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2017 (11) TMI 608

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..... ements 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 i .....

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..... laiming 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. - E/Misc/40157-40208/ 2017, E/365/2005, E .....

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..... (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 .....

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..... owever, gave option for redemption 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 .....

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..... of RG GL under CETA 2108.99 and confirmed the differential duty 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 .....

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..... uct was classifiable as an Ayurvedic medicament were placed and relied upon by the Appellant before the 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 again .....

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..... ld pass the twin test laid by the Hon'ble Supreme Court in the case of Richardson Hindustan Ltd - 1988 (35) E.L.T. 424 . 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 the .....

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..... rt, we intend to analyze issues relating to these appeals. The main thrust of the appellant's contention is that the product Reishi Gano (referred 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 affida .....

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..... on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:3 11. Reishi Mushroom Herb of Spiritual Potency and Medical Wonder, Terry Willard, Ph.D. Research by Kenneth Jones Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:4 12. GanodermaLucidum, Ling Zhi Mystical Remedy of the Ancientsby Dr. Clarence S. Stanislaus Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:5 13. Copies of Bills of Entry Acknowledged on 19.11.2004 by Central Excise Department Annexure D.1/Sl.no:1 14. Letter of Port Health Officer dated 14.02.2002 Acknowledged on 19.11.2004 by Central Excise Department Annexure D.1/Sl.no:3 15. Drug License (License to Manufacture for Sale of Ayurveda drug) from 13.03.2002 till 31.12.2003 Acknowledged on 19.11.2004 by Central Excise Department Annexure D.2/Sl.no:1 16. Certificate of Renewal o .....

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..... exts to prevent, mitigate, treat and cure diseases and disorders ancient and modern. However, it is noted that Dr. Sharma has given broad properties of Ganoderma and Shitake and however, not named any specific ayurvedic usage of the said mushrooms for any specific human ailment or conditions as laid down by Ayurvedic protocol. 2) Ganotherapy Treatment against disease with RG GL This is the booklet called Ganotherapy Ganoderma (Linghzhi) The Miraculous King of Herbs authored by Dr. Lim Siow Jin. Interestingly, this author is also the Chief Executive Officer and Director of M/s.Daeshan Trading (India) Pvt. Ltd. who is the appellant in Appeal E/366/2005. Dr. Lim Siow Jin himself is an appellant in Appeal No.E/366/2005. In the first place, the opinion of such a person who is also one of the appellants in these batch of appeals cannot ordinarily be considered as an unbiased and unfounded opinion, as it cannot be denied that Dr. Lim Siow Jin is interested party in this matter. Be that as it may, the said booklet does give historical and technical background of Ganoderma mushrooms and list of ailments which can be treated by the said mushroom. Interestingly, the l .....

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..... he paper book, the products RG GL get christened as Chatrakh and Bhuchatras and termed as Ayurvedic Proprietary Medicines. Interestingly, both Ganoderma and G Mycellium are given the same 'Ayurvedic' name Chatrakh . 4. Extracts from Ayurvedic textbook Charak Samhita This document has been listed at page 56-58 in Gujarathi with a not-very-clear translation from Gujarati-Hindi-English on page 59-60. From a perusal of the said Gujarati-Hindi-English translation, what is garnered is that the pages relied upon discuss qualities of Amalika (presumably root of ginger), Root of Pindaluk, Sinapis glance (Sarson ka saag), and qualities of best fruit grape. There is also a reference to mushrooms and opinion of Sushrut that mushrooms will grow up during rain reason, stops cough and clears the toxins from stool and urine, that its vegetable is sweet when cooked and has the quality of clearing the cough; that it causes a bit of pitta and cough and is also flatulent. The very same mushroom has been claimed to clear cough and at the same time there is assertion that it causes cough. In the event, no further analysis of this document can be made. 5. Ameri .....

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..... f the Revenue's contentions, namely that the main product is otherwise known in most western countries as a dietary supplement. 6. Pharmacopoeia of the Peoples Republic of China This relied upon document is found in pages 92 to 93 of the paper book. The extract, inter alia, concerns the entry of Ganoderma (Lingzhi). In the Chinese Pharmacopoeia, the action and indications of the Ganoderma are given as follows : Action : To replenish qi and ease the mind, to relieve cough and asthma, Indications : Dizziness, insomnia, palpitation, short breath, asthema, cough and asthma All that we are able to glean from this document is that Ganoderma is included in the Chinese Pharmacopoeia along with main therapeutic use for cough and asthma, and definitely not the long list of purported remedies that is claimed in the RG and GL pamphlet of the appellant. Interestingly, on the same page, Gypsum Fibrosum (Shigao) is also indicated in the pharmacopoeia. Possibly, the Ganoderma and Gypsum Fibrosum may surely have same purpose and usage in Chinese medicine but the fact thereof will not make all the items listed in the Chinese Pharmacopoeia as products e .....

