Customs, Excise and Gold Tribunal - Mumbai
Wockardt Biopharm Ltd., D.G. Modi, M.K. ... vs Commissioner Of Central Excise on 1 October, 2007
Equivalent citations: 2008(222)ELT97(TRI-MUMBAI)
ORDER
Jyoti Balasundaram, Vice President
1. The issue of classification of Recombinant Hepatitis-B Surface Antigen bulk (r-HbsAg) manufactured by the appellants herein is common to both these appeals which are hence heard together and disposed of by this common order. The adjudicating authorities have held that the product in dispute is a purified protein in bulk, falling for classification under Chapter Heading 35.04 which inter alia covers "Peptones and their derivatives; other protein substances and their derivatives, not elsewhere specified or included" and not under Chapter Heading 30.02 of the schedule to the CETA, 1985 covering "Antisera and other blood fractions; Vaccines, Toxins, Cultures of micro-organisms (...) and similar products" as claimed by the manufacturers. In both cases, the demands have been confirmed by application of the extended period of limitation. In the case of Wockardt Biopharm Ltd., the duty demand is Rs. 2,52,62,094/- together with interest and penalty of equal amount and penalties of Rs. 5,00,000/- and Rs. 3,00,000/- respectively on its director and senior vice president (technical), while in the case of other manufacturer, the demand is Rs. 7,32,35,075/- together with interest and penalty of equal amount. The additional issue in the Wockardt appeal is as to who is the manufacturer of the disputed product, whether the appellant company or Wockardt Ltd. The additional issue in the Serum Institute case relates to valuation of the product - Rule 8 of the Customs Valuation Rules, 1988, has been adopted by the Commissioner, while it is the assessees' contention that Rule 7A is the appropriate rule.
2. According to the department, the product is a purified protein derivative which is further used to manufacture vaccine in bulk by adding adjuvant and then the formulation is made from such vaccine bulk in the form of Biovac B Vaccine. Reliance is placed on statements of the director and general manager and vice president of Wockardt Ltd. - Shri M.K. Sahib, director, has categorically admitted that the bulk alone cannot be used as a vaccine since its immunogenic potential is realised only when presented with an adjuvant, i.e. presented as a suspension of aluminium hydroxide particles coated with r-HbsAg. It may be having properties or potency to become vaccine like other chemicals but it still a purified protein bulk - it is a lipoprotein. The department has discarded affidavit of Dr. Asmita Prabhune who has deposed that the product is a vaccine as it has the properties to produce antibodies and that the adjuvants are only added for ensuring easy administration of the vaccine, and the affidavit of Dr. Anil K. Balapure. The department relies upon opinion of Prof. M. Hegde that the product is a protein bulk under Chapter 35 and not vaccine under Chapter 30. The request for cross-examination of Prof. Hegde was not granted. The department has also relied upon website information quoting price of US$ 725 for 1 mg. of r-HbsAg. The department also relies upon the description of the goods as bulk drug in Annexure-VII of Form No. 3CD under the provisions of Section 44AB of the Income-tax Act, the technology transfer agreement between the German company and the appellant for manufacture by the appellant company, balance sheet showing payment towards TTA to the German company and investments made to set up plant and machinery by the appellant, and sales invoices for transfer of the product to Wockardt Ltd, to hold that it is the appellant who is the manufacturer and not Wockardt Ltd.
3. The period of dispute in the Wockardt case is 1.3.2002 to 31.3.2003 and the show cause notice is dated 31.3.2005. The Commissioner has upheld the charge of suppression with intention to evade payment of duty on the ground that in spite of their knowledge that the product is a protein, they deliberately misdeclared as vaccine under Chapter 30 and did not obtain central excise registration and further the earlier description in the goods outward note as "vaccine" had been changed to "r-HbsAg".
4. In the case of Serum Institute of India Ltd., the brand name of product is Genevac-B. The case of the department is that:
1) The product in bulk form is a purified protein derivative manufactured in aqueous bulk form used in further manufacture of vaccine in bulk by addition of adjuvant and then formulations made from the vaccine bulk.
