2024 (3) TMI 1437 - AAR - Customs

QDx InstacheckTM PCT diagnostic kit classified under CTH 3822 9090 as laboratory reagents, attracts 12% concessional GST rate

IN RE : TARA CLINICAL SYSTEMS

AAR Mumbai classified 'QDx InstacheckTM PCT' diagnostic kit under CTH 3822 9090 as diagnostic/laboratory reagents rather than under chapter 3002 (blood ... Classification “QDx InstacheckTM PCT” with reader “QDx InstachcckTM” as a kit - to be classified under chapter heading 3002 as Antisera and other blood fractions and immunological products, under chapter heading 3822 as Diagnostic or laboratory reagents, or chapter heading 3006 as Pharmaceutical goods including diagnostic reagents designed to be administered to patients? - HELD THAT:- The classification of the goods under the Customs Tariff is governed by the principles as enumerated in the General Rules of Interpretation (‘GRI’) set out in the First Schedule to the Customs Tariff Act, 1975 (Tariff). In view of the Rule 1 & Rule 3(a) of the General Rules of Interpretation to answer the question of classification of the products under consideration asked by the applicant, provisions of the relevant Section or Chapter Notes and Sub-Notes or explanatory notes are to be interpreted considering that the goods in question comprise “Reagent”, however, they are put up in the form of Kit which gives essential character to the products. Sections and Chapter Notes have been given statutory backing and have been incorporated at the top of each Section/Chapter. Explanatory notes to Heading 3822 explains that this heading covers diagnostic or laboratory reagents on a backing, prepared diagnostic or laboratory reagents whether or not on a backing, whether or not put up in the form of kits, including blood grouping reagents, other than diagnostic reagents designed to be administered to the patient of Heading 3006. From the test procedures elaborated in the product brochure it is observed that the reagents of the goods in question are not designed to be administered to the patient, furthermore, they are for in vitro diagnostic use only. Therefore, by virtue of Note 4 to Chapter 30 the product in question is not classifiable under Chapter Heading 3006. Further, the applicant has submitted that the kit’s main ingredient is antibody, and it is a blood serum containing monoclonal antibodies against specific antigens - there are specific tariff entries for prepared diagnostic reagent whether or not put up in the form of kits meant for certain diseases viz. malaria and zika, blood grouping and pregnancy test. All other prepared diagnostic or laboratory reagent whether or not put up in the form of kits are covered under residuary Tariff Item 3822 9090. The Notification No. 1/2017-Integrated tax (Rate), dated 28th June, 2017 and the Circular No. 163/19/2021-GST, dated 6-10-2021 issued by Tax Research Unit regarding clarification of GST rates & classification of goods based on the recommendations of the GST Council clarified that concessional GST rate of 12% is applicable on all the goods falling under heading 3822, vide entry at Sr. No. 80 of Schedule-II of Notification No. 1/2017-Integrated Tax (Rate) dated 28-6-2017. Notification No. 1/2017 ibid covers ‘All diagnostic Kits and reagents’ under Heading 3822 at Sr. No. 80 of its Schedule-II. In the case of Span Diagnostics Ltd. v. Commissioner of C.Ex., Surat [2007 (4) TMI 617 - SUPREME COURT] the issue before the Hon’ble Supreme Court was regarding the classification of monoclonal antibodies under heading 3002 or under heading 3005. However, it is observed that in the case in hand issue is regarding the classification of a complete diagnostic kit and not about only one of its component i.e. Anti-PCT antibody - the case law relied upon by the applicant to support their arguments is not germane to the case in hand. Conclusion - The products in question i.e. “QDx InstacheckTM PCT” with reader “QDx InstacheckTM” as a kit merit classification under CTH 3822, more specifically under CTH 3822 9090 of the First Schedule to the Customs Tariff Act, 1975 and the said products are covered under entry at Sr. No. 80 of Schedule-II of notification No. 1/2017-Integrated Tax (Rate) dated 28-6-2017. Issues Presented and ConsideredThe core legal questions considered by the Authority for Advance Rulings (Customs) were:What