TaxTMI 
TaxTMI 
2017 (11) TMI 608
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....peals is whether the product Reishi Gano and Ganocelium are classifiable under chapter 3003.39 of the First Schedule to the Central Excise Tariff Act, 1985 (CETA), as contended by appellants or as food supplements under 2108.99 of CETA. The facts of the appeal E/365 to E/369/2005 are summarized as follows : DXN Herbal Manufacturing (India) Pvt. Ltd. (DXN for short) having manufacturing premises at Pondicherry are inter alia, engaged in manufacture of Reishi Gano (RG for short) and Ganocelium (GL for short) capsules. They have taken Central Excise registration declaring that they are manufacturing the said products as Ayurvedic Proprietary Medicine (APM) falling under Chapter 3003.39 of the Central Excise Tariff Act, 1985 (CETA for short). DXN are the appellants in Appeal No.E/365/2005. Their C.E.O and Director, Dr.Lim Siow Jin is the appellant in E/366/2005, M/s.Daehsan Trading (India) Pvt. Ltd. (Daehsan, for short) and M/s.Roshan Commercial Trades (P) Ltd. (Roshan for short), marketing agents for the products of DXN are the appellants in Appeal Nos.E/367/2005 & E/368/2005. Appeal No.E/369/2005 has been filed by Shri K. Thevaraj, Director of Daehsan. 2. The controversy is ....
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....ements under stockists. (x) that Stockists / Distributors gave statements that RG & GL are being distributed without any therapeutic claim on them. (xi) that to classify the product as Ayurvedic, it is necessary that the plant ingredients are available in India from ancestral period. (xii) that ingredients of RG and GL have no reference in Ayurvedic texts; (xiii) that RG & GL capsules have no therapeutic or prophylactic value and are not used in hospitals as medicaments. 3.1 Based on the above apparent findings, department took the view that that RG & GL are not Ayurvedic Proprietary Medicine and did not merit classification under CETA 3003.39, but fall under CETA 2108.99 as food supplements, and in consequence assessment of the goods should be under Section 4A of the Central Excise Act 1944. 3.2 SCN dated 31.07.2003 was issued inter alia, to DXN proposing classification of RG & GL products as edible preparations not elsewhere specified or included (food supplement) under CETA 2108.99; confiscation of seized bottles of RG and GL, demand of differential duty of Central Excise duty of Rs. 2,03,04,544/- with interest for the period March 2002 to ....
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....s (MP) (appellant in E/405/2006) 5.3 Roshan had classified the products under chapter 3003.39 of CETA, 1985 as Ayurvedic Propriety Medicines. 5.4 As part of search operations at Daeshan, search was conducted in the premises of these appellants also. From February 2002 Roshan started marketing RG & GL as AMP first in Kerala State and from March 2002 throughout India. 5.5 Daeshan & Roshan had declared the products, RG & GL as APM to the Deputy Drug Controller, Chennai and obtained a drug loan licence for manufacturing the same at MP. Roshan had stated in their application that Daeshan had already got a drug loan licence for manufacturing the same products as APM. 5.6 The documents recovered at MP as well as statements revealed that Roshan had relabelled some stocks of RG & GL capsules (which were imported as food supplements) at the loan licence premises of MP by repacking the original contents into new containers. 5.7 Investigations at Daeshan as well as stock registers recovered from Daeshan showed that there had been no movement of RG & GL powder from Daeshan and only filled bottles of RG & GL were issued to Roshan & MP who marketed them as APM; that Roshan had neve....
