Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Lupin Laboratories on 21 August, 1998
Equivalent citations: 1998(104)ELT127(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The classification of the product 7 ADCA (7 Amino de-acetoxy cephalasporonic acid) manufactured by M/s. Lupin Laboratories P. Ltd. for further use in the manufacture of final product Cephalexin (an anti-biotic falling under CET sub-heading 2941.90 of the Schedule to the CETA, 1985) arises for determination in these appeals, which are heard together and disposed of by this common order. The Revenue seeks classification under CET sub-heading 2921.00 as 'amine function compound' while the assessees claim classification under CET sub-heading 2941.90 as 'other anti-biotics'.
2. Facts in E/4941/92-C. The respondents herein were manufacturing 7 ADCA since April 1987 without declaring the same and without filing any classification list for this item. They were clearing 7 ADCA to their sister concern viz. M/s. Armour Chemicals P. Ltd. for the manufacture of cephalexin on job work basis. The' Department was of the view that the benefit of exemption under Notification 122/86-C.E., dated 1-3-1986 was not available to 7 ADCA under which specified intermediate products were exempted as this product did not figure anywhere in the annexure appended to the above notification. Since the department was of the view that 7 ADCA was leviable to duty under CET sub-heading 2921.00 as amine function compound and was not covered by the above notification. A show cause notice was issued on 14-12-1987 demanding duty of Rs. 20,386.99 in respect of 25 Kgs of 7 ADCA manufactured and cleared without payment of duty on 3-6-1987 and proposing confiscation of 279.8 Kgs. of 7 ADCA seized from the assessees factory premises on 24-6-1987. The notice was adjudicated by the Additional Commissioner of Central Excise, Vadodara who accepted the assessees' claim for classification under CET sub-heading 2941.90 as anti-biotics, leviable to nil rate of duty under the Tariff at the relevant point of time. He hence dropped the duty demand and ordered release of the seized goods. The Revenue is in appeal against this order of the Additional Collector.
Facts in E/1903/93-C. The assessees/appellants had filed a classification list No. 189/87-88, dated 17-9-1987 in respect of 7 ADCA, under CET sub-heading 2941.90 chargeable to nil rate of duty. The Superintendent of Central Excise issued a show cause notice on 7-10-1987, proposing classification under CET sub-heading 2921.00 chargeable to duty at the rate of 15% ad valorem. The notice was adjudicated by the Assistant Collector of Central Excise, classifying the product under the heading proposed therein; the assessees preferred an appeal to the Collector (Appeals) who set aside the Assistant Collector's order and remanded the matter for de novo adjudication. Vide order dated 29-5-1990, the Assistant Collector confirmed classification under CET sub-heading 2941.90; on appeal by the Revenue, the lower appellate authority reversed the Assistant Collector's order and allowed the appeal of the Revenue, holding that 7 ADCA falls under CET sub-heading 2921.00 as amine function compound. The assessee is in appeal against the said order.
3. We have heard Shri H.K. Jain, learned SDR and Shri C.S. Lodha, learned Advocate.
4. The process of manufacture of 7 ADCA is as under :
"1. Preparation of peracetic acid (PAA) Per acetic acid is prepared by the reaction of hydrogen-peroxide with acetic acid in presence of sulphuric acid. The per acetic acid thus obtained is used as reagent for making sulfoxide an intermediate for manufacture of 7 ADCA.
2. Preparation of Sulfoxide Sulfoxide is a intermediate for preparation of 7 ADCA. It is made by reacting penicillin GK with per acetic acid. Concentrated hydrochloric acid is used for PH adjustment. After reaction is over sulfoxide is filtered in centrifuge washed with water and dried.
3. BSU preparation Bis Silyl Urea (BSU) This is another intermediate for preparation of 7 ADCA. This is reacted with urea in presence of TMCS and toluene at the end of reaction toluene is distilled out and BSU is obtained.
4. Sulfoxide dehydration Sulfoxide from step 2 is taken along with toluene to leave moisture axeotropically. Dried sulfoxide is toluene is used in next step.
5. 7 APDCA preparation 7 APDCA is another intermediate for 7 ADCA preparation. Dehydrated sulfoxide from step 4 is reacted with BSU in presence of TMCS and catalyst. After reaction is over toluene is removed by distillation and 7 APDCA thus prepared is extracted with chloroform.
