2025 (12) TMI 1143 - AT - Central Excise

Dietary supplement tablets, capsules, syrups and drops: classified as food supplements (21069099), not medicaments; exemption denied, demand and penalty upheld.

Dietary supplements manufactured as tablets, capsules, syrups and drops were held excluded from Ch. 30 by Ch. Note 1(a); on a complete reading, food ... Non-appearance of the appellant before this Tribunal - Classification of the dietary supplements manufactured by the appellant - to be classified under CETH 3003 or otherwise? - Commissioner (Appeals) failed to deal with the plea of appellant - violation of principles of natural justice - Entitlement for benefit of exemption N/N. 49/2003-CE for the dietary supplements - Invocation of extended period of limitation - no mens rea to evade - Calculation of the duty in the SCN - Imposition of fine under section 11AC of the Central Excise Act. Non-appearance of the appellant before this Tribunal - HELD THAT:- The Larger Bench of the Hon’ble Supreme Court has, in the case of BALAJI STEEL RE-ROLLING MILLS Versus COMMISSIONER OF C. EX. & CUSTOMS [2014 (11) TMI 531 - SUPREME COURT], held that if the appellant is not present on the day the matter is taken up for hearing, this Tribunal should decide the matter on merits. Classification of the dietary supplements manufactured by the appellant - to be classified under CETH 3003 or otherwise? - HELD THAT:- The appellant reproduced part of the above Chapter note 1(a) minus the words ‘for intravenous administration’ and made out a case that all food supplements which are nutritional preparations were excluded from the purview of Chapter note 1(a). If the complete sentence is read, it would leave no manner of doubt that food supplements other than nutritional preparations for intravenous administration will not fall under Chapter 30 at all. This note clearly excludes dietary supplements from its purview. They deserve to be classified as dietary supplements under CETH 21069099. Commissioner (Appeals) failed to deal with the plea of appellant - violation of principles of natural justice - HELD THAT:- The Commissioner (Appeals) examined this contention and gave a specific finding that the demand was based on the documents provided by the appellant and they were in possession of all the documents and for this reason, rejected the contention of violation of principles of natural justice - there are no error on this finding in the impugned order. Entitlement for benefit of exemption N/N. 49/2003-CE for the dietary supplements - HELD THAT:- The goods were correctly classified in the impugned order under CETH 21069099 they were not covered by the exemption N/N. 49/2003-CE. Invocation of extended period of limitation - no mens rea to evade - HELD THAT:- The appellant knew that the dietary supplements or dietary food supplements which it had manufactured were not drugs but were food and hence it had obtained a licence for their manufacture from the FSSAI. It could not have entertained a belief that they were pharmaceutical products - Nothing in the conduct of the appellant from filing the declaration before the department that they were manufacturing ‘Pharmaceutical products falling under CETH 30.04’ to citing part of the Chapter note 1(a) in the appeal before us, shows any bonafide belief of the appellant. The mens rea or intention to evade can only be inferred from the conduct of the assessee. We find from the facts of the case, that the appellant had the intention to evade and therefore, declared ‘Pharmaceutical products falling under CETH 30.04’ and did not declare the dietary supplements in the form of tablets, capsules, syrups and drops manufactured by it. Therefore, it is found in favour of the Revenue and against the appellant on the question of invoking extended period of limitation. Calculation of the duty in the SCN - HELD THAT:- The appellant does not say as to what was the correct amount of duty that should have been - this submission also deserves to be rejected. Imposition of fine under section 11AC of the Central Excise Act - HELD THAT:- Penalty under section 11AC can be imposed if duty is not paid or short paid by reason of fraud, collusion, wilful mis-statement or suppression of facts or violation of the provisions of the Act or Rules with an intent to evade - it is already found in favour of the Revenue and against the appellant on this count because the appellant had mis-declared the nature of goods by not declaring the dietary supplements which it was manufacturing - it is found in favour of the Revenue and against the appellant on the question of imposing penalty under section 11AC. The confirmation of demand of duty with interest and the imposition of penalty in the impugned order need to be upheld are upheld - Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether