry 141 of the First Schedule to the Kerala General Sales Tax Act. After considering certain literature and an expert s opinion on the subject, the Tribunal held the goods to be APMs. The Tribunal observed that the goods were not known as food supplements like Horlicks, Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner, FDA Pondicherry has established the fraud committed by M/s. DXN. We have already held in the facts and evidence on record that it was not open to DXN to claim classification of the goods as APM on the strength of their drug licence vide para (8.6). When they declared Ganoderma and Shiitake as Chatrakh and Bhuchatra before the Drug Control/Central Excise authorities after having declared RG/GL capsules as food supplements before a host of other governmental agencies and having groomed the products as food supplements in the public mind, they knew very well that Chatrakh and Bhuchatra were food supplements only. As we have already indicated vide para (8.5), such declaration was a misdeclaration. DXN misdeclared food supplements classifiable under SH 2108.90 as ayurvedic proprietary medicines under SH 3003.39. This misdeclaration was obviously made with intent to evade payment of Central Excise duty leviable on food supplements. In the circumstances, we do not find fault with the Commissioner having invoked the extended period of limitation against M/s. DXN. Accordingly, we sustain the demand of duty raised on the assessee in respect of RG GL capsules removed from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
