Custom, Excise & Service Tax Tribunal
Cepheid India Private Limited vs Principal Commissioner, Customs-New ... on 25 June, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH- COURT NO. I
CUSTOMS APPEAL NO. 52186 OF 2022
[Arising out of Order-in-Original No. 02/2022-23/S.J/ Principal Commissioner dated
30.06.2022 passed by the Principal Commissioner of Customs, Air Cargo Complex,
Import, New Delhi]
M/s Cepheid India Private Limited ....Appellant
9th Floor, Paras Twin Towers, Tower B,
Golf Course, Sec-54, Gurugram,
Haryana, India, 122002
(Earlier situated at Unit No. DSM-214 &215,
Second Floor, DLF Tower,15, Shivaji Marg,
Najafgarh Road West, New Delhi-110037)
versus
The Principal Commissioner of Customs, ....Respondent
New Customs House,
Near IGI Airport,
New Delhi- 110037
APPEARANCE:
Shri Rohan Shah,Senior Advocate, Shri Kumar Visalaksh, Ms. Tejas Pathak,
Ms. Akansha Dikshit and Shri Mohd. Anajwala, Advocates for the Appellant
Shri S.K. Rahman, Authorised Representative for the Department
CORAM: HON‟BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON‟BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 10.02.2025
Date of Decision: 25.06.2025
FINAL ORDER NO. 50929/2025
JUSTICE DILIP GUPTA:
M/s Cepheid India Private Limited1 is aggrieved by the order dated
30.06.2022 passed by the Principal Commissioner of Customs, ACC
Import, New Delhi2. The order rejects the declared assessable value of
the goods imported through 85 Bills of Entry under rule 12 of the
Customs Valuation (Determination of Value of Imported Goods) Rules,
1. the appellant
2. the Principal Commissioner
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20073 and re-determines the same. The exemption from basic customs
duty4 in respect of diagnostic kits imported under Notification (Cus.)
dated 17.03.2012 (Serial No. 148) during the period up to 30.06.2017
and Notification (Cus.) dated 30.06.2017 (Serial No. 167) w.e.f
01.07.2017 has been denied to the appellant. Exemption from additional
duty5 equivalent to excise duty leviable under section 3(1) of the
Customs Tariff Act, 1975 as provided for under Notification (C.E.) dated
17.03.2012 (Serial No. 108) for the period up to 30.06.2017 has also
been denied to the appellant. Integrated Goods and Service Tax6 with
effect from 01.07.2017 @ 5% under IGST Rate Notification dated
28.06.20177 (Serial No. 180) of Schedule I has also been denied to the
appellant. The order, therefore, confirms the proposed duty under
section 28(4) of the Customs Act, 19628 with interest under section
28AA of the Customs Act. The order also confiscates the goods imported
through 85 Bills of Entry under section 111(m) of the Customs Act, but
as the goods were not available for confiscation, redemption fine has
not been imposed. The order also imposes penalty upon the appellant
under section 114A of the Customs Act.
2. The appellant is a part of the Cepheid Group, which is a
Corporation based in California. It is mainly engaged in the business of
trading of test cartridges, re-agents, molecular diagnostic testing
equipments used for sampling and detection of different types of
diseases. The products traded/sold by the appellant in India are
imported from its related party suppliers named Cepheid Group
3. the 2007 Valuation Rules
4. BCD
5. CVD
6. IGST
7. IGST Rate Notification
8. the Customs Act
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Entities9. Such imported products can mainly be classified into three
categories- (a) Test cartridges/kits, (b) Testing equipment/system and
their standard accessories, and (c) Spares and assemblies for the
equipment. These products shall collectively be referred to as „subject
goods‟. These equipment/ spares and test cartridges are sold under the
trade name of „GeneXpert®‟ and „Xpert®‟, respectively and are owned
by Cepheid, USA. These products are used for clinical tests in the areas
of critical infectious diseases, healthcare-associated infections, sexual
health, virology, and oncology, such as Tuberculosis, Hepatitis B,
Hepatitis C, HIV and Influenza.
3. The issue involved in this appeal relates to the period from
16.08.2016 to 20.04.2021 during which the appellant had cleared
consignments on finally assessed Bills of Entry. However, BCD, CVD and
lower rate of IGST on HIV-VL Test Kits claimed by the appellant under
various Exemption Notifications have been denied and the declared
value has been rejected under rule 12 and re-determined under rules 4,
5 and 9 of the 2007 Valuation Rules.
4. The appellant initiated „trading operations‟ in India from August
2016 when it imported and sold molecular diagnostic testing
equipments, test cartridges, re-agents used for sampling and detection
of different types of diseases in India, including HIV. These imports
were made from related foreign suppliers of the appellant under a
Purchase Requisition/ Purchase and Distribution Agreement dated
01.01.2019 entered with M/s Cepheid USA. In terms of the said
agreement, the appellant was appointed on a non-exclusive basis to
purchase, process, package, promote, sell and distribute the subject
goods in India.
9. the Foreign Suppliers
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5. The present appeal involves two issues. The first relates to
eligibility of exemption on import of HIV-1 viral load test kits and the
second relates to determination of value of certain goods including HIV-
1 Viral load test kits, cleared by the appellant on final assessment basis
during the pendency of Special Valuation Branch10 investigation. These
two issues shall be dealt with separately.
A
Eligibility of Exemption Benefit to HIV-1 Viral Load Test Kits
6. On the basis of intelligence developed by Special Investigation
and Intelligence Branch,11 one consignment of HIV- viral load test kits
imported by the appellant through a Bill of Entry dated 10.03.2021 was
seized under section 110 of the Customs Act on the allegation that the
appellant had wrongly availed exemption from BCD under Notification
dated 30.06.2017 and lower rate of IGST under Notification dated
28.06.2017 by treating such goods as kits for detection of „antibodies‟,
though they were used for detection of „viral load‟ for which no
exemption from customs duty was available.
7. It would, therefore, be appropriate to refer to the relevant
Notifications.
8. The relevant portion of Notification (Cus.) dated 17.03.2012 in
report of BCD and CVD is reproduced below:
*****
Notification: 12/2012-Cus. dated 17-Mar-2012
the Central Government, being satisfied that it
is necessary in the public interest so to do,
hereby exempts the goods of the description
specified in column (3) of the Table below or
column (3) of the said Table read with the
10. SVB
11. SIIB
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relevant List appended hereto, as the case may
be, and falling within the Chapter, heading, sub-
heading or tariff item of the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975) as are
specified in the corresponding entry in column (2)
of the said Table, when imported into India,-
(a) from so much of the duty of customs
leviable thereon under the said First Schedule as
is in excess of the amount calculated at the
standard rate specified in the corresponding entry
in column (4) of the said Table;
(b) from so much of the additional duty
leviable thereon under sub-section (1) of section 3
of the said Customs Tariff Act 1975 (51 of 1975)
as is in excess of the additional duty rate specified
in the corresponding entry in column (5) of the
said Table, subject to any of the conditions,
specified in the Annexure to this notification, the
condition number of which is mentioned in the
corresponding entry in column (6) of the said
table.
S. Chapter or Description of goods Standard Additional Condition
No. Heading or rate duty rate No.