2) Process of manufacture commences from Master seed bank of Recombinant Yeast (Hansenuela Polymorpha).
3) Bulk protein produced
4) Bulk vaccine prepared
5) Sale in domestic market after packing in form of vials of specified dosages.
5. The Commissioner relies upon 16th Annual Report for the year ending 31.3.2000 referring to foreign technical collaboration tie-up as a German company for manufacture of Hepatitis-B vaccine, and also on internal batch manufacturing records indicating one of the ingredients for vaccine as Hepatitis-B protein in micro grams. In view of the above, he has held that the company was fully aware that what they were manufacturing was a bulk protein falling under Chapter 35 and yet described the goods as vaccine under Chapter 30 to avoid payment of CV duty. The period covered by the show cause notice dated 2.5.2006 is 2001 to 2004.
6. On valuation, he has applied Rule 8 - residual method and determined value on the basis of selling price in India of the goods produced in India.
7. We have heard both sides.
8. Flowchart given by Wockardt Biopharm Ltd. is as under:
The appellant has filed a booklet containing pictorial depiction of the manner in which the product is obtained. It would be useful to refer to these pictorial slides for better appreciation of the manner in which the said Subunit Vaccine is obtained by the appellant.
Slide 1:
The person infected with Hepatitis-B is requested to donate infected blood. The said blood is collected in a test tube.
Slide 2:
Human blood comprises of three essential fractions. These blood fractions are:
(i) Plasma [which contains Hepatitis-B Virus]
(ii) White Blood Cells
(iii) Red Blood Cells Out of the above three fractions, Plasma is taken out. The Plasma also contains Hepatitis-B Virus.
Slide 3:
From the blood fraction containing Plasma and Hepatitis-B Virus, Hepatitis B Virus is separated through Ultracentrifugation. Hepatitis-B Virus precipitates and Plasma is obtained in the upper part of the test tube. Plasma portion is discarded and Hepatitis-B Virus portion is taken.
Slide 4:
Hepatitis-B Virus portion of the blood fraction comprises of five different layers. After it is subjected to centrifugation, top layer comprises of hepatitis-B DNA. All other four layers containing Hepatitis-B Virus DNA Polymerase, Hepatitis-B core Antigen, Hepatitis-B Surface Antigen and (Phenol Chloroform) are discarded.
Slide 5:
Portion containing Hepatitis-B DNA, in an aqueous form, is taken and DNA of Hepatitis-B Virus is isolated. DNA (Deoxy Ribonucleic Acid] is the keeper of all the information needed to recreate an organism, DNA is made up of a Base which consists of Sugar, Phosphate and one Nitrogen Base. There are four Nitrogen Base which exist. These are:
(a) A [Adenine]
(b) T [Thymine]
(c) G [Guanine]
(d) C [Cystosine] A combines with T and G combines with C. The DNA is denoted in the combination of A & T and G & C. It could be CG - TA or AT - GC etc. The sequence in which this occurs imparts the genetic peculiarity and is responsible for genetic behaviour.
Slide 6:
Hepatitis-B antigen gene is isolated and is taken.
Slide 7:
Isolated Hepatitis-B antigen gene is inserted in Vector and the said Vector then carries HBsAg gene.
Slide 8:
The said HBsAg is placed in a yeast surrogate cell (which is available in the market) where gene is replicated and multiplied.
Slide 9:
Surrogate yeast cells multiply and after multiplication, produce Hepatitis-B Surface Antigen [HBsAg].
Slide 10:
Hepatitis-B Surface Antigen Vaccine is mixed with an adjuvant [Aluminium Hydroxide] to produce Biovac, the potentiated Vaccine.