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.... chemical accumulation. The product has therapeutic properties to cure diseases like High blood pressure, piles, rheumatism, asthma etc. (v) The Appellant imports bulk powder of RG and GL from Malaysia, repacks them in capsules and sells them to stockists. Initially, the product was sold by Daehsan as a food supplement. The Drug Authorities in Gujarat and Kerala took objection to the same and seized the products, holding that they are Ayurvedic medicines and could not be marketed without a drug licence. Subsequently, the Appellant applied for a drug licence which was granted. (vi) The question for consideration whether the product is a food supplement as originally sold by the Appellant/Daehsan or an Ayurvedic medicament is now set to rest by issue of drug license by the Drug Controller. (vii) The twin tests laid down by the Hon'ble Tribunal in the decision of Richardson Hindustan Ltd. v. CCE, Hyderabad 1988 (35) ELT 424 (Maintained by the Hon'ble Supreme Court in 1989 (42) E.L.T. A100 (S.C.)) in order to classify a product as an Ayurvedic medicament under Chapter Heading 3003 are as follows: (i) that the product should be known as medica....
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....2108. (xv) The records would show that appellant changed its stand on classification due to the directions given by the Drug Authorities and not with any nefarious intention to deprive the Government Exchequer of its dues. The Appellant submits that change in classification due to the directions given by the Drug Authorities would not amount to fraud or suppression on their part. (xvi) Present matter does not demand invocation of extended period of limitation or imposition of penalty as it is trite law that issues of classification concerning bona fide interpretation of the tariff entries do not warrant invocation of extended period of limitation or imposition of penalty under Section 11 AC of the Excise Act. 7. The Learned Counsel Shri S.Muthuvenkataraman appeared on behalf of appellants in E/331 to E/334/2006 and Shri M. Karthikeyan, Ld. Advocate appeared for appellants in E/404-405/2006. They adopted the arguments advanced by the Learned Senior Counsel Shri Lakshmi Kumaran. It was submitted that following the action taken by drug control authorities, the appellants had to review the classification of the subject items. Thus the marketing company had obtained....
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....spute is whether the products RG & GL are classifiable as APM under CETA 1985 as contended by appellants or as Food supplements, under 2108 as alleged by department. 9.3 The matter is once again before this forum in consequence of the order dt. 07.08.2015 of the Hon'ble Supreme Court in C.A. No.1215/2016 filed by appellant. Relevant portion of the order of Hon'ble Apex Court in appeals E/365-369/2005 is reproduced for ready reference : "It is pointed out by Mr. V. Lakshmikumaran, learned counsel for the appellants, that plethora of material was given to the Commissioner as well as CESTAT in support of the contention that the products in question i.e. Reishi Gano (RG) and Ganocelium (GL), Ayurvedic Proprietary Medicines, are used in curing so many diseases. The submission is that the said material has not been taken into consideration either by the Commissioner or the CESTAT. We find that this was the precise reason because of which while issuing show cause notice, this Court indicated that the matter may be remanded back to the Tribunal for fresh consideration. We, accordingly, set aside the order passed by the CESTAT and remand the case to the....
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....Central Excise Department. Annexure B.1/Sl.no:1 3. Ganotherapy Treatment against disease with RG and GL (New version) Acknowledged on 19.11.2004 by the Central Excise Department Annexure B.1/Sl.no:2 4. Extracts from Ayurvedic textbook Charak Samhita Acknowledged on 19.11.2004 by the Central Excise Department Annexure B.2 5. American Herbal Pharmacopoeia and Therapeutic Compendium Acknowledged on 19.11.2004 by the Central Excise Department Annexure B.3/Sl.no:1 6. Pharmacopoeia of the Peoples Republic of China Acknowledged on 19.11.2004 by Central Excise Department Annexure B.3/Sl.no:2 7. Therapeutic Goods Administration (TGA) Certificate, Australia & Certificate of Medicine Listing Acknowledged on 19.11.2004 by Central Excise Department Annexure B.3/Sl.no:3 8. Extract from Growing Gourmet and Medicinal Mushroomsby Paul Stamets Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:1 9. Extract from MycoMedicinals An Informational Treatise on Mushroomby Paul Stamets. Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:2 10. Extract from Chinese Herbsby Henry C. Lu, Ph.D. Pr....