Sub-
heading or
tariff item
(1) (2) (3) (4) (5) (6)
148. 28,29,30 or The following goods,
38 namely:-
(A) Life saving Nil - -
drugs/medicines
including their salts
and esters and
diagnostic test kits
specified in List 4
(B) Bulk drugs used in
the manufacture of
life saving drugs or Nil - 5
medicines at (A)
(C) Other life saving
drugs or medicines Nil Nil 10
(emphasis supplied)
9. The relevant portion of List 4 referred to at Serial No. 148(A) is
reproduced below:
"List 4 (See S. No. 148 and 516 of the Table)
(32) Diagnostic kits for detection of HIV
antibodies"
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10. The relevant portion of Notification (C.E.) dated 17.03.2012 is
reproduced below:
Notification: 12/2012-Cus. dated 17-Mar-2012
**** the Central Government, being satisfied
that it is necessary in the public interest so to do,
hereby exempts the excisable goods of the
description specified in column (3) of the Table
below read with relevant List appended hereto and
falling within the Chapter, heading or sub-heading
or tariff item of the First Schedule to the Central
Excise Tariff Act, 1985 (5 of 1986) (hereinafter
referred to as the Excise Tariff Act), as are given
in the corresponding entry in column (2) of the
said Table, from so much of the duty of excise
specified thereon under the First Schedule to the
Excise Tariff Act, as is in excess of the amount
calculated at the rate specified in the
corresponding entry in column (4) of the said
Table and subject to the relevant conditions
annexed to this notification, if any, specified in the
corresponding entry in column (5) of the Table
aforesaid:
Sl. Chapter Description of excisable Rate Condition
No. or goods No.
Heading
or
Sub-
heading
or tariff
item
(1) (2) (3) (4) (5)
180 28,29,30 The following goods, namely,
or 38
(A) Drugs or medicines
including their salts and
esters and diagnostic
Nil -
test kits, specified in
List 3 or List 4
appended to the
notification of the
Government of India in
the erstwhile Ministry of
Finance (Department of
Revenue), No. 12/2012-
Customs, dated the 17th
March, 2012)
(B) Bulk drugs used in the Nil -
manufacture of the drugs
or medicines at (A)
(emphasis supplied)
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11. The relevant portion of the Notification (Cus.) dated 30.06.2017
dealing with BCD and IGST is reproduced below:
Notification: 50/2017-Cus. Dated 30-Jun-2017
****** the Central Government, on being
satisfied that it is necessary in the public interest
so to do, hereby exempts the goods of the
description specified in column (3) of the Table
below or column (3) of the said Table read with
the relevant List appended hereto, as the case
may be, and falling within the Chapter, heading,
sub-heading or tariff item of the First Schedule to
the said Customs Tariff Act, as are specified in the
corresponding entry in column (2) of the said
Table, when imported into India, -
(a) from so much of the duty of customs
leviable thereon under the said First Schedule as
is in excess of the amount calculated at the
standard rate specified in the corresponding entry
in column (4) of the said Table; and
(b) from so much of integrated tax leviable
thereon under sub-section (7) of section 3 of said
Customs Tariff Act, read with section 5 of the
Integrated Goods and Services Tax Act, 2017 (13
of 2017) as is in excess of the amount calculated
at the rate specified in the corresponding entry in
column (5) of the said Table,
subject to any of the conditions, specified in the
Annexure to this notification, the condition
number of which is mentioned in the
corresponding entry in column (6) of the said
Table :
S. Chapter Description of goods Standard Integrate Conditio
No. or rate d Goods n No.
Heading and
or sub- Services
heading Tax
or tariff
item
(1) (2) (3) (4) (5) (6)
167. 28,29,30 The following goods
or 38 namely:-
(A) Lifesaving
drugs/medicines
including their salts
and esters/and
diagnostic test kits
specirfied in List 4.
Nil - -
(B) Bulk drugs used in
the manufacture of
life saving drugs or Nil - 9
medicines at (A)
(C) Other life saving Nil - 16
drugs or medicines
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(emphasis supplied)
12. The relevant portion of List 4 is reproduced below:
"List 4 (See S.No. 167 and 607 of the Table)
(28) Diagnostic kits for detection of HIV
antibodies"
13. The relevant portion of IGST Rate Notification dated 28.06.2017 is
reproduced below:
Notification: 1/2017-Integrated Tax (Rate) dated 28-
Jun-2017
Rate of IGST on specified goods- Schedule I to VI
In exercise of the powers conferred by sub-section
(1) of section 5 of the Integrated Goods and
Services Tax Act, 2017 (13 of 2017), the Central
Government, on the recommendations of the
Council, hereby notifies the rate of the
integrated tax of-
(i) 5 per cent in respect of goods
specified in Schedule I
*******
appended to this notification (hereinafter referred
to as the said schedules), that shall be levied on
inter-State supplies of goods, the description of
which is specified in the corresponding entry in
column (3) of the said Schedules, falling under the
tariff item, sub-heading, heading or Chapter, as
the case may be, as specified in the corresponding
entry in column (2) of the said Schedules.
Schedule 1-5%
S.No. Chapter/Head Description of Goods
ing/Sub-
heading/
Tariff item
(1) (2) (3)
180. 30 or any Drugs or medicines
chapter including their salts and
esters and diagnostic
test kits, specified in
List 1 appended to this
Schedule
14. The relevant portion of List I referred to above is reproduced
below:
"List 1[See S. No. 180 of the Schedule I]
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(150) Diagnostic Kits for detection of HIV
antibodies."
15. Coming back to the factual aspect, post the seizure of
consignment of HIV- viral load test kits imported through Bill of Entry
dated 10.03.2021, the appellant paid the differential customs duty and
by order dated 16.04.2021 the seized goods were permitted to be
provisionally released by the department, subject to submission of a
bond and bank guarantee.
16. The SIIB also issued summons dated 13.04.2021 to the appellant
for providing detailed justification on exemption claimed along with
relevant details/documents with respect to previous clearances of HIV-
viral load test kits. The appellant, thereafter, paid the differential
customs duty under protest by a challan dated 06.05.2021 for the past
clearances of HIV-viral load test kits for the 40 Bills of Entry, out of
which 32 were provisional and the remaining 8 were finally assessed
Bills of Entry.
17. During investigation, Manish Kumar Madhukar, Trade Compliance
Analyst of the appellant appeared to provide reasoning and justification
for claiming exemption and submitted information/documents.
B
Re-determination of value of goods cleared on final assessment
basis.
18. Since the appellant and its foreign suppliers were related persons
in terms of rule 2(2)(v) of the 2007 Valuation Rules, the case of the
appellant was registered with SVB for examining as to whether the
declared import prices had been influenced by the relationship between
the parties. In view of the pendency of the investigation, all related
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party imports since August 2016 were cleared on provisional
assessment basis. During the course of the SVB proceedings, the
appellant submitted various documents/ details to justify that the prices
declared were at arm‟s length and, therefore, were required to be
considered as transaction value under the Customs Act read with the
2007 Valuation Rules.
19. In the report dated 22.10.2019, the SVB suggested that the
declared invoice value for the subject goods was influenced by the
relationship and thus, the assessable value may have to be re-
determined by loading of 93.93% on the declared value.
20. Accordingly, a show cause notice dated 13.01.2020 was issued to
the appellant alleging that the imports made by the appellant from
August 2016 from its related foreign suppliers were influenced by the
relationship and were therefore, not at arm‟s length principle. The show
cause notice, therefore, proposed a loading factor of 93.93% after
allowing a discount at 20% to the appellant for importing goods in
higher quantities. The appellant filed a reply dated 16.04.2021 but
adjudication order has not been passed as yet.
21. After the filing of the reply, it was noticed that out of more than
900 Bills of Entries filed by the appellant during August 2016 to
February 2021, 85 Bills of Entry were cleared on final assessment basis
instead of provisional assessment. Therefore, another show cause notice
dated 14.08.2021 was issued to the appellant with respect to such 85
finally assessed Bills of Entry. The adjudication of this show cause notice
is the subject matter of this appeal.