6. 7 ADCA preparation 7 APDCA in chloroform is reacted with DMA and DMMDCS. Material is further reacted with phosphorous pentachloride followed by isobutanel. To this reaction mixture water is added and thus 7 ADCA is extracted in water. This sq. layer is purified with carbon, to this methanol is added and 7 ADCA precipitated from water with the help of liquor ammonia. 7 ADCA thus prepared is filtered in centrifuge, washed with methanol water mixture and dried to get 7 ADCA product. This is packed in drums.
7. Preparation of catalyst Pyridine is reacted with hydrobromic acid to get pyridine -hydrobromide from the reaction mixture, water is removed with the help of toluene. To this methylene chloride is added. This material is filtered in centrifuge washed with methylene chloride and dried to get pyridine bromide catalyst. This is used as catalyst in step 5.
The raw materials required for its manufacture, are the following :
Intermediates:
I. Per acetic acid:
Raw materials : Gl. Acetic acid Hydrogen peroxide Sulphuric acid.
II. Sulfoxide of Pen GK:
1. Pen GK
2. Per acetic acid from step I
3. Conc. Hol III. Dehydration of sulfoxide:
1. Sulfoxide from step - II
2. Toluene.
IV Bis silyl urea :
1. Toluene
2. HMDS
3. Urea
4. Drimethyl chloro silane.
V. 7 APDC4 preparations :
1. Dehydrated slurry of sulfoxide from step III
2. BSU slurry from step IV
3. Catalyst
4. Tri methyl chloro silane
5. Chloroform Product: Solution of 7 APDCA in chloroform VI. 7 ADCA preparation :
1. Solution of 7 APDCA in chloroform from step V
2. Dimethyl aniline
3. Dimethyl dichloro silane
4. Phosphorous pentachloride
5. Isobutanol
6. Methanol
7. Liquid ammonia
8. Activated carbon
9. Colit.
5. One of the grounds raised in the appeal memorandum is that since 7 ADCA (which the Chemical Examiner opined as belonging to B-Lactum antibiotics group under the class of Cephalosporins, as seen from para 10 of the show cause notice, is a amine function compound which is specifically covered by CET sub-heading 2921.00, it should be classified under that heading and not as an anti-biotic under CET sub-heading 2941.90. However, the Chemical Examiner, Central Excise Laboratory, Vadodara (Shri A.J. Vidwans) has clearly stated in his cross examination (at page 85 of the paper book) that there are certain amine function compounds which are also anti-biotics and compounds for example Amoxycillin, Cephalexin, erythromycin, tallampicillin are examples of amine function compounds. In view of this we agree with the respondents that the fact that the 7 ADCA is a amine function compound is not by itself determinative of its classification as such.
6. The meaning of the expression "anti-biotic" is crucial for deciding the classification issue.
7. The Condensed Chemical Dictionary, 10th Edition by G.G. Hawley at page 77 describes anti-biotic as under :
"A chemical substance produced by micro-organisms that has the capacity, in dilute solutions, to inhibit the growth of other microorganisms or destroy them. Only about 20 out of several hundred known have proved generally useful in therapy; those that are used must confirm to FDA requirements; The most important groups of anti-biotic producing organisms are the bacteria, lower fungi or molds and actinomycetcs. These anti-biotics belong to very diverse classes of chemical compounds. Most of the anti-biotics produced by bacteria are polypeptides (such as tyrothricin, bacitracin, polymyxin). The pencillins are the only important anti-biotics produced by fungi. Actinomycetes produce a wide variety of compounds (actinomycin, streptomycin, chloramphonicol, tetracyclines). The antimicrobial activity (anti-biotic spectrum) of anti-biotics varies greatly; some are active only upon bacteria, others upon, fungi, still others upon bacteria and fungi, some are active on viruses, some on protozoa, and some are also active on neoplasms. An organism sensitive to an anti-biotic may upon continued contact with, develop resistance and yet remain sensitive to other anti-biotics. Certain antibiotics are used as direct food additives to inhibit growth of bacteria and fungi; among these are nisin, pimaricin, nystatin, and tylosin.
Note : A number of anti-biotics have been restricted by PDA, both for direct use by humans and as additives to animal feeds. Among those that are in question are streptomycin, chloramphericol, tetracyclines and penicillin."
