TaxTMI 
TaxTMI 
2019 (12) TMI 806
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....nce Ruling No KAR ADRG 18/2019 dated 07.08 2019 = 2019 (8) TMI 855 - AUTHORITY FOR ADVANCE RULING - KARNATAKA pronounced by the Karnataka Authority for Advance Ruling. Brief facts of the case: 1. The Appellant is a pharmaceutical company engaged in the development and manufacture of generic and IP led niche pharmaceutical products. The Appellant is registered as a 100% Export Oriented Unit (EOU) in Karnataka. 2. The Appellant has developed a new product "Nicotine Polacrilex Lozenge" (NPL) which is purportedly used for therapeutic purpose tor nicotine consumption cessation The product is available in dosages of 2 mg and 4 mg depending on the power of the medicine and the manner of intake of NPL is mentioned on the usage manual which is kept inside the NPL packets. 3. The primary ingredient in NPL is nicotine which is mixed with various other ingredients to add colour, flavor, etc and the target customer base of NPL is addicted smokers who wish to give up or reduce the smoking habit When a person uses tobacco products, there are various harmful chemicals which go inside the human body in addition to nicotine which cause life threatening diseases. 4. The primary effect ....
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....efore, the product NCT is not covered under SI No 63 of Schedule II of Notification No 01/2017-CT (R) dt 28.06.2017. Further, the AAR held that the product cannot be classified under Chapter 21.06 which deals with food preparations not elsewhere specified or included since the instant product basically consists of nicotine which is not edible / food preparation. Therefore, the AAR held that the only alternative left for the classification of the instant product is Chapter Heading 38.24 Accordingly, the AAR gave the following ruling: "The instant product. Nicotine Polacriliex Lozenge, is rightly classifiable under the heading 38.24. Accordingly, the product is covered under serial number 97 of Schedule III to Notification No. 01/2017 -Central Tax (Rate) dated 28.06.2017 and attracts GS T at the rate of 18% (9% CGSST, 9% SGST)" 8. Being aggrieved by the above-mentioned Ruling of the Authority, an appeal was preferred before Appellate Authority for Advance Ruling under section 100 of the CGST Act, 2017 / KGST Act, 2017 on 03.10 2019 on following grounds 8.1 The Chapter Heading 3004 covers all medicaments which consists of mixed or unmixed products for therapeutic or pro....
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....ed smokers to safeguard from life harming diseases as a medicament but not just assist smokers to stop smoking. 8.4 They further submitted that as per the general rules for classification of goods, specific entry needs to be given preference over a generic entry, that given the same, the AAR order which seeks to classify the said product which has therapeutic uses and approved by the regulatory body viz. Drug Controller as a medicine, under the generic heading viz. residuary heading, is illegal and deserves to be set aside. PERSONAL HEARING: - 9. The appellant was called for a personal hearing on 21.10.2019 and was represented by Shri Abhi Paresh, Chartered Accountant who reiterated the submissions made in the grounds of appeal. He also submitted that the product NPL is a lozenge and not gum; that the product is a medicament which helps people having a history of smoking abuse to give up smoking and also treats the connected health problems associated with smoking abuse. He stated that although the Chapter Note 1(b) to Chapter 30 specifically excludes preparations such as tablets, chewing gums and patches from the purview of the Chapter 30, the fact that Schedule III to GS....
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.... time to time by the Central Government by notification in the Official Gazette, after consultation with the Board 9.3. They submitted that, from the above definition it is clear that NPL is certified as a drug and is a Medicine and hence deserves classification under Chapter 3004; that, NPL is a product having therapeutic uses, that, since NPL has therapeutic uses, it qualifies as a medicament under Tariff Head 3004 and thereby would not fit into the exclusion under clause (b) to Note 1 to chapter 30. That the said exclusion is for "preparations in general" and does not apply where the said product qualifies as a medicament and hence deserves treatment as a pharmaceutical product, that considering that "Nicotine Polacrilex Gum" is specifically included under Tariff item 3004 49.90, the interpretation that medicaments helping smokers to quit smoking be covered under the above chapter note would render the said Tariff' item "redundant"; that NCL being a medicament would not be covered under the exclusion provided under Chapter Note 1(b) to Chapter 30 and would fall under Tariff item 3004 49 90 "Other" and be subject to 12% GST rate They submitted copies of the composition certifi....