9. The old method of preparation was as under:
Blood of infected Hepatitis-B patient was obtained, mixed with an anticoagulant, cellular part of the blood was removed by centrifugation, as a result of which the virus got isolated in the plasma (liquid part of blood) - again ultra centrifugation for the purpose of settling down of the virus which was then removed for extraction of surface antigen and the virus portion was extricated by different methods and treated with solvent. When it is shaken and subjected to centrifugation, three layers are obtained. The bottom is phenol layer, the middle is a thin interface and the top layer is an aqueous layer - DNA of the virus. This DNA is removed and purified and the surface antigen gene contained in the DNA is taken out from the DNA and replicated in the given media such as yeast etc.
10. Process chart of Serum Institute is reproduced herein below:
Master seed bank (Recombinant Poly Morpha Yeast (Hansenuels Polymorpha) ↓ Manufacture working cell Bank Seed ↓ Fermentation ↓ Cell Washing ↓ Cell Milling ↓ Precipitation ↓ Centrifugation ↓ Aerocil absorption ↓ Ion exchange chromatography ↓ Ultrafiltration ↓ Ultra centrifugation ↓ Gel Filtration Chromatography ↓ Final concentrate bulk ↓ Dilution up to 0.4 mg/ml level of Protein ↓ Transfer to another premise for formulation of Vaccine. Process chart for formulation of production of vaccine is reproduced below:
Aluminium Hydroxide and Phosphate buffer added salt to a concentration of 5x10x ↓ Mixed using magnetic stirrer for 10-12 hrs. at 2-8°C ↓ 2% Thiomersal solution ↓ Diluted to make up the volume up to its desired batch size (vaccine bulk) ↓ Packing in vials as per dosages and labeling ↓ Quality control test (in vitro and vivo) ↓ Obtaining clearance certificate from CDL Kausauli ↓ Marketability of vaccine under SIIL Brand
11. From the write-up on vaccines, it is seen that molecules on a microbe that identify it as a foreign body and stimulate the immune system to attack it, are called antigens. Every microbe carries its own unique set of antigens. Molecules are central to creating vaccines. B cells secrete antibodies which usually work by sticking to and coating microbes. Antibodies attack viruses that have not yet infected a blood cell but are lurking in the blood or the spaces between cells. Subunit vaccines dispense with the entire microbe and use just the antigens that best stimulate the immune system. Antigen molecules from bacteria can be manufactured by using recombinant DNA technology and such vaccines are called recombinant subunit vaccines. Such a vaccine has been made for the hepatitis B virus by inserting hepatitis B genes of code for important antigens into common baker's yeast which then produce antigens which are collected and purified for use in the vaccine.
11.1 Adjuvant is an ingredient added to the vaccine to improve the immune response produced by it. These compounds are usually composed of aluminium salts and they bind to the antigens in the vaccine, help retain antigens at the site of injection and help deliver antigens to the lymph nodes, where immune responses to the antigens are initiated. The slowed release of antigens to tissue around the injection site and the improved delivery of antigens to the lymph nodes can produce a stronger antibody response than the antigen alone. Alum adjuvants are also taken up by cells such as macrophages and help these cells better present antigens to lymphocytes. In addition to adjuvants, vaccines may contain antibiotics to prevent bacterial contamination during manufacturing, preservatives to keep multi-dose vials of vaccine sterile after they are opened, or stabilizers to maintain a vaccine's potency at less than optimal temperatures.
12. Vaccines provide artificially acquired immunity and easier and less risky way to become immune. Vaccines teach immune system by mimicking a natural infection, while the aim is to teach immune system and at the same time avoid complications of a disease being contacted. Different types of vaccines have been made to combat diseases. These are:
(a) Attenuated Vaccine [Vaccine which contains a version of the living microbes which is weakened in the lab (weakening of organism is called attenuation) so that it cannot cause diseases].
(b) Inactivated Vaccine [where disease-causing microbes have been inactivated by chemicals, heat or radiation].
(c) Subunit Vaccine [where vaccines dispense with the entire microbe and use just the important part, namely, antigens which best stimulate immune system].
(d) Recombinant Subunit Vaccine [where genes of virus containing code for important antigens are inserted in baker's yeast to produce antigens which create anti-body].
(e) Toxoid Vaccine [where toxins are inactivated by treating with formalin].