is the correct classification under the Customs Tariff Act, 1975 of the imported product 'QDx InstacheckTM PCT' with reader 'QDx InstacheckTM' when imported as a kitRs.Whether the kit should be classified under Chapter Heading 3002 (Antisera and other blood fractions and immunological products), Chapter Heading 3822 (Diagnostic or laboratory reagents), or Chapter Heading 3006 (Pharmaceutical goods including diagnostic reagents designed to be administered to patients)Rs.What is the applicable Integrated Goods and Services Tax (IGST) rate on such classification under the relevant GST notificationsRs.How to apply the General Rules of Interpretation (GRI) and relevant Chapter Notes in the classification of a diagnostic kit comprising multiple components including reagents and a readerRs.Issue-wise Detailed AnalysisIssue 1: Classification of the product under Customs Tariff Act, 1975Relevant Legal Framework and Precedents: The classification was to be determined under the Customs Tariff Act, 1975, guided by the First Schedule and the General Rules of Interpretation (GRI), specifically Rules 1 and 3(a). The relevant headings considered were:Heading 3002: Human or animal blood prepared for therapeutic, prophylactic or diagnostic uses; antisera and other blood fractions and immunological products.Heading 3822: Diagnostic or laboratory reagents, whether or not put up in kits, excluding those of heading 3006.Heading 3006: Pharmaceutical goods including diagnostic reagents designed to be administered to patients.Chapter Note 1(ij) to Chapter 30 excludes diagnostic reagents of heading 3822 from heading 3002. The HSN Explanatory Notes and Supreme Court precedents, notably Span Diagnostics Ltd. v. Commissioner of C.Ex., were referenced for interpretation of 'blood fractions' and 'antisera.'Court's Interpretation and Reasoning: The product is an in vitro diagnostic kit comprising a reagent (containing monoclonal antibodies derived from animal blood serum) and a reader device. The applicant initially contended classification under heading 3002 as antisera due to the presence of monoclonal antibodies, which are blood fractions. However, the Customs Commissionerate argued that the kit as a whole, including the reader, should be classified under heading 3822 as a diagnostic reagent kit.The Authority noted that the kit's essential character is diagnostic, and the reader is indispensable for the test procedure, making the product a composite diagnostic kit rather than merely a reagent or blood fraction. The kit is for in vitro use and not designed to be administered to patients, thus excluding classification under heading 3006.Applying GRI Rule 1 and Rule 3(a), the Authority emphasized that classification must consider the product as a whole. The Chapter Notes exclude diagnostic reagents of heading 3822 from heading 3002, and explanatory notes to heading 3822 include diagnostic kits based on immunoassay methods, including those using monoclonal antibodies.Key Evidence and Findings: The product brochure detailed the test procedure requiring the reader for scanning and reading results, confirming the kit's composite nature. The detection buffer contains fluorochrome-labelled anti-PCT antibodies and other stabilizers derived from animal blood serum. The test uses a sandwich immunodetection method based on antibody-antigen reaction with fluorescence technology.The applicant's own submissions acknowledged the kit's nature as a fluorescence immunoassay diagnostic kit, which aligns with heading 3822. The Authority rejected the applicant's contradictory arguments seeking classification under heading 3002 for the reagent component alone.Application of Law to Facts: The Authority held that since the kit is imported as a single unit comprising reagents and a reader, the classification must be as a diagnostic kit under heading 3822 9090. The product is not designed to be administered to patients, excluding heading 3006. The presence of monoclonal antibodies does not override the composite nature of the kit and its primary use as a diagnostic reagent kit.Treatment of Competing Arguments: The applicant's reliance on the presence of monoclonal antibodies and classification under heading 3002 was considered but found insufficient as the kit's essential character is diagnostic. The department's argument that