22. The appellant filed a reply dated 14.01.2022 to the show cause
notice and denied the allegations. The Principal Commissioner, however,
confirmed the demand by the order dated 30.06.2022. The Principal
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Commissioner denied the benefit of BCD and CVD, which the appellant
had claimed. The Principal Commissioner also held that the appellant
had wrongly paid IGST @ 5% under the IGST Rate Notification dated
30.06.2017. After rejecting the declared value of the imported goods,
the Principal Commissioner re-determined the value of different types of
goods under rules 4, 5 and 9 of the 2007 Valuation Rules. The goods
can broadly be categorized under three classes- (a) test cartridges/ kits
(b) testing equipments and standard accessories and (c) spares and
assemblies for the equipment goods The details are as follows:
Particulars Issue I Issue II Total
(HIV-VL Test Kits) (Goods under 3
classes)
Duty u/s 28 (1) Rs. 49,50,757 Rs. 3,06,05,411 Rs. 3,55,56,168
Interest u/s Rs. 29,81,247 As applicable As applicable
28AA
Penalty u/s Rs. 19,83,001 Rs. 3,06,05,411 + Rs. 3,55,56,168 +
114A interest interest
No. of BOEs 3 (unique) + 5 77 (unique) + 5 85
(common) (common)
23. Shri Rohan Shah, learned senior counsel appearing for the
appellant assisted by Shri Kumar Visalaksh, Ms. Tejas Pathak, Ms.
Akhansha Dikshit and Shri Mohd. Anajwala made submissions broadly
on the following four issues:
Jurisdictional issues
(i) The impugned order has re-determined the value
cleared on final assessment basis even when the core
issue of valuation and finalization of provisional
assessment for related party imports of the appellant
was pending before SVB, which had initiated
proceedings by issue of a show cause notice dated
30.01.2020;
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(ii) The impugned order, in the application of the 2007
Valuation Rules, has travelled beyond the show cause
notice;
(iii) The show cause notice proposed a maximum loading of
93.93% but the percentage of loading imposed by the
impugned order ranges between 0% to 822%. The
impugned order offers no discount for quantity and
commercial level difference and withdraws the discount
of 20% offered in the show cause notice;
(iv) The impugned order relies upon an entirely different set
of Bills of Entry than those referred to in the show
cause notice; and
(v) The loading percentage for HIV-viral load test kits have
been arrived at by relying on Bills of Entry not
mentioned in the show cause notice.
Availability of Exemption to HIV-1 Viral Load Test Kits
(i) Exemption entry is of wide import to cover
technologically advanced HIV testing kits such as HIV
viral load test kits. While interpreting tariff and
Exemption Notification, advancement of technology has
to be taken into consideration. In this connection,
learned counsel relied upon certain decisions to which
reference shall be made at the appropriate stage;
(ii) It is not the case of the appellant that antibody test is
based on an outdated technology which is no longer in
use. Instead, since the initial development of antibody
test, other tests capable of and used for detection and
prognosis of HIV have also been introduced, which
should be treated at par with antibody tests while
extending benefit under the Exemption Notification;
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(iii) The exemption benefit under the category of "life-saving
drugs/medicines" has to be offered a purposive
interpretation and hence the benefit should be extended
to not only the diagnostic kits for detection of HIV
antibodies but also to other diagnostic kits used for
detection and prognosis of HIV, which serve the same
purpose;
(iv) HIV-VL test kits are indeed "lifesaving diagnostic kits"
and used for detection and prognosis of HIV virus in a
human body. These kits not only detect the presence of
HIV infection, but being more sensitive and accurate, are
used for regular monitoring of the spread of HIV infection
in the body and for identifying the failure of first course
of treatment so as to change the course of treatment and
thereby enable fighting the HIV epidemic, which was the
sole intention behind introducing the exemption and
extending it to diagnostic kits for HIV; and
(v) HIV-VL test kits are imported to support the larger public
interest objective of the National AIDS Control Program
aimed at halting and reversing the HIV epidemic in India
and thus supplies of these kits to IPAQT laboratories and
NGO institutions are at capped prices.
Redetermination of Value
(i) The Principal Commissioner committed an error in
resorting to rules 4 and 5 of the 2007 Valuation Rules
as these two rules are not applicable in the present
case. This is for the reason that the goods have not
been imported by the appellant and Labindia "at or
about the same time" and so cannot be considered as
contemporaneous imports; the goods imported by the
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appellant and Labindia are not at the "same commercial
level"; and goods imported by the appellant and
Labindia are not at the "same quantity level";
(ii) No adjustment has been made for differences
attributed to commercial and quantity level;
(iii) The "circumstances and sale" of imported goods
indicate that the relationship did not influence the price;
(iv) The reasons for differences in the prices of spares is
mainly due to the fact that imports by Labindia were on
free of cost (FOC) basis under the warranty provided by
the foreign suppliers. In such cases, higher value was
declared "only for customs duty purposes", and thus
there was no actual cost/ price incurred by Labindia
towards such imports. Whereas, the supplies to the
appellant are made for actual charges and hence the
declared prices are actual cost borne by the appellant
itself;
(v) Declared value of imported goods, mainly MTB test kits
(with 90% import ratio) under valuation are close to the
transaction value of identical goods when supplied
directly to Central Government by the foreign suppliers
after giving due account to the commercial level and
quantity level differences; and
(vi) On application of rule 7 of the 2007 Valuation Rules to
various product types including MTB test kits, which are
supplied at a very low/negligible margin substantially to
the Government bodies under HBDC program, it would
be manifestly clear that by applying such deductive
value principle also the import prices of the appellant
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are appropriately valued and have not been influenced
by the relationship.
Penalty and Interest
(i) Penalty under section 114A of the Customs is attracted
only when short levy is caused by reason of collusion or
willful misstatement or suppression of facts. In the
present case, none of these circumstances exist to
warrant the levy of penalty. Without prejudice to the
fact that there has been no infraction of the law on the
part of the appellant, in the event there has been any
infraction, the same is completely unintended and bona
fide and without any intent to evade duty;
(ii) Penalty is not imposable if the issue involved is one of
interpretation;
(iii) Where the duty demand is itself not sustainable, no
penalty can be leviable; and
(iv) Since demand itself is not sustainable, no interest can
be demanded.
24. Shri S.K. Rahman, learned authorized representative appearing
for the department, however, supported the impugned order and made
the following submissions:
Jurisdictional issues
(i) The appellant is not justified in asserting that when the
issue is pending before SVB, this adjudication which
includes re-determination of value, should not have
been undertaken. The related party issue has been
examined by the Principal Commissioner in the order.
The appellant, while filing Bills of Entries, should have
requested for provisional assessment waiting for
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finalization of the SVB issue but the appellant filed final
Bills of Entry and also mis-declared the relationship as
"not related";
(ii) It is not correct that the impugned order relies upon
entirely different Bills of Entries than those referred to
in the show cause notice. On verification, it has been
found that out of the 40 Bills of Entries mentioned in
the show cause notice, 20 Bills of Entries have been
relied upon in the order.
Denial of Exemption to HIV-VL Test Kits.
(i) The exemption under the Exemption Notification is
restricted only to the diagnostic kits for "detection of
HIV antibodies", whereas the appellant has imported
the diagnostic kits for "detection of HIV Viral Load";
(ii) The benefits under an Exemption Notification have to be
interpreted strictly. The technological advancement
from "detection of HIV antibodies" to "detection of HIV
Viral Load", cannot be considered unless the Notification
is suitably amended;
(iii) There may be various methods of detecting HIV in
infected persons. One method could be "detection of
HIV antibodies" and another method could be
"Detection of HIV viral load". The Government has
specifically given benefit for "detection of HIV
antibodies" method. It is not that Government was not
aware about advancement in testing methods i.e. by
"detection of HIV Viral Load". The Government did not
want to give benefit to "detection of HIV Viral Load".