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....e is nothing to infer that the ancient sages have missed out or had any intention to miss out any of the other varieties of medicinal mushroom. Lack of specific terminology for naming different species of mushrooms in ancient texts, does not in any way obscure the fact, that Ganoderma lucidum, which is found very much in India and, having tremendous healing properties have not been considered in the wisdom of the ancient sages." The elucidation by Dr. Sharma, while highlighting the medicinal properties of mushrooms however, admits that specific entries on medicinal mushrooms are not named in ayurvedic texts like Charaka, Sushruta etc. The last paragraphs of Dr. Sharma's opinion on page 91, which has been relied upon by ld. advocate is only a statement that Ganoderma and Shitake (the medicinal mushrooms) are ayurvedic Oushadham, by its extraordinary rasa, guna, virya, vipaka, pravabhava virtues described in all ayurvedic texts 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 mushr....
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....anocelium as (1) Polysaccharide (2) Organic germanium (3) A whole spectrum of Vitamins (4) A whole spectrum of Minerals. On page 2 of the booklet, the benefits of GL have been given as under : 1. Brain tonic, Nerve stabilisation 2. Prevents tumour growth 3. Strengthens body resistance 4. Cleanses toxins out of body 5. Effective for Gastric and kidney disorders The pages on Reishi Gano and Ganocelium carry an identical tag line "An ounce of prevention is better than a pound of Cure". From the above literature given along with product, what emerges is that GL and RG are touted as a toxin cleaner, for regulating body functions, for preserving youthfulness and the like. Certainly, there is no reference or claim made therein that RG and GL are Ayurvedic products or for that matter, that they have Ayurvedic properties and functionalities. Nonetheless, from the photocopy of the label found in page 54 of the 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 "C....
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....Pharmacopoeia of the People's Republic of China (2000). Approved for the treatment of dizziness, insomnia, palpitations, shortness of breath, and cough and asthma due to consumption. Japan Not included in the Japanese pharmacopoeia. Not used in Kampo medicines." Thus the above write up, while dwelling into the claimed benefits of Reishi mushroom, has however cautioned that there is relatively little information on its clinical applications. It also states that much of the research has focused on the ability of the polysaccharides in the mushroom and the various effects of those chemicals which have on the biological systems. For these reasons, the write up also cautions that "findings of studies utilizing specific polysaccharide or protein fractions cannot be used to substantiate the effectiveness of orally administered commercial reishi mushroom mycelium biomass products because of a potential lack of bioavailability. Interestingly, the write up also confirms one of 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 Chin....
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....said publications appears to be issued as a companion guide to "The Mushroom Cultivator". The write up states that Ganoderma lucidum is renowned for its health stimulating properties and traditionally associated with royalty health and recuperation, longevity wisdom and happiness. The article further elucidates on various types of cultivation of the mushroom and hints for harvesting and cooking. It also states that complex group of polysaccharides have been isolated from this mushroom which reportedly stimulate the immune system. Article makes a reference to studies on modulating effects on blood pressure and lipid levels, glucose levels and presence of immuno-modulating proteins. Various other claims of cure have been reported in the article. However, what is interesting to note that the article predominantly concentrates on the aspects of cultivation and harvesting mushroom. In any case, while the claims of the said mushroom having properties of curing many health conditions may well be true, that would not automatically 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 l....
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....90. Bill of Entry under CTH 30039090 that has been studied is B/E No.705256 dt. 28.10.2004 (available at page 303 in Annexure D1). The goods have been declared as falling under Customs Tariff Heading 30039090 and CETH Heading 3003.10. The tariff headings are the same even at final assessment. Interestingly, the CETH 3003.10 covered "Patent or proprietary Medicaments, other than those medicaments which are exclusively, Ayurvedic, Unani, Siddha, Homoeopathic or Bio-chemic (Emphasis added). While the Bills of Entry have been relied upon by the appellant, a perusal thereof reveals that the appellant themselves were classifying it under Central Excise Tariff, as "other than those medicaments which are exclusively Ayurvedic Medicaments". This only serves to indicate that RG & GL imported in powder form in bulk were never claimed to be "Ayurvedic Products" at the stage of imports. 14. Letter of Port Health Officer dated 14.02.2002 This document is found in page 354 of the paper book (Annexure-D1) submitted by the 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 Artic....