the kit as a whole, including the reader, determines classification under heading 3822 was accepted. The Authority found the applicant's arguments internally inconsistent and less persuasive compared to the department's reasoned submission.Conclusion: The product 'QDx InstacheckTM PCT' with reader 'QDx InstacheckTM' imported as a kit is classifiable under heading 3822 9090 as a diagnostic reagent kit.Issue 2: Applicable IGST Rate on the classified productRelevant Legal Framework: The IGST rates are governed by Notification No. 1/2017-Integrated Tax (Rate), dated 28th June 2017, and Circular No. 163/19/2021-GST dated 6th October 2021. The relevant entries are:Schedule II, Sr. No. 80: All diagnostic kits and reagents under heading 3822 attract IGST at 12%.Schedule I, Sr. No. 180: Drugs or medicines including diagnostic test kits specified in List I appended to this Schedule attract IGST at 5%.The applicant contended that the product is a fluoro enzyme immunoassay diagnostic kit and should attract 5% IGST under Sr. No. 180, while the department contended for 12% under Sr. No. 80 applicable to heading 3822.Court's Interpretation and Reasoning: The Authority observed that the product is a diagnostic kit under heading 3822 and that Circular No. 163/19/2021 clarifies that all goods under heading 3822 attract a concessional GST rate of 12%. The applicant's contention for 5% IGST based on the kit being a fluoro enzyme immunoassay diagnostic kit was found to be inconsistent with the classification under heading 3822.The Authority noted that the 5% rate under Sr. No. 180 applies to drugs or medicines including diagnostic test kits specified in List I, but the product's classification under heading 3822 brings it under the 12% rate entry.Key Evidence and Findings: The product brochure and technical details confirmed the nature of the kit as a diagnostic reagent kit, not a pharmaceutical good or medicine administered to patients. The Circular clarified the GST rate applicability on diagnostic kits and reagents under heading 3822.Application of Law to Facts: Since the product is classified under heading 3822, the IGST rate of 12% under Sr. No. 80 of Schedule II of Notification No. 1/2017-IGST (Rate) applies. The applicant's plea for 5% IGST based on the fluoro enzyme immunoassay nature does not override the tariff classification and corresponding GST rate.Treatment of Competing Arguments: The Authority rejected the applicant's argument for 5% IGST as it conflicted with the classification under heading 3822. The department's submission for 12% IGST was accepted as consistent with the legal framework and GST Council clarifications.Conclusion: The IGST rate applicable on the imported kit classified under heading 3822 9090 is 12%.Significant Holdings'The essential character of the subject goods is their being a diagnostic kit while all the components of reagent having their individual importance. The subject goods are put up in the form of a Kit.''Diagnostic reagents of heading 3822 are excluded by Chapter Note 1 (ij) to chapter 30 and DIAGNOSTIC or LABORATORY REAGENTS PUT UP IN THE FORM OF KIT is specifically included under 3822.''The classification of the goods under the Customs Tariff is governed by the principles as enumerated in the General Rules of Interpretation ('GRI') set out in the First Schedule to the Customs Tariff Act, 1975. In view of the Rule 1 & Rule 3(a) of the General Rules of Interpretation to answer the question of classification of the products under consideration asked by the applicant, provisions of the relevant Section or Chapter Notes and Sub-Notes or explanatory notes are to be interpreted considering that the goods in question comprise 'Reagent', however, they are put up in the form of Kit which gives essential character to the products.''All laboratory reagents and other goods falling under heading 3822 attract GST rate of 12% as per Sr. No. 80 of Schedule II of Notification No. 1/2017-Integrated Tax (Rate) dated 28-6-2017.''The product 'QDx InstacheckTM PCT' with reader 'QDx InstacheckTM' as a kit merit classification under CTH 3822, more specifically under CTH 3822 9090 of the First Schedule to the Customs Tariff Act, 1975 and the said products are covered under entry at Sr. No. 80 of Schedule-II of notification No. 1/2017-Integrated Tax (Rate) dated 28-6-2017.'