Hence, the appellant is not eligible for benefit of
Notification;
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(iv) The impugned testing kit is for detection and
quantification of HIV-1 viral RNA. In other words, the
said testing is a viral load testing kit and it cannot
detect HIV antibodies. The Viral Load testing and
antibodies testing are two different Tests and hence,
the benefit of Notification cannot be given to a testing
method not mentioned in the Notification.
Re-determination of Value
(i) As per section 14 of Customs Act, the declared value of
impugned goods shall be accepted as Transaction Value
only when the foreign supplier and Indian importer of
the goods are not related person. In the instant case,
as the importer and the foreign supplier are related, the
Transaction value cannot be accepted;
(ii) The relationship has influenced the Transaction Value.
Hence, the declared Transaction Value cannot be
accepted;
(iii) The foreign supplier has entered into "Purchase and
Distribution Agreement effective 01.01.2019" between
the importer and the Cepheid USA". The prices adopted
for import of impugned goods is as per this agreement,
which are different from Transaction Value between the
same foreign supplier and unrelated buyer (importer) in
India. As per Explanation (1)(iii)(c) of rule 12 of the
2007 Valutaion Rules, the Transaction Value can be
rejected if sales invoices offer special discounts to
exclusive Agents;
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(iv) The reasons for rejection of Transaction Value have
been communicated to the appellant in the show cause
notice dated 14.08.2021;
(v) In the instant case, it appears that the same foreign
supplier has supplied goods to the appellant importer
(being related party) and to unrelated third party
(Independent Importer) also. Hence, the Transaction
Value between foreign supplier and unrelated third
party (Independent Importer), would be adopted for re-
determination of value between foreign supplier and the
appellant importer (being related party);
(vi) After rejecting the declared Transaction Value, the
Principal Commissioner has proceeded to sequentially
apply rule 4 to rule 9 of the 2007 Valuation Rules; and
(vii) Wherever, identical goods are found, the enhancement
of value has been done as per rule 4 of the 2007
Valuation Rules;
(viii) Wherever, identical goods are not found, the
enhancement of value has been done on the value of
similar goods under rule 5 of the 2007 Valuation Rules;
and
(ix) Wherever, identical or similar goods are not found, the
Principal Commissioner proceeded sequentially. In the
instant case, data on valuation of goods sold in India
could not be obtained. Hence, rule 7 could not be
adopted for re-determination of value. Rule 8 requires
information about cost of manufacturing, cost of labour
and other expenses. In the instant case, data on value
of raw materials, cost of manufacturing, overheads of
impugned goods could also not be obtained. This
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method under rule 8 could not be adopted for re-
determination of value. Hence the only method by
which re-determination of value could be done is under
the residual rule 9.
Penalty and Interest
(i) The Principal Commissioner has correctly imposed
penalty and demanded interest from the appellant.
25. The submissions advanced by the learned counsel for the
appellant and the learned authorized representative appearing for the
department have been considered.
26. The two basic issues namely, whether HIV-VL test kits imported
by the appellant can be denied exemption from BCD and CVD and lower
rate of IGST and whether the declared value could be rejected and re-
determined shall be examined separately.
Denial of Exemption to HIV-1 Viral Load Test Kits
27. The first issue that arises for consideration is whether HIV-VL test
kits imported by the appellant can be denied exemption from BCD and
CVD and lower rate IGST merely because such exemption is restricted
only to diagnostic kits for „detection of HIV antibodies‟ and not for
„detection of HIV-viral load‟.
28. To appreciate this issue, it would be necessary to examine the
history of HIV epidemic. The HIV epidemic in India began in 1986-1987
following detection of the first HIV. Testing is integral to HIV prevention,
treatment and care. Thus, knowledge of HIV status is important for
preventing spread of disease. The appellant has elaborately described
the aforesaid in the following manner:
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(i) HIV is a lentivirus that infects and destroys cells in the
immune system. There are two HIV types, HIV-1 and
HIV-2. HIV-1 is the most prevalent type throughout
the world. Early knowledge of HIV status is critical for
linkage to medical care and treatment so that it can
reduce mortality and improve quality of life. It is this
critical clinical encounter that serves as the starting
point for diagnosing and treating persons who are
infected and delivering preventive services to those
who are uninfected. HIV diagnosis is made by
either demonstrating the presence of virus or
viral products in the host or alternatively by
detecting host response to the virus.
(ii) Thus, over a period, different technologies have
evolved with respect to HIV testing, as per which
HIV diagnosis is commonly made through
serological assays to detect HIV specific
antibodies; or by Nucleic Acid Amplification Test
(NAAT) to detect HIV nucleic acids as explained
below:
(a) Serological Tests: HIV antibody tests only
look for antibodies to HIV in blood or oral fluid.
Enzyme linked immunosorbent assays (ELISAs), rapid
tests and western blots (WBs) are the common tests
for detecting HIV antibodies. Antibody tests can
usually take 23 to 90 days to detect HIV
infection after an exposure.
A combination of both antigen and antibody test looks
for both HIV antibodies and antigens. Antibodies are
produced by immune system when one is exposed to
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viruses like HIV. Antigens are foreign substances that
cause immune system to activate. If one has HIV, an
antigen called p24 is produced even before antibodies
develop. An antigen/antibody test performed on
blood can usually detect HIV infection 18 to 45
days after an exposure.
(b) Molecular Tests: These are sensitive tests for
diagnosis of HIV infections on the basis of PCR
(polymerase chain reaction) or NASBA (nucleic acid
sequence-based amplification). These tests look for
the actual virus in the blood and involves drawing
blood from a vein. The test can either tell if a
person has HIV or tell how much virus is present
in the blood (known as an HIV viral load test). A
nucleic acid test (NAT) can usually detect HIV
infection within 10 to 33 days after an exposure.
They use polymerase chain reactions (PCRs) or reverse
transcription-polymerase chain reaction (RT-PCR) for
the detecting various HIV structural genes. These are
test of choice in certain situations, such as early
infant diagnosis and during window period.
Diagnosis in a child less than 18 months cannot
be done using antibody-based assays as maternal
antibodies may be present in the infant's
circulation. Therefore, up to the age of 18 months,
the diagnosis of HIV infection can only be reliably
made by DNA/RNA PCR.
(iii) Substantive and significant advances have been
made in the last two decades in the
characterization of human immunodeficiency
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virus (HIV) infections using molecular techniques.
These advances include the use of real-time
measurements, isothermal amplification, the inclusion
of internal quality assurance protocols, device
miniaturization and the automation of specimen
processing. The result has been a significant increase in
the availability of results to a high level of accuracy and
quality. Molecular assays are currently widely used for
diagnostics, antiretroviral monitoring and drug
resistance characterization in developed countries.
(emphasis supplied)
29. It would also be useful to consider customs duty exemptions
offered to life-saving drugs, medicines or equipment including HIV-test
kits. As regard HIV test kits, the entry relating to "Diagnostic kits for
detection of HIV antibodies" was added to the list of life saving drugs or
medicines in 1989 when the HIV cases started increasing and attracted
attention, both nationally and internationally. A tabular summary of
Customs duty exemptions awarded to "life-saving drugs, medicines or
equipment" including „HIV test kits‟ is contained in the following Chart:
S.N. Year Notification Relevant Description of list
Number Entry covering HIV kits
1. 1981 Notification No. Life-saving -
208/81-Cus. dated drugs or
22.09.1981 medicines
2. 1989 Notification No. Life-saving 218. Diagnostic kits for
209/89-Cus. drugs or detection of HIV
dated medicines antibodies
17.07.1989
3. 1995 till Various Life Saving Specific List Number
date notifications drugs or under different
medicines notifications included
including Diagnostic kits for
diagnostic test detection of HIV
Kits antibodies.
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30. Having considered the aforesaid facts, it would be appropriate to
examine the case of the appellant.