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..... utomatically make it a shoo-in candidate for being called as an Ayurvedic product. To our knowledge, there are any number of vegetables, fruits and other natural products like mushrooms, for example, ginseng, ginkgobilova etc. are also touted, inter alia, for increasing vigour, and vitality, however in our opinion, mere presence of curative properties of such products will not automatically qualify them to don the mantle of ayurvedic medicines. 9. Extract from MycoMedicinals An Informational Treatise on Mushroom by Paul Stamets. This extract found in pages 111 to 125 of the per book, is yet another write up by the same Mr.Paul Stamets, which is another treatise on mushrooms. The book carries the tag line Informational Treatise on Mushroom and contains information on Forest fungi, Activities of medicinal mushrooms in the treatment of disease, Types of poly pores and mushrooms etc . While discussing GL, its medicinal properties have been indicated as immune enhancing, biological response modifier, stimulating macrophage and antimicrobial. While this treatise does provide information inter alia, on Ganoderma lucidum it however does not help our purpose to .....

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..... e appellant. This is a certificate issued only for the purpose of customs clearance certifying that sample from consignments of Reishi Gano Powder is not an Article of food and hence it does not come under the purview of PFA Act, 1954 and that it may be referred to as Asst. Drugs Controller. In this regard, we find that efforts of the department is to classify the impugned item as Food Supplement and not as an Article of food . In any case, the said certificate is issued by the Port Health Officer only for customs clearances from aspects of port health etc. By no stretch of imagination can the Port Health Officer be considered as an expert on determining whether the imported goods is Ayurvedic product having medicinal properties or whether it is only herbal product etc. and certainly the said officer's views cannot be the basis for determining the classification under Customs or Central Excise Tariff Headings. 15. Drug License (License to Manufacture for Sale of Ayurveda drug) from 13.03.2002 till 31.12.2003 16. Certificate of Renewal of License to Manufacture for Sale of Ayurveda Drug from 01.01.2004 to 31.12.2005 We find that this is the copy of .....

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..... han ayurvedic medicaments. This being so we are afraid that this decision will not help the case of the appellant. 9.6 Thus, after careful consideration of all the documents listed in the affidavit by the appellant, we are certainly not convinced that the impugned products RG and GL are ayurvedic medicines. In such circumstances, before we take a final call in the matter it would be prudent and also in the interests of justice to carefully consider other facts and evidences of this case. 10. The twin test laid down by the Hon'ble Apex Court in the Richardson Hindustan case judgment cited by the Ld. Advocate for the appellant has indeed laid down the following tests to justify classification as product under Ayurvedic Medicament under Chapter Heading 3003 : (i) that the product should be known as medicament in the common parlance and, (ii) the ingredients should be mentioned in Ayurvedic text books. We therefore intend to subject the impugned products to these two tests. Whether the product is known as APM, a medicament or for that matter, in any common parlance. 11.1 Though strong arguments and reliance on above discussed documents are advanced by the .....

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..... as The Miraculous King of Herbs . 11.3 While marketing the said products, appellant had issued a advisory What all DXN distributors should know , which made the following caution : Do not make any claims. Herbal food supplements are strictly classified as foods and regulated as such. Extra care must be done to avoid making specific claim about what the products can do to the body. Any food may be categorized as a drug, if it is claimed that the product is for treatment, cure prevention and mitigation of a disease. The important word is disease. When a product is offered as a specific treatment for a disease, it becomes a drug.... It is very important to bear in mind that you are recommending a food supplement and that you do not intend to be misconstrued as a recommending a drug. From the investigations conducted with distributors and stockists, it is seen that a number of stockists / distributors from whom statements were taken categorically stated that the RG and GL are not used to prevent any specific diseases but are only used to improve general health; that the company had informed them to promote the product as food supplement only; that these capsules ba .....

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..... 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. 11.8 Thus, notwithstanding the concerted efforts by the appellant to reposition their product as an ayurvedic medicine, we find that in common parlance, for the general public and especially for the users, they still remain to be known only as a food supplement for general improvement of health, vigour etc. 11.9 While arriving at this inescapable conclusion, we also draw sustenance from the ratio of the Hon'ble Apex Court in the landmark judgment in C .....