8. The HSN Explanatory Notes reads as follows :
"Antibiotics are substances secreted by living micro-organisms which have the effect of killing other micro-organisms or inhibiting their growth. They are used principally for their powerful inhibitory effect on pathogenic micro-organisms, particularly bacteria or fungi, or in some cases on neoplasms. They can be effective at a concentration of a few micrograms per ml. in the blood.
Antibiotics may consist of a single substance or a group of related substances, their chemical structure may or may not be known or be chemically defined. They are chemically diverse and include the following :
(1) Heterocyclic, e.g., novobiocin, Cephalosporins, streptothricin. The most important of this class are the penicillins which are secreted by several species of the fungus Penicillium. This class also includes proceine penicillin. (2) Sugar-related, e.g., streptomycins. (3) Tetracyclines and their derivaties, e.g. chlortetracycline (INH), oxytetracycline (INN).
(4) Chloramphenicol.
(5) Macrolides, e.g., crythromycin, amphotericin B, tylosin. (6) Polypeptides, e.g., actinomycins, bacitracin, gramicidins, tyrocidin. (7) Other anti-biotics, e.g., sarkomycin, vancomycin.
This heading also includes chemically modified anti-biotics used as such. These may be prepared by isolating ingredients produced by natural growth of the micro-organism and then modifying the structure by chemical reaction or by adding sidechain precursors to the growth-medium so that desired groups are incorporated into the molecule by the cell-processes (semi-synthetic penicillins); or by bio-synthesis (e.g. penicillins from selected amine-acids).
8A. From the HSN Explanatory Notes, it is seen that the anti-biotics have the effect of killing other micro-organism or inhibiting their growth. The respondents contend that microbiological tests carried out on 7 ADCA show that it has anti-microbial properties which is comparable to anti-biotics such as Cephalexin and Ampicillin. The test reports are at pages 36 and 37 which showed a minimum inhibitory concentration ranging between 1.5 to 2.5 UG/ML and 0.8 to 1.5 UG/ML which falls within the range of the MIC of Cephalexin, which is between 0.9 to 2.0 UG/ML (page 39). The MIC tests have been carried out for establishing that the 7 ADCA has the effect of inhibiting the growth of micro-organism and is effective at a concentration of a few micrograms per ML in the blood. Shri H.P. Tipnis, Principal of the Bombay College of Pharmacy has deposed in his affidavit, which was placed before the adjudicating authority that "Antibiotics are organic chemicals having capacity to kill or inhibit the growth of micro-organism. There exist various kinds of anti-biotics known in Science, some of them used as it is and some are used by further processing to make still more stronger and broad spectrum anti-biotics. This is a very diverse class of compounds and is often classified and discussed in groups. The groups are classified according to their mode of killing or spectrum of antimicrobial activity. Generally the anti-biotics with similar chemical structure are grouped together. One of the group of anti-biotics is called "Cephalosporin". Cephalosporins are semi-synthetic anti-biotics. The active nucleus, 7 amino-penicillanic acid; both of these consist beta lactum ring. Various compounds derived from this nucleus result in a series of anti-biotics having different characteristics in terms of activity and pharmacokinestic properties. The cephalosporins are bactericidal and similar to pencillins, they act by inhibiting the synthesis of bacterial cell wall. They are active against wide range of gram-negative and gram-positive, micro-organisms.
Cephalosporins are very recent inclusion in the science of anti-biotics, and is continuously getting developed further to obtain stronger and broad spectrum acting molecules.
Presence of beta lactum group is the nucleus of various compounds to become anti-biotics. Ampicillin, amoxycillin, cephalexin, etc. all contain beta lactum group. The integrity and modification of the beta lactum group in different ways leads to different anti-biotics. Cephalosprins also contain beta lactum group. 7 amino deacetoxy cephalosporinic acid (7 ADCA) belongs to the group of cephalosporin anti-biotics and this also contain beta lactum group which provides it the capacity to kill micro-organism. We have conducted the microbioligical tests as given in IP 1986 and confirmed the presence of beta lactum ring in 7 ADCA and have found that 7 ADCA has got good anti microbial property, which is quite comparable to the anti-biotics like cephalexin, ampicillin, etc. In the Science of anti-biotics it is observed that there is never an ultimate anti-biotic. With the constant research work, the best known anti-biotic has also been converted into still better anti-biotic wherein the earlier best known anti-biotic becomes an intermediate for a still better product. There are numerous examples in this regard. At one stage pencillin was known to be the best anti-biotic whereas now it has become the intermediate for making still stronger anti-biotics. Similarly, at one stage ampicillin was a well known strong anti-biotic whereas now in addition to its being anti-biotic itself it is further modified/converted into still more stronger anti-biotic like Becampicillin, Tallampicillin, etc. There exist many examples of these kinds and it is an established fact that the compounds can be anti-biotics itself as well as can be used as an intermediates for another anti-biotics. 7 ADCA is no exception. This also is an anti-biotic itself and can be further converted into still better antibiotic like cephalexin, cephazclin, cephadroxil, etc. It is possible that in future these anti-biotics may becomes intermediate for a still better anti-biotic and this kind of change continues in the field of anti-biotics.