31. An Import License dated 17.02.2020 was issued to the appellant
for the product „Xpert HIV-1 Viral Load‟ under the provisions of the
Medical Device Rules 2017. Paragraph 6 of the License is as follows:
"Central Drugs Standard Control
Organisation
Sub:- Import License under the Medical
Device Rules, 2017 thereunder- regarding.
******
6. This license is being issued on the condition
that the firm needs to submit performance
evaluation report for the proposed product
i.e. Xpert HIV-1 Viral load within 90 days
from the issue of the license."
(emphasis supplied)
32. Form MD-15 deals with License to Import Medical Device. The
relevant portion of the Form is reproduced below:
Licence No.: IMP/MD/2018/000250
Endorsement No. 13
1. M/s Cepheid India Pvt. Ltd., DSM 214 & 215,
2nd Floor DLF Towers, Shivaji Marg, New Delhi,
Delhi (India)- 110015 Telephone No.: 11
48353001 Fax: 11 48353000 is hereby
licenced to import the medical device(s)
manufactured by overseas manufacturer
having manufacturing site as specified below.
S.No. Medical Device Details
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1 1. Generic Name: Xpert HIV-1 Viral load
2. Brand Name(if registered under the Trade Marks
Act, 1999): Xpert HIV-1 Viral load
3. Class of Medical Device: Class C
4. Shell Life: 18 months
5. Sterile/ Non-sterile: Non-Sterilized
6. Intended Use: The Xpert HIV-1 VL assay is
an in vitro reverse transcriptase
polymerase chain reaction (RT-PCR) assay
for the detection and quantification of
Human Immunodeficiency Virus type 1
(HIV-1) RNA in human plasma from HIV-1
infected individuals, using the automated
GeneXpert Instrument Systems. The assay
can quantify HIV-1 RNA over the range of 40 to
10,000,000 copies/mL. The Xpert HIV-1 VL
assay is validated for quantification of RNA from
HIV-1 Group M (subtypes A, B, C, D, F, G, H, J,
K, CRF01_AE, CRF02_AG, and CRF03_AB),
Group N, and Group O. The Xpert HIV-1 VL
assay is intended for use in conjunction with
clinical presentation and other laboratory
markers for disease prognosis and for use as an
aid in assessing viral response to antiretroviral
treatment as measured by changes in plasma
HIV-1 RNA levels. The assay is intended to be
used by laboratory professionals or specifically-
trained healthcare workers. The Xpert HIV-1 VL
assay is not intended to be used as a donor
screening test for HIV-1 or as a diagnostic test
to confirm the presence of HIV-1 infection.
(emphasis supplied)
33. It would also be useful to refer to the Product Catalogue published
by the appellant and the relevant portion is reproduced below:
"3. Intended Use
The Xpert HIV-1 VL assay is an in vitro
reverse transcriptase polymerase chain
reaction (RT-PCR) assay for the detection
and quantification of Human
Immunodeficiency Virus type 1 (HIV-1) RNA
in human plasma from HIV-I infected
individuals, using the automated GeneXpert
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Instrument Systems. The assay can quantify
HIV-1 RNA over the range of 40 to 10,000,000
copies/mL.
The Xpert HIV-1 VL assay is intended for use in
conjunction with clinical presentation and other
laboratory markers for disease prognosis and for
use as an aid in assessing viral response to
antiretroviral treatment as measured by changes
in plasma HIV-1 RNA levels. The assay is intended
to be used by laboratory professionals or
specifically-trained healthcare workers."
(emphasis supplied)
34. It would also be useful to examine the National Guidelines for HIV
Testing containing information regarding different types of tests for HIV
published in July, 2015.
35. The relevant portions of the Guidelines contained in Chapter I are
reproduced below:
" Diagnosis of HIV Infection
Like other infectious diseases, HIV diagnosis
is made by either demonstrating the
presence of virus or viral products in the
host, alternatively by detecting host
response to the virus. An HIV diagnosis is
commonly made through serological assays
to detect HIV specific antibodies or by
Nucleic Acid Amplification Test (NAAT) to
detect HIV nucleic acids.
Serological Tests: Enzyme linked
immunosorbent assays (ELISAs), rapid tests
and western blots (WBs) are the common
tests for detecting HIV antibodies. To
accurately diagnose an HIV infection, these tests
are used in a specific sequence or algorithm.
Additionally, Chemiluminescence Immunoassays
(CIA), Immuno Floresent Assays and Line
Immunoassays are also available for specific HIV
antibody detection. Commercial assays are also
available for P24 antigen detection.
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NAAT: These are sensitive tests for diagnosis
of HIV infections. They use polymerase chain
reactions (PCRs) for the detecting various
HIV structural genes (usually gag, pol and env).
PCRs are the test of choice in certain situations,
such as early infant diagnosis and during window
period. Branch DNA (bDNA) assays based on
signal amplifications are also used.
Diagnosis in a child less than 18 months
cannot be done using antibody based assays
as maternal antibodies may be present in the
infant‟s circulation. Therefore, up to the age
of 18 months, the diagnosis of HIV infection
can only be made by DNA PCR."
(emphasis supplied)
36. Chapter 3 of the Guidelines deals with Serological Diagnosis of
HIV Infection and the portions dealing with Limitations of Antibody
Assays is reproduced below:
"Limitations of Antibody Assays
Antibodies are not detectable in the window
period. Therefore, antibody detection tests
are of no use during this period. Diagnostic
tests based on antibody detection are also
not useful in the diagnosis of infection in
children below 18 months of age. Babies born
to HIV positive mothers may have passively
acquired maternal antibodies. In this situation,
tests that detect the viral genome may be
done for early diagnosis (see Chapter4).
NACO is now promoting the use of the DBS
technique for early infant diagnosis, based on the
detection of HIV 1 DNA viral nucleic acid. The test
is discussed in detail in chapter four."
(emphasis supplied)
37. Chapter 4 of the Guidelines deal with Molecular and Other Assays
for the Diagnosis of HIV Infection and the relevant portion is reproduced
below:
"Introduction
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Serological assays for the diagnosis of HIV
infections. In certain situations, such as patients
in the window period and infants born to HIV
positive mothers antibody detection assays cannot
be relied upon. In these situations, the diagnosis
of HIV infections is established using molecular
assays to detect viral genomes. This chapter
describes molecular assays, assays for virus
isolation, and detection of virus core proteins
(p24).
Diagnosis of Paediatric HIV Infection (<18
months)
The standard diagnostic method for HIV
infection in adults (i.e., testing for
antibodies) has limited utility in newborns,
infants, and children less than 18 months of
age. This is due to the transplacental transfer of
maternal IgG (including HIV-specific antibodies)
from infected mothers to their babies during
pregnancy. HIV antibody tests are reactive in
most infants born to HIV positive mothers,
though the infection is transmitted to less
than half of such infants (even in the
absence of ART). HIV antibodies may persist
in an infant‟s blood until 18 months after
birth, and are difficult to differentiate from
those produced by an infected infant.
Therefore, antibody tests cannot produce a
definitive diagnosis of HIV infection until 18
months of age. Waiting until this time delays
specific treatment. In this situation, Nucleic
Acid Testing (NAT) can facilitate early infant
diagnosis. NACO recommends the use of a
qualitative HIV-1 DNA PCR.
Further Reading: Laboratory Guidelines for HIV
Diagnosis in infants and children<18 months,
NACO 2010
Detection of Acute HIV Infection
Virological tests can be used for the
detection of acute HIV infection during the
"window period," before HIV antibodies
become detectable. Though positive NAT
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results confirm the HIV diagnosis, the NAT
result may turn out negative if tested within
7 to 10 days of exposure. NAT tests may be
successfully employed for the detection of
HIV infection if appropriate infrastructure
and technical expertise is available. At
present, NACO does not recommend the use of
NAT for the diagnosis of acute HIV infection.