(f) Conjugate Vaccine [where antigens from a microbe is linked with immune system].
(g) DNA Vaccine [where microbe's genetic material is taken out of whole organisms and genes are used for developing the code for all important antigens].
13. Technical literature on vaccine was also produced before us which clearly demonstrates that Hepatitis-B Surface Antigen in Bulk form - the product in question - has the ability of producing anti-bodies and, in fact, in many cases, it has been shown to be used without adjuvant also. The extract from the Book - Volume 'Vaccine 20 (2002) 1696-1698 reads:
3. With or Without adjuvant?
Another question is relative to the necessity of aluminium hydroxide use as an adjuvant. Studies with diphtheria- tetanus vaccine have shown that antibody responses are excellent (and even slightly higher) with the non-adsorbed vaccine [10]. Furthermore, aluminium compounds are known to enhance IgE antibodies formation, which cannot be desirable [10]. Early studies with plasma-derived hepatitis B vaccine have shown also that the percentage of individuals who responded to the vaccine was not significantly different in those vaccinated without adjuvant, than in those vaccinated with the aluminium- adsorbed vaccine, although the anti-HBs titer was higher in the second group [5,6].
14. Affidavit of Dr. Anil K. Balapure contains definitions of adjuvant. They are:
ADJUVANT Dorland's Pocket Medical Dictionary (1) Assisting or aiding (2) a substance which, administered with a drug or antigen, enhances its pharmacologic effect or its antigenicity Freund's a., a water-in-oil emulsion incorporating antigen, in the aqueous phase, into light-weight paraffin oil with the aid of an emulsifying agent. On injection, this mixture (Freund's incomplete a.) induces strong persistent antibody formation. The addition of killed, dried mycobacteria, e.g. Mycobacterium butyricum, to the oil phase (Freund's complete a), elicits cell-mediated immunity (delayed hypersensitivity), as well as humoral antibody formation.
Stedman's medical Dictionary (26th Edn.) (1) A substance added to a drug product formulation which affects the action of the active ingredient in a predictable way (2) In immunology, a vehicle used to enhance antigenicity, e.g. a suspension of minerals (alum, aluminum hydroxide or phosphate) on which antigen is adsorbed; or water-in-oil emulsion in which antigen solution is emulsified in mineral oil [Freund's incomplete a.], sometimes with the inclusion of killed mycobacteria [Freund's complete a.], to further enhance antigenicity The Condensed Chemical Dictionary (10th Edn.) A subsidiary ingredient or additive in a mixture (medicine, flavouring, perfume, etc.) which contributes to the effectiveness of the primary ingredient.
Webster's New 20th Century Dictionary
(a) (1) Helping (2) Assisting
(n) (1) An assistant (2) In medicine, a substance added to a drug to aid the operation of the principal ingredient The Shorter Oxford English Dictionary A substance added to a prescription to assist the action of the base Collins English Dictionary (1) Aiding or assisting
(n) (1) something that aids or assists; auxiliary McGraw Hill Dictionary of Scientific and Technical Terms A material that enhances the action of a drug or antigen Chambers 20th Century Dictionary (1) A substance added e.g. to a medicine, vaccine etc. to increase its effectiveness The Oxford Reference Dictionary Not mentioned The Chambers Dictionary [New Edn.] A substance added eg to a medicine, vaccine, etc. to increase its effectiveness Chambers English Dictionary A substance added e.g. to a medicine, vaccine, etc. to increase its effectiveness.