7 ADCA, has amine function like so many other established anti-biotics like ampicillin, cephalexin, streptomycin, tetracycline, etc. also have. In fact, Amine function is a common group in a number of synthetic and synthetic organic anti-biotics, it can also be mentioned here that 7 ADCA despite of having amine function should be more suitably categorised under the headings of anti-biotic groups."
9. In addition the assessees also relied upon a certificate dated 4-7-1987 from the Assistant Commissioner, Food and Drugs Control Authority, Bharuch, certifying that 7 ADCA manufactured by the assessees is an antibiotic. The contention of the Revenue that 7 ADCA is not an anti-biotic is based on the following grounds :
(a) It is an amine function compound covered by CET sub-heading 2921.00;
(b) In the opinion of the Chemical Examiner, it was not an anti-biotic;
(c) The Food and Drugs Control Administration, Gandhi Nagar, Gujarat had certified that 7 ADCA was not a drug having any therapeutical value.
(d) It is excluded from the HSN Explanatory Notes to Heading 29.41 by exclusion clause (b) and (e) which reads as under :
Clause (b) Chemically defined organic compounds with a very low anti-biotic activity used as intermediates in the manufacture of antibiotics. Clause (e) Intermediate products obtained during the manufacture of anti-biotics by filtering and first stage extraction, with an anti-biotic content generally not exceeding 70%
10. We have already recorded our findings on the first ground in paragraph 5 of this order. Further, we note that both the Chemical Examiner and the Assistant Commissioner, Food and Drugs Control Administration, Gujarat had clearly stated in cross-examination that they had not carried out any tests to find out if 7 ADCA had the capacity to either inhibit growth or of destroy micro organisms. The Assistant Commissioner, Food and Drugs Control Administration, Gandhi Nagar has also confirmed that 7 ADCA belongs to antibiotic characteristics and is a substance produced by compound derived from living micro-organism viz. penicillin and has the effect of killing other microorganisms or inhibiting their growth. The chemical examiner has confirmed that with technological advancements, one anti-biotic is used as an intermediate in the conversion of another anti-biotic having properties to kill or inhibit all growth of certain type of bacteria, and in such a case both anti-biotics are known to be used as such anti-biotics in the context of drugs. Therefore, the opinions given by them earlier are not sufficient to come to the conclusion that the 7 ADCA is not an anti-biotic.
11. The Department has not placed any evidence to show that either exclusion clause (b) or (e) would apply in this case - the HSN explanatory notes to Heading 29.41 clearly state that chemical structure of anti-biotics may or may not be known or be chemically defined. Therefore, what is to be determined for the purpose of holding that 7 ADCA is excluded by virtue of clause (b) is whether it has a low anti-biotic activity. Similarly for the purpose of excluding the product by an application of note (e) what is to be established is that 7 ADCA has anti-biotic content generally not exceeding 70%. The burden of showing that the product is excluded from the coverage of Heading 29.41 lies upon the Revenue which seeks to classify the product under CET subheading 2921.00 as against the manufacturer's claim under CET sub-heading 2941.90, and this burden has not been discharged. On the other hand, the assessees have been able to satisfactorily establish that 7 ADCA belongs to betalactum group of cephalosoprin anti-biotic, that a chemical compound can be an anti-biotic as well as intermediate for other anti-biotic, that it is a amine function compound like many other established anti-biotics such as cephalexin and ampicillin and is, therefore, to be considered as an anti-biotic. The expert opinion of Dr. Tipnis also supports the stand of the respondents.
12. In the light of the foregoing, we hold that 7 ADCA falls for classification as anti-biotic under CET sub-heading 2941.90. In the result, E/4941/92-C filed by the Revenue is rejected while E/1903/93-C filed by the assessees is allowed.
13. The appeals are disposed of in the above terms.