NATs include tests for the qualitative detection of
HIV-1 DNA or RNA, as well as the quantitative
detection of HIV-1 RNA (viral load determination)
through various assays."
(emphasis supplied)
38. What transpires from the aforesaid is that there are two types of
HIV out of which HIV-1 is most prevalent and early knowledge of HIV
status is critical for medical care and treatment. The first HIV antibody
test was developed in 1985. HIV antibody test only look for antibodies
to HIV in blood or oral flood. HIV infection is detected after an exposure
between 23-90 days. With passage of time, HIV testing improved and
on account of technological advancements different types of test
methods have also evolved. These tests have not only reduced the
detection window period considerably, but have also enabled
ascertainment of virus load to determine whether the patient has an
acute infection. These tests detect HIV infection even before HIV
antibodies become detectable.
39. Thus, over a period of time, different technologies have evolved
with respect to HIV testing. HIV diagnosis is commonly made through
serological assays to detect HIV specific antibodies. On the other hand,
NAAT looks for actual virus in the blood. This test can not only
determine whether a person has HIV but can also determine how much
virus is present in the blood. HIV-viral load test can detect HIV infection
within 10 to 33 days after exposure. Diagnosis in a child less than 18
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months cannot be done by using antibody assays. Therefore, up to the
age of 18 months, the diagnosis of HIV infection can only be done by
NAAT test. Further, mere detection of HIV is not enough for treatment
of HIV infection in a body. It is equally important to continuously
monitor the spread of HIV infection in the body for determining the
course of treatment. It is for this reason that the use of immunologic
tests and virological tests and viral load test kits have assumed
importance. These kits not only detect the presence of HIV infection,
but being more sensitive and accurate, are used for regular monitoring
of the spread of HIV infection in the body. Thus, these kits are required
for identifying the course of treatment of HIV and thereby fighting the
epidemic of HIV, which is the sole intention behind introducing the
exemption benefit to life saving drugs/medicines and diagnostic kits for
HIV.
40. As noted above, Customs Notification dated 17.03.2012 exempted
customs duty and additional duty leviable under section 3(1) of the
Customs Tariff Act to diagnostic test and test kits specified in List 4,
which list refers to "diagnostic kits for detection of HIV antibodies". The
subsequent Customs Notification dated 30.06.2017 also exempted duty
of customs and integrated tax to diagnostic tests and kits specified in
List 4, which list again referred to diagnostic kits for detection of HIV
antibodies. The IGST Rate Notification dated 28.06.2017 also exempted
diagnostic test kits specified in List 1, which list referred to "diagnostic
kits for detection of HIV antibodies". The diagnostic kits that were
imported by the appellant were sold under a trade name "GenXperts®"
and are called HIV-viral load test kits. The reason why exemption has
not been granted to the appellant by the impugned order is that these
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HIV-viral load test kits are not diagnostic kits for detection of HIV
antibodies.
41. The contention of the learned senior counsel appearing for the
appellant is that the Exemption Notifications under consideration in this
appeal should be widely construed to cover diagnostic kits imported by
the appellant, which kits provide an essential diagnostic tool for
detection and prognosis of HIV. The contention, therefore, is that there
is no rationale for exclusion of this diagnostic kits when the kits for
detectable antibodies are included. Learned senior counsel for the
appellant, therefore, submitted that the said entry should be interpreted
in a broad manner to include kits working on technologically advanced
methodology. Learned senior counsel also submitted that technical
progress and development must not be overlooked and the new
products/innovations serving the same objective should be considered
as part and parcel of the same entry. To support this contention,
learned senior counsel placed reliance upon the following decisions:
(a) Collector of Customs & Central Ex. Vs. Lekhraj
Jessumal & Sons12;
(b) Collector of Customs, New Delhi Vs. Ethnor
Ltd.13
42. Learned authorized representative appearing for the department,
however, submitted that the exemption under Exemption Notifications is
restricted only to diagnostic kits for „detection of HIV antibodies‟,
whereas the appellant has imported diagnostic kits for „detection of HIV
viral load‟. Such an exemption has to be interpreted strictly and
technological advancements cannot be considered unless the
12. 1996(82) E.L.T. 162 (S.C.)
13. 1996 (86) E.L.T. 558 (Tribunal)
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Notifications are suitably amended. Learned authorized representative,
therefore, submitted that when various methods of detecting HIV are
present, it is only the method of detection of HIV antibodies that has
been exempted and no other method has been exempted.
43. The submissions advanced by the learned senior counsel for the
appellant and the learned authorized representative appearing for the
department on this issue have been considered.
44. As noticed above, the first HIV antibody test was developed in
1985. Since then, on account of technological breakthroughs, different
types of testing methods have evolved over a period of time and the
subsequent generation tests have not only reduced the detection
window period considerably, but have also enabled ascertainment of
virus load to determine whether the patient has an acute infection.
Earlier, HIV diagnosis was made through serological tests only to detect
HIV specific antibodies, but these HIV antibody tests only look for
antibodies and it takes about 23-90 days to detect HIV infection after an
exposure. On the other hand, molecular tests look for the actual virus in
the blood and the test can tell whether a person has HIV and if so, how
much virus is present in the blood. Such tests can have a very reduced
window period for detecting of HIV infection. The antibodies tests,
therefore, have inherent limitations. The antibodies are not detectable
up to a certain window period and they cannot also diagnose infection in
children below 18 months of age. Nucleic Acid Amplification Test,
however, can be used for the detection of acute HIV infection during a
much lesser window period even before HIV antibodies become
detectable. This test includes qualitative detection of HIV as well as
quantitative detection of HIV (viral load determination). This test can
also diagnose HIV in children below the age of 18 months. It is not that
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the test based on advanced technology has replaced the antibody test.
Both the tests can be undertaken.
45. It is correct that the Notification (cus.) dated 17.03.2012 and
Notification (cus.) dated 30.06.2017 at Serial No‟s. 148 and 167 refer to
diagnostic test kits specified in List 4 and List 4 mentions „diagnostic kits
for detection of HIV antibodies‟ and what is imported by the appellant is
HIV- viral load test kits, but the issue that arises for consideration is
whether these entries should be interpreted in a restricted sense or in a
broad manner so as to include kits working on technologically advanced
methodology.
46. This issue was examined by the Supreme Court in Lekhraj
Jessumal. Lekhraj Juessmal had imported miniaturized switches for use
in electronic hearing aids which it manufactured. The two types of
switches were the conventional one called water switches and the newly
innovated, reed switches. The appellant imported reed switches. The
department believed that reed switches were not entitled to
concessional rate of import duty. The contention of the department was
that the words „switches, miniaturized‟ as component parts of hearing
aid should be understood to mean only those types of switches which
were generally used in the manufacture of hearing aids at the time of
publication of the import policy. This understanding of the department
was not accepted by the Supreme Court and the relevant paragraphs of
the judgment are reproduced below:
"2. The respondent had imported miniaturised
switches for use in electronic hearing aids which it
manufactured. It appears that there are two types of
such switches, the conventional one then being wafer
switches and the other, newly innovated, being reed
switches. It was the latter type of switch which was
imported. The Customs authorities took the view that
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the respondents‟ import licence did not cover reed
switches and they were not entitled to the
concessional rate of import duty. The stand of the
Customs authorities was, ultimately, assailed in the
writ petition filed by the respondent before the High
Court. The Writ petition was allowed. An appeal was
preferred and it is the judgment in appeal which is
under challenge before us.