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....condone the delay in filing this appeal and proceed with a decision on the merits of this case 15 Coming to the issue at hand, the appellant approached the Authority for Advance Ruling with the question regarding the classification of the product "Nicotine Polacrilex Lozenge" and the applicable rate of tax The Authority for Advance Ruling gave a ruling that the impugned product is classifiable under Chapter heading 38.24 attracting GST at the rate of 18% in terms of SI.No 97 of Schedule III of Notification No 01/2017-IT (R) dt 28.06.2017. This decision was given in view of the specific exclusion contained in Chapter Note 1(b) to Chapter 30 to preparations, such as tablets, chewing gum or patches (transdermal systems), intended to assist smokers to stop smoking. Since the impugned product is primarily meant to assist smokers to stop smoking, the Authority held that the product cannot be classified under Chapter 30 as a medicament and classified the same under chapter heading 38.24. 16. Aggrieved by the said ruling, the appellant is before us in appeal. In order to decide on the classification of the product "Nicotine Polacrilex Lozenge" we shall start by summarizing in general....
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.... and dictionary meaning of medicament is a substance which treats illness and diseases. We find that Nicotine Polacrilex is used as a stop smoking aid which reduces withdrawal symptoms, including nicotine craving, associated with quitting smoking It is pertinent to note that the use of Nicotine Polacrilex is indicated as merely an "aid" to stop smoking and a drug which "reduces" withdrawal symptoms in those who desire to quit smoking. It appears that the drug Nicotine Polacrilex does not in any way "treat" the symptoms of nicotine cessation. For a drug to be a medicament, it is essential that there should be a treatment of the illness or disease. In the instant case, the product Nicotine Polacrilex Lozenge is only a preparation which assists smokers to stop smoking It is a replacement therapy for addicted smokers to wean them away from the smoking habit Use of Nicotine Polacrilex lozenge will satisfy the nicotine craving of the smoker as measured doses of nicotine are administered into the blood stream The Nicotine replacement therapy ensures that the harmful effect of cigarette smoking is minimized in a smoker who will gradually stop the smoking habit. The claim made by the appell....
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....der the Tariff is accompanied by the notes known as "Section Notes' and Chapter Notes. These are given at the beginning of the Section or Chapter respectively which governs the concerned Section or Chapter as the case may be In the case of Section Notes, they are applicable to each Chapter which is part of a specific section of the Tariff. Classification is to be determined only based on description of the heading read with relevant section or Chapter notes Since these notes are part of Tariff itself, these have full statutory backing. 22. Various Tribunals have held that coverage of respective headings must be determined in the light of the respective section and Chapter note. Hence in this sense, the section and Chapter note have overriding force over the respective headings and sub-headings In CC. v Sanghavi Swiss Refills P. Ltd. (1997) 94 ELT 644 (CEGAT) = 1997 (6) TMI 152 - CEGAT, NEW DELHI, it was held that section notes and Chapter notes, being statutory in nature, have precedence over functional test of commercial parlance for the purpose of classification. 23. Chapter 30 of the Customs Tariff' Act, 1975 relates to "Pharmaceutical products". Chapter Note 1 to Chapter ....
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....to quit smoking The impugned product assists in reducing the withdrawal symptoms. The symptoms of nicotine withdrawal can be physical, mental and emotional The withdrawal symptoms vary depending on how long and how many packs a day have been smoked In Nicotine Replacement Therapy, the intensity of the withdrawal symptoms (mainly a craving for nicotine) is reduced This is because the product used in the Nicotine Replacement Therapy provides the person a small controlled amount of nicotine without any of the other dangerous chemicals found in cigarette smoke. This helps satisfy the craving for nicotine and reduces the urge to smoke thereby helping the person manage the withdrawal symptoms As already mentioned above, the product is not a medicament used to treat any illness or disease It is only a preparation used to assist smokers to stop the habit of smoking. No doubt the product is sold in measured doses of 2mg and 4mg and is to be taken in a prescribed manner as indicated in the label However, this fact will not categorize the product as a medicament classifiable under Chapter 30 It may be noted that use of this substance for prolonged periods of time may lead to a dependence on n....