dietary supplements/dietary food supplements manufactured and cleared by the assessee were correctly classifiable under CETH 21069099 and not under CETH 3003 (Chapter 30). (ii) Whether, on such classification, the assessee was entitled to area-based exemption under Notification No. 49/2003-CE for the disputed goods. (iii) Whether the plea of violation of principles of natural justice in adjudication was made out and warranted interference. (iv) Whether the Department was justified in invoking the extended period of limitation based on the assessee's conduct and declarations. (v) Whether penalty under section 11AC was sustainable on the facts found (mis-declaration/suppression with intent to evade). (vi) Whether the challenge to duty computation could succeed in the absence of any alternative working/details from the assessee. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Classification of the disputed goods (CETH 3003 vs CETH 21069099) Legal framework (as discussed): The Court relied on Chapter Note 1(a) to Chapter 30, which excludes 'food supplements' from Chapter 30, except 'nutritional preparation for intravenous administration'. Interpretation and reasoning: The assessee attempted to rely on an incomplete reproduction of Chapter Note 1(a) by omitting the words 'for intravenous administration' to argue that its products, being 'nutritional preparations', were not excluded. The Court held that reading the complete note leaves no doubt that food supplements other than nutritional preparations for intravenous administration do not fall under Chapter 30. Since the goods were dietary supplements, they were excluded from Chapter 30 and could not be classified under CETH 3003. Conclusion: The disputed goods were correctly classified under CETH 21069099, and not under Chapter 30. Issue (ii): Eligibility to exemption under Notification No. 49/2003-CE for dietary supplements Legal framework (as discussed): The Court considered that Notification No. 49/2003-CE covered specified goods and that the assessee had declared its manufacture as pharmaceutical products under Chapter 30 to claim exemption. Interpretation and reasoning: Given the Court's finding that the goods were classifiable under CETH 21069099, it followed that they were not covered by the exemption notification's specified goods as applied to the assessee's claim. Conclusion: The assessee was not entitled to exemption under Notification No. 49/2003-CE for the dietary supplements. Issue (iii): Alleged violation of principles of natural justice Interpretation and reasoning: The Court noted that the appellate authority had examined this plea and recorded a specific finding that the demand was based on documents provided by the assessee, and that the assessee had possession of all relevant documents. On that basis, the plea of violation of natural justice was rejected. Conclusion: No violation of principles of natural justice was established; the finding rejecting this plea was upheld. Issue (iv): Invocation of extended period of limitation Interpretation and reasoning: The Court found that the assessee did not pay duty and did not file returns on the premise of exemption, and submitted a declaration stating manufacture of 'Pharmaceutical products' under Chapter 30. Investigation revealed that the assessee was also manufacturing dietary supplements under a food-related licence, indicating it knew these were not drugs. The Court inferred intention to evade from conduct, including non-declaration of dietary supplements while declaring only pharmaceutical products and the manner of pleading on Chapter Note 1(a). Conclusion: The Court upheld invocation of the extended period, holding that the facts supported intent to evade and mis-declaration/suppression. Issue (v): Sustainability of penalty under section 11AC Legal framework (as discussed): The Court stated that section 11AC penalty applies where duty is not paid/short paid by reason of fraud, collusion, wilful mis-statement, suppression of facts, or violation with intent to evade-i.e., on the same foundational reasons as extended limitation. Interpretation and reasoning: Since the Court had already found mis-declaration/suppression with intent to evade in upholding the extended period, it held that the statutory conditions for section 11AC penalty were met. Conclusion: Penalty under section 11AC was upheld. Issue (vi): Challenge to the duty calculation Interpretation and reasoning: Although the assessee asserted that duty computation was incorrect (including a plea that demand should be based on MRP on each wrapper), it provided no alternative calculation or supporting details enabling examination of the claim. Conclusion: The computation challenge was rejected due to lack of particulars and any alternative working; the confirmed demand with interest was sustained.