AI OCR 
TaxTMI 
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TaxTMI 
2005 (12) TMI 411
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....or 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 manufacturing food supplements from natural mushrooms; that th....
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....rs/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 Rs. 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 Rs. 50,00,000/- paid by D....
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....antee the same may be enforced. (8) 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 Rs. 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 Rs. 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 - Rs. 25,00,000/- (Rs. twenty-five lakhs only) (b) M/s. Daehsan Trading (India) Pvt. Ltd. - Rs. 25,00,000/- (Rs. twenty-five lakhs only). (c) M/s. Roshan Commercia....
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....C.), [wherein it was held that a product must be classifiable according to the popular meaning given to it by its users, rather than scientific/technical meaning. Learned SDR contested the Counsel's claim that RG and GL capsules were understood as ayurvedic medicaments 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 pro....
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....aw. Learned counsel also referred to the expert opinion of Dr. K.S. Viswanatha Sharma, who had opined that 'Ganoderma' was an ayurvedic medicament, which could prevent and cure diseases. Counsel also claimed that there was sufficient evidence on record to show that 'Ganoderma' was 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 Pancha....
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....linical trial reports of two medical practitioners as well as on the basis of a baseless claim that the botanical names of what were said to be the ingredients [Chatraka and Buchatra] of RG and GL had been mentioned in Ayurvedic texts. Learned SDR also referred to the opinion given by the 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 &nb....
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.... 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.. Vitamin C 197.9 mg. Vitamin B3 190.5 mg. Moisture 5.77 g Fibre 3.47 g Calories 353.5 Cal 380.4 Cal The above composition of the subject products was confirmed by the appellant, Dr. Lim Siow Jin (CEO, DXN Group of Companies) himself in his statements, which were never retracted. He also stated that there was no change in nutritional content of the products while their classification was changed as APMs. A statement to this effect was given by Shri Abdul Rahaman Puvarasan B. Abdullah, Director, Daehsan. Shri Abdul Rahman ....
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....tion 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 what was deposed by some stockists/distributors when cross-examined. However, he has not specified any disease or ailment which could be prevented or cured by means of the above products, nor has any of the said witnesses so specified. When one claims a certain product to be a medicament with prophylactic or therapeutic property, one has got to specify the disease or ailment which can be prevented or cured by means of such product and must also prove this claim. This imperative requirement remains unfulfilled in this case. M/s. DXN themselves do not have a case that RG/GL can be used to prevent or cure any particular disease or ailment. Had it been their case, they would have shown that their products were sold in retail under doctor's p....
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....o 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 amendment, however, has no retrospective effect, nor any impact on the Revenue's evidence in this case. The letter dated 25-3-2002 issued to the party by the Electricity Department, Govt. of Pondicherry granting power supply to their factory also indicates that the power supply was made available for the "manufacture of food supplement capsules made from natural mushroom". The NOC dated 5-2-2002 issued by the Pondicherry Pollution Control Committee to M/s. DXN is also in respect of "manufacture of food supplement capsules made from mushroom powder". The name of the products in this document also is seen to have been amended as "ayurvedic drug (mushroom)" by the said authority on 21-9-2004 upon the party's request. This amendment i....
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....t) 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 Manager, Daehsan (sole selling agents for DXN, Pondicherry) has also stated that they have not advertised the subject goods as medicines or products, with therapeutic value. Shri Surya Prakasa Rao, Authorised Signatory of Daehsan (Andhra Pradesh) has stated that they were marketing RG and GL capsules as food supplements till DXN changed the classification of the products as APM. None of these statements was ever retracted. The stockists/distributors of the DXN products also stated that they were marketing the goods as food supplements till the change of classification announced by DXN. None of them has resiled from this position even when cross-examined. Thus it is abundantly clear that, till they started manufacturing RG and....
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....er 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 Abdul Rahman Puvarasan Abdulla, Director, Daehsan (marketing agents for all products, in India, of DXN Malaysia and DXN Pondicherry) who stated to the effect that GL and GL capsules were manufactured from different parts of the body of the same mushroom viz. Ganoderma lucidum available abundantly in Malaysia. He also stated that both the capsules were meant to be mixed with water and taken as a diet supplement. After consulting literature on the subject and considering oral evidence of experts and others, Ld. Commissioner has come to the conclusion that Ganoderma does not cure any disease and that it only adds nourishment to rejuvenate the body health system. We have not found good reason to disagree with this conclusion. M/s. DXN have heavily relie....
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.... 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 Agaricacea) and do not fall under the category of APM. This report of NBRI contradicts DXN's claim that "Chatraka" & "Buchatra" have medicinal properties. The NBRI report further indicated that certain samples of RG capsules , contained 100% 'Ganoderma' and no other ingredients, as against DXN's claim that the product was a mixture of 'Ganoderma' and 'Shiitake'. Yet another observation made in the report is that the botanical name of 'Shiitake' is Lentinula Edodes. But no sample of the DXN's products was found to match with authentic (standard) sample of Lentinula Edodes, which indicated the absence of Shiitake in the sample tested. The NBRI report goes a long way to disprove DXN's claim regarding the composition and properties of the subject produc....
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....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 in the aforesaid circumstances. We are of the view that, in the above facts and circumstances, M/s. DXN are not entitled to ask for classification of their products as APMs on the strength of their drug licence, which was obtained in a fraudulent manner. A document obtained by fraud cannot give rise to any right or benefit in law. This is the legal position settled by the Hon'ble Supreme Court in New India Assurance Co. v. Kamla & Others, 2001 (4) SCC 342. In that case, the main issue which was considered by their Lordships, with reference to relevant provisions of the Motor Vehicles Act, 1988, was as to whether a fake driving licence would get legally sanctified by reason of its renewal by the statutory authority. Their Lordships gave....
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....emsp;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, Bournvita etc. in the common parlance. We are afraid, we are unable to take the above order of the Sales Tax Appellate Tribunal under the Sales Tax Act, as a precedent for classification of the goods under the Central Excise Tariff Act. That Tribunal, in the facts of that case, found that the goods were not known as food supplements in the common parlance. On the other hand, we have found, on the facts and evidence on record in this case, that RG/GL capsules were known as food supplements in the common parlance. The finding recorded by the STAT on a pure question of fact need not be followed by the CESTAT while dealing with similar, question. Moreover, the issue before the Sales Tax Appellate Tribunal pertains to a period ....
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....n. 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 their factory from March to July, 2002. From our findings already noted, it would follow that the Commissioner's order vacating the protest registered by M/s. DXN while paying duty on the products for the subsequent period is sustainable. 11. Having upheld the invocation of the extended period of limitation against the assessee, we have to sustain penalty on them under Section 11AC of the Central Excise Act. However, it is too harsh to impose on them the maximum penalty (equal to duty) prescribed under the provision. In the facts and circumstances of the case, we reduce this penalty to Rs. 25,00,000/- (Rupees Twenty-five lakhs only), while setting aside the penalty of Rs. 1 lakh imposed on the assesse....