Custom, Excise & Service Tax Tribunal
017 (By Revenue) & vs E/365/2005 on 8 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI S.No. Appeal No. Appellant Respondent
Arising out of OIO passed by CCE Pondicherry & CCE (Adjn.) Chennai
1. E/Misc/40157/ 2017 & E/365/2005 & E/EH/40208/ 2017 (by Revenue) & E/365/2005 DXN Manufacturing (India) Pvt. Ltd.
[formerly DXN Herbal Manufacturing (India)Pvt. Ltd.] Commissioner of Central Excise & Service Tax, Pondicherry Order-in-Original No.04/2005 dt. 22.03.2005
2. E/366/2005 & E/EH/40209/ 2017 (by Revenue) Dr. Lim Siow Jin, C.E.O & Director
-do-
-do-
3. E/367/2005 & E/EH/40210/ 2017 (by Revenue) Daehsan Trading (India) Pvt. Ltd.
-do-
-do-
4. E/368/2005 & E/EH/40211/ 2017 (by Revenue) Roshan Commercial Trades (P) Ltd.
-do-
-do-
5. E/369/2005 & E/EH/40212/ 2017 (by Revenue) K. Thevaraja, Director
-do-
-do-
6. E/331/2006 Roshan Commercial Traders Pvt. Ltd.
-do-
Order-in-Original No.02/2006 dt. 28.2.2006
7. E/332/2006 Dr. Lim Siow Jin, C.E.O & Director
-do-
-do-
8. E/333/2006 Daehsan Trading (India) Pvt. Ltd.
-do-
-do-
9. E/334/2006 K. Thevaraja, Director
-do-
-do-
10. E/404/2006 A.M. Sulaiman, Managing Partner
-do-
-do-
11. E/405/2006 The Madras Pharmaceuticals
-do-
-do-
Appearance:
Shri V. Lakshmi Kumaran, Advocate Shri S. Muthuvenkatraman, Advocate Shri M. Karthikeyan, Advocate For the Appellant Shri A. Cletus, ADC (AR) For the Respondent CORAM :
Honble Ms. Sulekha Beevi C.S. Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of hearing : 22.09.2017 Date of Pronouncement: 08.11.2017 FINAL ORDER No. 42811-42821 / 2017 Per Bench The moot issue for consideration in all these appeals is whether the product Reishi Gano and Ganocelium are classifiable under chapter 3003.39 of the First Schedule to the Central Excise Tariff Act, 1985 (CETA), as contended by appellants or as food supplements under 2108.99 of CETA.
The facts of the appeal E/365 to E/369/2005 are summarized as follows :
DXN Herbal Manufacturing (India) Pvt. Ltd. (DXN for short) having manufacturing premises at Pondicherry are inter alia, engaged in manufacture of Reishi Gano (RG for short) and Ganocelium (GL for short) capsules. They have taken Central Excise registration declaring that they are manufacturing the said products as Ayurvedic Proprietary Medicine (APM) falling under Chapter 3003.39 of the Central Excise Tariff Act, 1985 (CETA for short). DXN are the appellants in Appeal No.E/365/2005. Their C.E.O and Director, Dr.Lim Siow Jin is the appellant in E/366/2005, M/s.Daehsan Trading (India) Pvt. Ltd. (Daehsan, for short) and M/s.Roshan Commercial Trades (P) Ltd. (Roshan for short), marketing agents for the products of DXN are the appellants in Appeal Nos.E/367/2005 & E/368/2005. Appeal No.E/369/2005 has been filed by Shri K. Thevaraj, Director of Daehsan.
2. The controversy is a resultant of an investigation conducted by officers of the DGCEI, when the following apparent facts emerged :
(i) that RG & GL were imported and marketed by Daehsan in India as food supplements upto February 2002. As per the composition declared by them, RG contained 100% Ganoderma fruit body and GL contains 100% Ganoderma Mycelium. One more ingredient Shiitake, a mushroom was also claimed to be present in RG and GL in smaller percentages. Literature supplied along with the products emphasized that RG and GL were not therapeutic drugs and were not a cure of any diseases.
(ii) that from February 2002, RG and GL were marketed as Ayurvedic Proprietary Medicine (APM) in Kerala State.
(iii) that from March 2002, RG and GL were marketed as APM all over India.
(iv) that subsequently DXN established manufacturing unit at Pondicherry and filed applications to various Government organizations like Electricity Department, District Industry Centre, Pollution Control Board, Director of Industries and Commerce etc. declaring that they were manufacturing food supplement capsules made from natural mushrooms; that they had even obtained a No Objection Certificate from Department of Agriculture, Pondicherry for manufacture of food supplement capsules from natural mushrooms.
(v) that DXN declared the products RG & GL as APM to the Food & Drugs Administration (FDA), Pondicherry and obtained drug licence for manufacturing the same. In the application for drug licence, DXN had declared that ingredients of RG and GL are Chatrakh and Bhuchatra with corresponding botanical names respectively as Ganoderma Lucidium and Agaricus Campestris. DXN also stated in the application that they had already got a drug license for manufacturing the same products in Tamil Nadu.
(vi) that to declare RG & GL as APM, Daehsan had submitted clinical trial reports to the Drug Control Authority, Tamil Nadu which subsequently were found to be forged/issued without any actual clinical trials.
(vii) that drug licence issued by Drug Control Authority, Pondicherry was apparently based on the licence granted to Daehsan in Tamil Nadu.; (viii) that only in India, RG & GL are marked as APM, however all over the world, they are marketed as food supplements.