Merriam Webster's New Collegiate Dictionary -Tenth Edition (adj.) (1) Serving to aid or contribute (2) Assisting in the prevention, amelioration, or cure of disease
(n) (1) An ingredient (as in a prescription or a solution) that modifies the action of the principal ingredient (2) Something (as a drug or method) that enhances the effectiveness of medical treatment (3) A substance enhancing the immune response to an antigen
15. Vaccine is defined in different dictionaries thus:
VACCINE Dorland's Pocket Medical Dictionary A suspension of attenuated or killed microorganisms (viruses, bacteria, or rickettsiae), administered for prevention, amelioration or treatment of infectious diseases Stedman's medical Dictionary (26<sup>th</sup> Edn.) Originally, the live v. (vaccinia, cowpox) virus inoculated in the skin as prophylaxis against, smallpox and obtained from the skin of calves inoculated with seed virus. Usage has extended the meaning to include essentially any preparation intended for active immunological prophylaxis; e.g. preparations of killed microbes of virulent strains or living microbes of attenuated (variant or mutant) strains; or microbial, fungal, plant, protozoal, or metazoan derivatives or products. Method of administration varies according to the v., inoculation being the most common, but ingestion is preferred in some instances and nasal spray is used occasionally, SYN vaccinum. [L. vaccinus, relating to a cow].
The Condensed Chemical Dictionary (10<sup>th</sup> Edn.) Not mentioned Webster's New 20<sup>th</sup> Century Dictionary The Shorter Oxford English Dictionary A preparation of some virus used for the purpose of inoculation (1) Virus of cowpox used in vaccination (2) The characteristic virus of cow-pox (obtained directly or from human subjects) which is employed in vaccination Collins English Dictionary (1) A suspension of dead, attenuated, or otherwise modified microorganisms (viruses, bacteria, or rickettsiae) for inoculation to produce immunity to a disease by stimulating the production of antibodies (2) A preparation of the virus of cowpox taken from infected cows and inoculated in men to produce immunity to smallpox (3) (modifier) of or relating to vaccination or vaccinia McGraw Hill Dictionary of Scientific and Technical Terms A suspension of killed or attenuated bacteria or viruses or fractions thereof, injected to produce active immunity Chambers 20th Century Dictionary (adj.) Of, derived from, the cow; of vaccina: of vaccination.
(n) Cowpox virus or lymph containing it: any preparation used to confer immunity to a disease by inoculation The Oxford Reference Dictionary
(n) A preparation of cowpox virus introduced into the bloodstream to procure immunity against smallpox (2) Any preparation of an organism or substance causing a disease, specially treated or synthesized and injected or administered orally against an infection The Chambers Dictionary [New Edn.] (1)Any preparation containing dead or attenuated microorganisms, eg viruses or bacteria, used to confer immunity to a disease by inoculation (2) Cowpox virus or lymph containing it, used for inoculation against smallpox (3) Chambers English Dictionary (1) Cowpox virus or lymph containing it (2) Any preparation used to confer immunity to a disease by inoculation Merriam Webster's New Collegiate Dictionary -
Tenth Edition Mater or a preparation containing the virus of cowpox in a form used for vaccination (2) A preparation of killed microorganisms, living attenuated organisms or living fully virulent organisms that is administered to produce or artificially increase immunity to a particular disease Webster's Encyclopedic Unabridged Dictionary of the English Language [New Revised Edition] (1) The virus of cowpox, used in vaccination, obtained from the vesicles of a cow or person having the disease (2) the modified virus of any of various other diseases, used for preventive inoculation
16. It is pertinent to note that various Regulatory authorities such as Foods & Drugs Administration, Drugs Controller, Ministry of Environment & Forests, and Drugs Controller General (India) have also described the product while giving permissions and licences etc. as Hepatitis-B Vaccine Bulk / Vaccine Concentrate. The said description clearly demonstrates that the product is regarded as vaccine in a concentrated form which is to be diluted for ease of application by use of adjuvant and has all the attributes of a vaccine and therefore it is so called. [Permissions and Licences issued by the Regulatory authorities are at Pages 441 to 459 of the Paper Book]. It is also very relevant to note that even according to Prof. Hegde whose opinion has been relied upon by the Revenue, antigens by definition have ability to produce antibodies and he has also not disputed that Hepatitis-B antibodies bulk has the property to produce antibodies and that it is a blood fraction prepared for therapeutic or prophylactic use.
17. Now let us determine the classification of the product. Heading 30.02 of CETA reads as under:
Chapter 30. Pharmaceutical Products.