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....ng under Entry 141 of the First Schedule to the Kerala General Sales Tax Act. After various discussions and arguments relating to the documents produced/made by the appellant, the Kerala Sales Tax Appellate Tribunal has held that there is no justification in treating the items as food supplements and that they are particularly ayurvedic preparations as claimed by the appellant and directed the assessing authority to treat the items as Ayurvedic preparations accordingly. While this may be so, what is important is whether this decision, rendered in a sales tax issue, by another Tribunal, can have precedential, or for that matter, persuasive application. The facts that have been gone into by the Tribunal are those relating to the capsules sold as Ayurvedic medicine and dispute having arisen thereon on their taxability. Surely, the Hon'ble Sales Tax Tribunal did not have access to all the facts of the matter before us, including the fact that these very items had earlier been imported as found herein above, as drugs other than 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 al....
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....tance of various literature, reports of clinical studies and other documents, which we have analyzed herein above, to canvass the argument that these products cure many an ailment and has therapeutic properties, however on the labels there is nothing to indicate that they cure any specific disease. Even the pamphlets accompanying the product does not claim to cure any disease, but in fact suggests that prevention is better than cure. The Learned Sr.Counsel has laid much thrust on the factum that dosage is indicated, and therefore the product would have therapeutic value. Nonetheless what are the diseases the products intend to cure by taking such measured doses, is not conveyed through the label or the pamphlet to satisfy the common parlance test. What is important is how the consumer looks at the product, and what is his perception in respect of the product. 11.2 The goods which were imported earlier from Malaysia were marketed as "food supplements". In fact, from the record it emerges that they were then called 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 fo....
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....nterestingly, pursuant and possibly due to the investigations, these claims underwent a transformation. The new pamphlets accompanying the products were redesigned to make the claim that RG and GL were Ayurvedic Proprietary Medicines and Ayurvedic Preparations. Still, the pamphlets do not convey that it cures any specific disease. The scan of the redesigned pamphlets are reproduced below : This space is purposely put blank. 11.6 Evidently, the appellants have redesigned these pamphlets to counter the department's finding that the goods were not sold as ayurvedic medicine but only as a food supplement. Notwithstanding all these efforts, it will be seen that the pamphlets of both RG and GL only claim to "help to improve a body functions - systematic & metabolic corrective", in the case of RG and "helps to improve your body functions restore & metabolic corrective," in the case of GL. 11.7 Evidently, the appellants were taking great pains to emphasize 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 admit....
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....er the name Dant Manjan Lal which is the name specified for the said product in Ayurveda Sar Sangrah, the common parlance test is not applicable. As a matter of fact, this contention is based on misplaced assumption that Chapter Sub-heading 3003.31 by itself provides the definition of Ayurvedic Medicine and there is no requirement to look beyond." 12.0 Whether the ingredients of the impugned goods are mentioned in the authoritative books of Ayurveda. 12.1 No doubt, the appellants have claimed that the ingredients in respect of RG are Ganoderma (Chatrakh) and Shiitake (Bhuchatra) and in respect of GL also, ingredient Shiitake (Bhuchatra) has been shown and another ingredient Ganomycelium has also been indicated as Chatrakh. To counter this, Revenue have obtained a statement from Dr. D.Athisayaraj, Head of Section of Siddha/Auurveda, Aringnar Anna Hospital of Indian Medicine who has deposed that Bhuchatra does not mean Shiitake and he does not know 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....