3. The High Court in the impugned order noted that
the stand of the Customs authorities was that the
words "switches, miniaturised" as component parts
of hearing aids should be understood to mean only
those types of switches which were generally used in
the manufacture of hearing aids at the time of
publication of the Import Policy for the relevant year,
namely 1977, and that these words could not be said
to include any other type of switch even if such other
type of switch could be used in the manufacture of
hearing aids. The Division Bench observed, in our
view, very rightly, that such an interpretation
overlooked that industry was not static and
that there was continuous technical progress
therein. New processes and new methods
developed from time to time and new material
and components or types of components
superseded others. It was unreasonable to give
a static interpretation to words used in a tariff
schedule ignoring the rapid march of
technology. Having regard to the technical
opinion that reed switches would improve the
performance of hearing aids, the High Court
held that reed switches were covered by the
tariff entry. The High Court also noted that it was
not the case of the Customs authorities that the
respondent was trying to divert the imported reed
switches from the manufacture of hearing aids to
another purpose.
4. We do not think that we can put it better.
Progress cannot be stifled by an over-rigid
interpretation of Import Policy or Customs
Tariff. Both must be read as they stand on the
date of importation and whatever is reasonably
covered thereby must be allowed to be
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imported regardless of the fact that it was not
in existence or even contemplated when the
policy or tariff was formulated."
(emphasis supplied)
47. In Ethnor, it was noticed that it had imported one consignment of
pregnancy detection kits and declared them to be „Elisa diagnostic test‟
and claimed benefit of a Notification. The department, on a scrutiny of
technical literature, found that the goods were immunoassay kits based
on menoclonal antibodies for qualitative detection of HCG. It is in this
context, that the Tribunal observed that improvement in the testing
methods have to be also granted the benefit. The observations of the
Tribunal are as follows:
"9. The point which is required to be considered
is as to whether any advancement made in
scientific field to bring out a new innovation
and same having been recognised both in
medical field and by licencing controller, will
these factors negative the conclusion that
absence of enzyme in the item by replacing it
by a colour conjugate system, will be itself take
away the item from the ambit of the description
in the notification namely, "Elisa Diagnostic
Tests". The answer has to be given clearly in the
negative. The reason being that "Elisa Test" refers to
pregnancy test carried out on the urine of a pregnant
woman. The improvement has been made to
make the test more clear and to make the
results more positive. The experts have
clarified and amplified that the imported item is
an advancement in technology of "Elisa Test".
This factor has been recognised by the Drug
Controller, as noted by us and the Drug Licence
itself clearly states that the item is a "Elisa
Test". There has been a clarification also from Dr.
S.K. Das, Asstt. Commissioner (BHS) Ministry of
Health & Family Welfare to the effect that "Cards +
O.S.HVG - urine from Pacific Biotech INC" is an
immunoassay and works on the principle of Elisa.
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Thus it is a Rapid Elisa Diagnostic Test for Pregnancy
Test."
(emphasis supplied)
48. It is not in dispute that the kit imported by the appellant also
detects HIV and is based on an advanced technology. When the
intention of the Exemption Notification was to grant exemption to
diagnostic kits for HIV antibodies, there is no good reason why the test
kits imported by the appellant for detection of HIV should be denied
exemption.
49. Learned authorized representative appearing for the department
however, submitted that in view of the judgment of the Supreme Court
in Commissioner of Cus. (Import), Mumbai Vs. Dilip Kumar &
Company14, the Exemption Notification has to be strictly construed,
and if a person claiming exemption does not fall strictly within the
description indicated in the Notification, he cannot claim exemption.The
Supreme Court, after considering number of decisions, ultimately held:
"52. To sum up, we answer the reference holding as
under-
(1) Exemption notification should be interpreted
strictly; the burden of proving applicability would be
on the assessee to show that his case comes within
the parameters of the exemption clause or
exemption notification.
(2) When there is ambiguity in exemption notification
which is subject to strict interpretation, the benefit of
such ambiguity cannot be claimed by the
subject/assessee and it must be interpreted in favour
of the revenue.
(3) The ratio in Sun Export case (supra) is not
correct and all the decisions which took similar view
as in Sun Export case (supra) stands overruled."
14. 2018 (361) E.L.T. 577 (S.C.)
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50. Learned senior counsel for the appellant, however, relied upon a
subsequent decision of the Supreme Court in Government of Kerala
Vs. Mother Superior Adoration Convent15 to contend that the
beneficial purpose of an Exemption Notification has to be given full
effect.
51. In Mother Superior, the Supreme Court observed that there was
a line of authority which stated that even in tax statues, an exemption
provision should be liberally construed in terms of the object sought to
be achieved and if such a provision grants incentive for promoting
economic growth or otherwise has some beneficial reason behind it,
then the legislative intent is not to burden the subject with tax. The
Supreme Court also noticed that constitution bench judgment of the
Supreme Court in Dilip Kumar did not refer to the line of authority
which made a distinction between exemption provisions generally and
exemption provisions which have a beneficial purpose. The relevant
portions of the judgment of the Supreme Court in Mother Superior are
reproduced below:
"23. It may be noticed that the 5-Judge Bench
judgment did not refer to the line of authority
which made a distinction between exemption
provisions generally and exemption provisions
which have a beneficial purpose. We cannot
agree with Shri Gupta‟s contention that sub-silentio
the line of judgments qua beneficial exemptions has
been done away with by this 5-Judge Bench. It is
well settled that a decision is only an authority for
what it decides and not what may logically follow
from it [see Quinn v. Leathem - [1901] AC 495 as
followed in State of Orissa v. Sudhansu Sekhar Misra
- (1968) 2 SCR 154 at 162, 163].
24. This being the case, it is obvious that the
beneficial purpose of the exemption contained
in Section 3(1)(b) must be given full effect to,
15. 2021 (376) E.L.T. 242 (S.C.)
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the line of authority being applicable to the
facts of these cases being the line of authority
which deals with beneficial exemptions as
opposed to exemptions generally in tax
statutes. This being the case, a literal
formalistic interpretation of the statute at hand
is to be eschewed. We must first ask ourselves
what is the object sought to be achieved by the
provision, and construe the statute in accord
with such object. And on the assumption that
any ambiguity arises in such construction, such
ambiguity must be in favour of that which is
exempted. Consequently, for the reasons given by
us, we agree with the conclusions reached by the
impugned judgments of the Division Bench and the
Full Bench."
(emphasis supplied)
52. It is seen that in Mother Superior the Supreme Court held that
the beneficial purpose of an exemption must be given full effect to and
the question that is needed to be asked is what is the objective sought
to be achieved by the provision and then the exemption has to be
construed in terms of such an object.
53. In the present case, the HIV-VL test kits are life-saving diagnostic
kits used for detection and prognosis of HIV virus in human body. Thus,
a purposive interpretation has to be extended to the entries in the
Notifications so as to give the benefit of duty not only diagnostic kits for
detection of HIV antibodies but to also other technologically advanced
diagnostic kits used for detection and prognosis of HIV, as they serve
the same purpose. The object and purpose behind the introduction of
exemption to HIV kits was in public interest to support the high demand
of healthcare at affordable prices and to curb the spread of HIV virus in
India. The HIV-VL test kits are „life-saving diagnostic kits‟ used for
detection and prognosis of HIV-virus in a human body. These kits not
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only detect the presence of HIV infection, but being more sensitive and
accurate are used for regular monitoring of the spread of HIV infection
in the body and for identifying the failure of the first course of
treatment. They also serve the same purpose. Infact, the HIV-VL test
kits imported by the appellant support the larger public interest
objective of the National Aids Control Programme aimed at halting and
reversing the HIV epidemic in India.
54. What follows from the aforesaid discussion is that the HIV-VL test
kits imported by the appellant would be entitled for exemption from
BCD and CVD, and only 5% integrated tax as provided for in List 1 of
the IGST Rate Notification would be payable by the appellant.
Re-determination of Value
55. The Principal Commissioner first examined whether the appellant
and the foreign suppliers were related persons in terms of section 14 of
the Customs Act and the 2007 Valuation Rules and then examined
whether the invoice values of the goods imported by the appellant from
the foreign suppliers were influenced by such relationship.