Heading No. subheading No. Description of goods Rate of duty 30.02 3002.00 Antisera and other blood fractions; Vaccines, Toxins, Cultures of Micro-organisms (including Ferments but excluding yeasts) And similar products Nil Heading 35.04 of CETA reads as under:
Chapter 35. Albuminoidal Substances; Modified Starches; Glues; Enzymes Heading No. subheading No. Description of goods Rate of duty 35.04 3504.00 Peptones and their derivatives; other protein substances and their derivatives, not elsewhere specified or included; hide powder, whether or not chromed 16%
18. HSN Chapter Heading 30.02 Note (D) covers "Vaccines, toxins, cultures of micro-organisms (excluding yeasts) and similar products" which include vaccines which are preparations of microbial origin containing either viruses or bacteria suspended in saline solutions, oil or other media. These preparations are usually treated to reduce their toxicity without destroying their immunising property. The products of Heading 30.02 remain classified here whether or not in measured doses or put up for retail sale and whether in bulk or in small packings.
18.1 Chapter 35 HSN Note 1(b) states that blood fractions (other than blood albumin not prepared for therapeutic or prophylactic uses), medicaments or other products of Chapter 30, are excluded from Chapter 35.
18.2 Heading 35.04 HSN is aligned with CET Heading 35.04 - Peptones and their derivatives and other protein substances and their derivatives not covered by a more specific heading in the Nomenclature, fall under Heading 35.04, for e.g. Glutelins and prolamins (cereal proteins), Globulins and other fibrinogens; fibrin, blood, serum, human normal immunoglobulin and antisera (specific immunoglobulins) and other blood fractions, which fall under Heading 30.02, Glycinin which is soya protein, Keratins obtained from hair, nails etc., Nucleoproteids which are proteins combined with nucleic acids and their derivatives and Proteins isolates obtained by extraction from vegetable substance. None of the above have any prophylactic or therapeutic use.
19. Scope of Heading 35.04 is, thus, limited and it clearly covers only those protein substances or their derivatives which are not elsewhere specified.
19.1 Products of heading 30.02 remain classified under Heading 30.02 whether in bulk or in small packings [HSN Page 568].
Secondly, Rule 2(a) of the Rules of Interpretation of CETA reads:
Any reference under heading of goods shall be taken to include goods of those goods incomplete or unfinished provided that incomplete and unfinished goods have the essential character of finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled.
19.2 The essential character of a Vaccine is to produce anti-body [HSN Page 568] and it is seen from the above that the product in question has essential quality and character of producing anti-bodies and, therefore, merits classification under Chapter 30, Heading 30.02.
20. In view of our finding on classification, we do not consider it necessary to record any finding on the pleas raised by both the appellants on limitation and the plea of Wockardt Biopharm Ltd. that they are not the manufacturers of Biovac.
21. As regards valuation of the vaccine produced by Serum Institute of India Ltd., we see substance in the plea of the appellant that the adoption of the price of identical product of Wockardt is contrary to the principles laid down in Rule 8 of the Customs Valuation Rules, which provides inter alia that no value shall be determined under the provisions of this rule on the basis of the selling price in India of the goods produced in India, as the price of Wockardt is the selling price of goods manufactured in India. We accept the contention of Serum Institute that their determination of assessable value on the basis of manufacturing cost + profit in terms of the provisions of Section 14 of the Customs Act, 1962 read with Rule 7A of the Customs Valuation Rules, 1988 is the correct method of valuation.
22. Penalties on Shri D.G. Modi and Shri M.K. Sahib are set aside in the light of our above findings.
To sum up, we hold as under:
(1) The products in dispute, viz. Biovac-B and Genevac-B are vaccines falling for classification under CET sub-heading 3002.00 attracting nil rate of duty.
(2) The transaction value of Genevac-B manufactured by M/s., Serum Institute of India Ltd. is required to be accepted.
23. In the result, we set aside the impugned orders and allow the appeals.
(Pronounced in Court on __________)