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....specific therapeutic purpose of diseases. 12.4 Even in respect of purported addition of "shitake" in the product Shri D. Prem Kumar, Assistant Factory Manager, in his statement dt. 18.1.2003, has admitted that there are no methods for analysis available with the appellant for identification of Shitake. Shri D.Premkumar also admitted that appellants have no pharmacopoeial standards for the products RG and GL. 12.5 This being so, we are not able to find any infirmity in the finding of the adjudicating authority in para 57.3 of the impugned order that as the ingredients viz. Ganoderma and Shitake are not mentioned in the authoritative medicine texts prescribed in Schedule I of the Drugs & Cosmetics Act, 1940, the goods in question also failed to pass the second test propounded by the Apex Court. 12.6 Much reliance is placed by the appellant on the fact that drug authorities of TN and Pondicherry have issued drug licence for RG and 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, Naga....
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.... Email that no manufacturing licence was given to (1) M/s.Roshan Commercial Traders Pvt. Ltd. (2) M/s.Daeshan Trading India Pvt. Ltd. From the above it is obvious that the above mentioned companies do not hold valid drug licence as on today." 12.8 Thus the license has not been renewed as the firm did not comply with the norms of the Schedule M of the Drugs and Cosmetics Act and Rules vide No.DDC/Drugs/U.II/2015/2128 dt.30.03.2015. Revenue has also informed in the written submissions that licence pertaining to Indian medicine has been separated from Director of Drugs Control and has been vested with newly created State Licensing Authority (Indian Medicine) by a Government Order dt. 7.11.2007. It is further confirmed that no manufacturing licence was given either to Roshan Commercial Traders Pvt. Ltd. or Daeshan Trading India Pvt. Ltd. from 2007 till date. 12.9 From the facts on record, in addition it emerges that 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 ....
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....1.3.2002 notifying the goods falling under that sub heading for assessment under Section 4A. In this regard, entries under heading 2108 of the CET, are reproduced for ready reference : Heading No. Sub-heading No. Description of goods Rate of duty (1) (2) (3) (4) 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 16% 2108.20 - Sharbat 16% 2108.30 - Prasad or Prasadam 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 extrac....
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....arch 2002 to July 2002. 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. 15. 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. 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 Rs. 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 Rs. 1 lakh imposed under Rule 25 of the Central Excise Rules, 2002 on DXN, as the equal penalty under ....
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....- in respect of inputs removed as such are upheld. As we find that the ingredients of Section 11AC ibid are satisfied the equal penalties of Rs. 53,79,870/- and Rs. 14,20,521/- respectively imposed are sustained. The penalty of Rs. 15 lakhs imposed under Rule 25 of Central Excise Rules, 2002 and penalty of Rs. 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/- E/405/2006 The Madras Pharmaceuticals 10,00,000/- 1,00,000/- 23. In the result, the ap....
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....actly the 100th day of growth. functions a Iness' 1) Mak 2) 8 Contents of RG Polysaccharide Organic germa ium 3. Adenosine 4. Triterpenoids 5. Ganoderic Essence 6. Protein 7. Fibre eishi Gano cont; ins more than 200 active elements divided into three categories consisting 30% water sol ible elements, 65% organic soluble elements and 5% volatile elements. DYN Document 3 DANOCELIUM he myce ium of Ganoderma Lucidum harvested fter 21 days of growth. 46 Contents of Gl 1. Polysaccharide 2. Organic ger nanlum 3. A whole spectrum of Vitamins 4. A whole spectrum of Minerals Strength of GL 1. Brain tonic, Verve stabilisation 2 Prevents tui our grouth L ens body resistence An ounce of prevention is better than a pound of Cure DXN CMYCELIUM DXN Document 4 O PREVENTION IS BETTER POUND OF CURE Contents of GL Polysaccharide 2. Organic germanium 3. A whole spectrum of Vitamins 4. A whole spectrum of Minerals Strength of GL: Brain tonic, Nerve stabilisation Prevents tumour grouth ens body resistence E7331-334,404,405/2006 DXN Faxins out of body tric and ki....