56. Since the appellant and its foreign suppliers were related persons,
the case of the appellant was registered with the SVB for examining as
to whether the declared import prices had been influenced by the
relationship between the parties. In the report dated 22.10.2019, the
SVB suggested that the declared invoice value was influenced by the
relationship and, therefore, the assessable value was required to be
determined by loading 93.93% on the declared value. Accordingly, a
show cause notice dated 13.01.2020 was issued to the appellant
alleging that the imports made by the appellant from August 2016 from
its related foreign suppliers were influenced by the relationship. The
show cause notice, therefore, proposed a loading factor of 93.93%,
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after allowing a discount of 20% to the appellant for importing goods in
higher quantities. The appellant claims that though, it filed a reply to
the show cause notice on 16.04.2021 but the matter has not been
adjudicated upon as yet.
57. Learned senior counsel for the appellant contended that the
present show cause notice and the impugned order passed by the
Principal Commissioner have placed much reliance on the SVB report
dated 22.10.2019 submitted to the department but the SVB report was
not supplied to the appellant and, therefore, the principles of natural
justice have been violated since the impugned order is based on the
SVB report.
58. Learned authorized representative appearing for the department,
however, submitted that the contents of the SVB report were referred in
the show cause notice and, therefore, the appellant cannot allege that it
was not aware of the SVB report. Learned authorized representative
appearing for the department, therefore, submitted that principles of
natural justice have not been violated.
59. There is substance in the submission advanced by the learned
senior counsel for the appellant. The show cause notice merely picks up
some portions of the SVB report dated 13.01.2020. As the appellant
was required to file a reply to the allegations made in the show cause
notice, it was imperative for the department to have made the SVB
report a relied upon document to the show cause notice, and in any
case a copy of the same should have been supplied to the appellant. It
is only after perusal of the entire report that the appellant would have
been in a position to respond to the allegations made in the show cause
notice. Denial of a copy of the SVB report has caused prejudice to the
appellant and has resulted in gross violation of the principles of natural
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justice. The impugned order, therefore, deserves to be set aside on this
ground.
60. What is also important to notice is that the declared import values
have been enhanced by the Principal Commissioner by applying
different load percentages ranging from 0 to 822% on three different
types of goods which can broadly be categorized under three classes
namely, (a) Test cartridges/kits, (b) Testing equipment and their
standard accessories, and (c) Spares and assemblies for the equipment.
The details of the category, the particular 2007 Valuation Rules applied,
and the loading percentage are reproduced below:
Categories Rule Loading Percentage
Imported item for Rule 4 Table IA: Test cartridges/ kits- 11% to 822%
which identical goods o MTB-50-11%
are available as per o MTB-10-56%
the Respondent o HIV-VL test kits-75%
o Others- 11% to 822%
Table IIA: Equipment - 66% to 95%
Table IIIA: Spares/ assemblies- 8% to 136%
Imported item for Rule 5 Table IB: Test Kits- 15% to 25%
which similar goods o MTB-IN-50- 15-17%
are available as per o MTB-IN-10- 0%-25%
the Respondent
Table IIB: Equipment-322%
For remaining items, Rule 9 Table IC: Test Kits- 56.10%
for which identical or Table IIC: Equipment-85.78%
similar goods are not
Table IIIB: Spares/ assemblies- 111.99%
available as per the
Respondent
61. The contention that has been advanced by the learned senior
counsel for the appellant is that though the show cause notice had
proposed a loading factor of 93.93% after allowing a discount of 20% to
the appellant for importing goods in higher quantities, the impugned
order passed by the Principal Commissioner has applied different
loading percentages ranging from 0 to 822%. It has, therefore, been
submitted that the impugned order has travelled beyond the show cause
notice.
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62. Learned authorized representative appearing for the department,
however, contended that good and cogent reasons have been given by
the Principal Commissioner for applying various loading percentages and
there is no good reason to take a contrary view.
63. There is substance in this submission also that has been advanced
by the learned senior counsel for the appellant. The show cause notice
is the basis on which an assessee is called upon to submit a reply. The
adjudication can take place only on the basis of the allegations made in
the show cause notice and not beyond the allegations made in the show
cause notice.
64. Learned senior counsel for the appellant also submitted that the
Principal Commissioner has relied upon entirely different sets of Bills of
Entries than those mentioned in the show cause notice. Elaborating this
submission, learned senior counsel pointed out the 50 Bills of Entries
filed by Labindia and certain Government bodies that were relied in the
show cause notice for re-determination of the assessable value, the
impugned order placed reliance upon 21 different Bills of Entries filed by
Labindia for re-determing the assessable value without providing any
opportunity to the appellant to examine such Bills of Entries and make
submissions.
65. Learned authorized representative appearing for the department
stated that though some of the Bills of Entries may not have been
referred to in the show cause notice, but the other Bills of Entry were
referred to and, therefore, no prejudice has been caused to the
appellant.
66. It is not possible to accept the contention advanced by the learned
authorized representative appearing for the department. The Principal
Commissioner could not have taken into consideration any Bill of Entry
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which was not referred to in the show cause notice as no opportunity
was provided to the appellant to rebut such Bills of Entries.
67. Learned senior counsel for the appellant also submitted that
though the show cause notice proposed that the value of the goods
could not be determined under rule 4 in the absence of identical goods,
but as bills of similar goods supplied by foreign suppliers to unrelated
buyers was available, the invoice value was proposed to be re-
determined under rule 5 of the 2007 Valuation Rules, but the impugned
order passed by the Principal Commissioner has invoked not only rule 5
but also rule 4 for determination of the assessable value in respect of
such goods which were identical and rule 9 in respect of such goods
where rules 4 and 5 could not be applied.
68. Learned authorized representative appearing for the department,
however, submitted that the Principal Commissioner has very
meticulously applied rules 4 in cases where identical goods were
available, rule 5 where similar goods were available and rule 9 when
rules 4 and 5 were not available.
69. The Principal Commissioner was obliged to re-determine the value
only in accordance with the allegations made in the show cause notice
and in case the show cause notice referred to rule 5 of the 2007
Valuation Rules, it was imperative for the Principal Commissioner to
have confined the order only to rule 5 of the 2007 Valuation Rules.
70. The result of the aforesaid discussion on this issue is that it will
not be possible to sustain the re-determination of the value of the
imported goods undertaken by the Principal Commissioner under the
2007 Valuation Rules. The matter would, therefore, have to be remitted
to the adjudicating authority to examine this issue afresh after
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supplying a copy of the SVB report to the appellant and in terms of the
allegations made in the show cause notice dated 14.08.2021.
CONCLUSION
71. What follows from the aforesaid discussion is that the HIV-VL test
kits imported by the appellant would be entitled for exemption from
BCD and CVD, and IGST would be payable @ 5% as provided for in List
1 of the IGST Rate Notification. The impugned order dated 30.06.2022
denying exemption from BCD and CVD, and 5% IGST to the appellant
would, therefore, have to be set aside. The re-determination of the
value of the goods imported by the appellant is, accordingly, set aside,
but the matter is remitted to the adjudicating authority to determine the
value afresh in the light of the observations made above.
ORDER
72. The impugned order dated 30.06.2022 passed by the Principal Commissioner is, accordingly, set aside. The appellant is held entitled to benefit of BCD and CVD in terms of the Notifications. The appellant is also justified in paying IGST @ 5% in terms of the Integrated Rate Notification. The re-determination of value of the imported goods is also set aside but the matter is remitted to the adjudicating authority to pass a fresh order in accordance with law and in the light of the observations made above. The appeal is, accordingly, allowed to the extent indicated above.
(Order pronounced on 25.06.2025) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) Kritika