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..... now botanical name for Ganoderma Lucidum and Ganoderma Mycelium. In cross examination, Dr. Athisayaraj stated he has read the original text of Ayurvedic medicine and the name of Chatrakh and Bhuchatra are available in olden times as well as modern times. Although the appellants have produced an articulation on the issue by Dr. K.S.Viswanatha Sharma as already found herein above, that write up do not categorically state that the impugned products are Ayurvedic medicines. 12.2 It is also not disputed that Dr. D. Athisaya Raj, Head of Siddha, Ayurvedic Department, Arignar Anna Hospitals of Indian Medicine who had earlier recommended classification of RG and GL capsules as ayurvedic proprietary medicines but later had admitted that his recommendation was incorrect since it was based on bogus clinical reports. It further appears that Dr. D. Athisaya Raj was cross examined before the adjudicating authority, on which occasion also, he deposed that he did not consider 'Ganoderma' and 'Shiitake' as ayurvedic medicines. It also emerges that in response to a letter from the Director of Drugs Control, Tamil Nadu, the said HOD, Ayurveda had opined as under : These it .....

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..... GL capsules classified as APM. It further appears that the drug licence obtained from Food and Drugs Administration (FDA), Pondicherry was based on clinical report purported to have been given by one Dr. P. Selvakumar, Asst. Medical Officer, Nagapattinam. This clinical report has turned out to be a forged one. In a statement, Dr. P.Selvakumar has unequivocally stated that no such clinical report has been issued by him and that it was a forged one and that it was not signed by him. Dr. P.Selvakumar has also affirmed that Ganoderma is not figuring in Ayurvedic Text . We are unable to fathom how the appellant had no knowledge of the fraudulent nature of the clinical report submitted to the FDA on which basis only Drug license was issued. In enquiries extended to the drug licensing authorities, the Asst. Commissioner, FDA Pondicherry has informed that grant of licence for APM for RG and GL capsules was done on the basis of drug licence granted by the Drug Control Authority, Tamil Nadu. The said Asst. Commissioner, FDA, Pondicherry, admitted that he had not verified the RG and GL formula with the prescribed ayurvedic texts. As discussed earlier, the licence issued by FDA Pondicher .....

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..... 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 Hon'ble Apex Court has observed in various judgments that Fraud vitiates everything. Such view was reiterated by the Hon'ble Apex Court in New India Assurance Co. Vs Kamla Others - 2001 (4) SCC 342 and State of U.P Others Vs Ravindrakumar Sharma Others. SLP (C) No.8880/2011 dated 03.02.2016. 12.10 The Drug Licence by itself cannot be the basis for classification. The classification for the purpose of c .....

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..... Nil 2108.40 - Sterilised or Pasteurised Miltone Nil - Other: 2108.91 -- Not bearing a brand name Nil 2108.99 -- Other 16% 13.2 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 SPECI .....

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..... 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. In arriving at this conclusion, we draw sustenance from the ratio laid down by the Hon'ble Apex Court in the landmark judgment of UOI Vs Dharamendra Textile Processors 2008 (231) ELT 3 (SC) and the subsequent judgment in UOI Vs Rajasthan Spinning Weaving Mills 2009 (238) ELT 3 (SC). Accordingly, we hold that appellants M/s.DXN Herbal Manufacturing cannot escape the penalty of ₹ 2,03,04,544/- imposed on them under Section 11AC of the Central Excise Act, 1944 as ordered by the adjudicating authority. The said penalty is therefore upheld. 16. Coming to penalty of ₹ 1 lakh imposed under Rule 25 of the Central Excise Rules, 2002 on DXN, 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. The same is therefore set aside. 17. Thus in respect of Appeal E/365/2005 filed by DXN, Duty demand with interest and Penalty impose .....

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..... osed under Rule 25 of Central Excise Rules, 2002 and penalty of ₹ 5 lakhs imposed under Rule 13 of Cenvat Credit Rules, are in our view, unwarranted in the light of the penalties imposed under Section 11AC ibid. 21. For the same reasons discussed herein above, we find penalties on the other persons requires interference being on the higher side. We order reduction of penalty imposed under Rule 25 of CER 2002 on the other persons as follows : Appeal No. Appellant Penalty imposed under 26 of CER 2002 (Rs.) Penalty reduced to (Rs.) E/332/2006 Dr. Lim Siow Jin, CEO Director 10,00,000/- 1,00,000/- E/333/2006 Daehsan Trading (India) Pvt. Ltd. 10,00,000/- 1,00,000/- E/334/2006 K. Thevaraja, Director 10,00,000/- 1,00,000/- E/404/2006 A.M. Sulaiman,Managing Partner 10,00,000/- 1,00,000/- .....

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