Classification of RG and GL capsules as food supplements, penalties imposed for misclassification and duty evasion

The tribunal determined that RG and GL capsules are classified as food supplements under Chapter 2108.99 of the Central Excise Tariff Act, 1985, rather than Ayurvedic Proprietary Medicines. The extended period of limitation was upheld, and penalties were imposed for misclassification and duty evasion, albeit reduced for individuals and entities involved. The drug licenses obtained through fraudulent means were invalidated, and the appeals were disposed of accordingly.

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Issues Involved:
1. Classification of Reishi Gano (RG) and Ganocelium (GL) capsules under the Central Excise Tariff Act, 1985 (CETA).
2. Whether these products are Ayurvedic Proprietary Medicines (APM) under Chapter 3003.39 or food supplements under Chapter 2108.99.
3. Validity of drug licenses obtained for these products.
4. Invocation of extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Classification of RG and GL Capsules:
The primary issue revolves around whether RG and GL capsules should be classified as Ayurvedic Proprietary Medicines under Chapter 3003.39 of CETA or as food supplements under Chapter 2108.99. The appellants argued that the products are Ayurvedic medicines based on their ingredients and therapeutic properties. They provided various documents, including expert opinions, literature, and drug licenses, to support their claim. However, the department contended that these products were initially imported and marketed as food supplements and that the subsequent classification as Ayurvedic medicines was intended to evade duty.

2. Evidence and Documents Submitted:
The appellants submitted several documents, including expert opinions from Dr. K.S. Viswanatha Sharma, literature on Ganotherapy, extracts from Ayurvedic texts, and international pharmacopoeias. However, the tribunal found that these documents did not conclusively establish that RG and GL are Ayurvedic medicines. For instance, Dr. Sharma's opinion highlighted the medicinal properties of mushrooms but did not specifically identify Ganoderma lucidum as an Ayurvedic medicine. The literature provided by the appellants also failed to demonstrate that these products are recognized as Ayurvedic medicines in common parlance.

3. Common Parlance Test:
The tribunal applied the common parlance test, which requires that the product should be known as a medicament in common usage and that its ingredients should be mentioned in Ayurvedic texts. The labels and pamphlets of RG and GL did not indicate that they cure any specific disease or have therapeutic properties. Instead, they were marketed as products for general health and well-being. Statements from stockists and distributors confirmed that the products were sold as food supplements and not as medicines.

4. Drug Licenses and Clinical Trials:
The appellants obtained drug licenses from the Food and Drugs Administration (FDA) in Tamil Nadu and Pondicherry, classifying RG and GL as Ayurvedic medicines. However, these licenses were based on forged clinical trial reports. Dr. P. Selvakumar, who purportedly issued one of the clinical reports, denied doing so. The tribunal found that the drug licenses were obtained fraudulently and could not be used to justify the classification of the products as Ayurvedic medicines.

5. Classification under Chapter 2108.99:
The tribunal concluded that RG and GL capsules are food supplements based on their ingredients and the manner in which they were marketed. The products were classified under Chapter 2108.99, which covers edible preparations not elsewhere specified or included. This classification requires assessment under Section 4A of the Central Excise Act for duty purposes.

6. Invocation of Extended Period and Penalties:
The tribunal upheld the invocation of the extended period of limitation, finding that the appellants had intentionally misclassified the products to evade duty. Penalties were imposed under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2002. However, the penalties on individuals and other entities involved were reduced from Rs. 25 lakhs to Rs. 5 lakhs and from Rs. 10 lakhs to Rs. 1 lakh, respectively.

Conclusion:
The tribunal held that RG and GL capsules are not Ayurvedic Proprietary Medicines but food supplements. The products were correctly classified under Chapter 2108.99 of CETA. The extended period of limitation was invoked, and penalties were imposed for misclassification and duty evasion. The drug licenses obtained based on fraudulent clinical trials were invalidated. The appeals were disposed of, and the penalties were adjusted accordingly.

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