(ix) that DXN had registered trade marks REISHI and GANO in the category of food supplements under stockists.
(x) that Stockists / Distributors gave statements that RG & GL are being distributed without any therapeutic claim on them.
(xi) that to classify the product as Ayurvedic, it is necessary that the plant ingredients are available in India from ancestral period.
(xii) that ingredients of RG and GL have no reference in Ayurvedic texts;
(xiii) that RG & GL capsules have no therapeutic or prophylactic value and are not used in hospitals as medicaments.
3.1 Based on the above apparent findings, department took the view that that RG & GL are not Ayurvedic Proprietary Medicine and did not merit classification under CETA 3003.39, but fall under CETA 2108.99 as food supplements, and in consequence assessment of the goods should be under Section 4A of the Central Excise Act 1944. 3.2 SCN dated 31.07.2003 was issued inter alia, to DXN proposing classification of RG & GL products as edible preparations not elsewhere specified or included (food supplement) under CETA 2108.99; confiscation of seized bottles of RG and GL, demand of differential duty of Central Excise duty of Rs.2,03,04,544/- with interest for the period March 2002 to July 2002 and imposition of penalties for contravention of provisions of Central Excise law on the noticees.
3.3 Another show-cause notice dated 30.08.2004 was issued proposing to vacate the protest lodged while paying duty of Rs.3,42,91,224/- for the period September 2002 to June 2003.
3.4 After due process of adjudication, vide impugned order dt. 22.03.2005, the adjudicating authority confirmed demand of duty proposed in the notices with interest thereon, regularized / appropriated the amounts paid towards differential duty liability, ordered confiscation of excisable goods seized by the department however, gave option for redemption on payment of redemption fines as imposed. Penalty equal to duty liability of Rs.2,03,04,544/- was imposed on DXN under Section 11AC of the Act and a further penalty of Rs.1,00,000/- under Rule 25 of the Central Excise Rules, 2002 was also imposed. Penalties were also imposed on other persons, inter alia, Rs.25 lakhs each on Dr. Lim Siow Jin, Daehsan and Roshan, and Rs.10 lakhs on Shri K. Thevaraj.
4.1 Aggrieved, these appellants preferred appeals before the Tribunal which was disposed of vide Final Order No.25 to 29/2006 dt. 30.12.2005 and as reported in 2006 (199) ELT 533 (Tribunal).
4.2 The appellant however preferred appeals to the Honble Apex Court vide Civil Appeal No.1215 of 2006 inter alia contending that although plethora of materials was given to the Commissioner as well as CESTAT to support the argument that RG & GL are Ayurvedic Proprietary Medicines used in curing many diseases, however said material has not been taken into consideration.
4.3 The Honble Supreme Court vide an order dt. 07.08.2015 [2015 (325) E.L.T. A41 (S.C.)], set aside the order passed by CESTAT and remanded the case for fresh examination considering the materials placed by the assessee making it clear that no opinion on the merits of the case is expressed.
4.4 Accordingly, the matter is once again before this forum.
5.1 The facts in appeals E/331 to E/334/2006 and E/404 and E/405/2006, are in consonance to the sequence of events narrated in the above set of appeals.
5.2 The appellant M/s.Roshan Commercial Trades Pvt. Ltd. (Roshan) in E/331/2006 is manufacturer of RG & GL. They did not have manufacturing facility of their own and therefore undertook manufacture through loan licensee M/s.Madras Pharmaceuticals (MP) (appellant in E/405/2006) 5.3 Roshan had classified the products under chapter 3003.39 of CETA, 1985 as Ayurvedic Propriety Medicines.
5.4 As part of search operations at Daeshan, search was conducted in the premises of these appellants also. From February 2002 Roshan started marketing RG & GL as AMP first in Kerala State and from March 2002 throughout India.
5.5 Daeshan & Roshan had declared the products, RG & GL as APM to the Deputy Drug Controller, Chennai and obtained a drug loan licence for manufacturing the same at MP. Roshan had stated in their application that Daeshan had already got a drug loan licence for manufacturing the same products as APM.
5.6 The documents recovered at MP as well as statements revealed that Roshan had relabelled some stocks of RG & GL capsules (which were imported as food supplements) at the loan licence premises of MP by repacking the original contents into new containers.
5.7 Investigations at Daeshan as well as stock registers recovered from Daeshan showed that there had been no movement of RG & GL powder from Daeshan and only filled bottles of RG & GL were issued to Roshan & MP who marketed them as APM; that Roshan had never imported or purchased shiitake powder as claimed in the labels of the products; that Daeshan & Roshan had indulged in re-labelling and repacking of the food supplement products imported in bulk and cleared the products misdeclaring them as APM, and not discharging proper duty liability.
5.8 Show-cause notice was issued inter alia, proposing to classify the product under CETA 2108.99, recovery of duty of Rs.53,79,870/- for the period 2/2002 to 5/200, and for imposing penalties.
5.9 After adjudication, the original authority vide order dated 28.02.2006 ordered classification of RG & GL under CETA 2108.99 and confirmed the differential duty demand of Rs.53,79,870 as well as other demands being duty on inputs removed as such. Penalties were imposed on Roshan, MP, Daeshan, Dr.Lim Siow Jin, Ms.Liew Sheue Liang, Sh. A.M.Suhaman, Sh.Thevaraja) and Sh. Abdul Rahmat Puvarsan. Hence these appeals.
6. When the matter came up for hearing, on behalf of appellant in appeal nos.E/365 to E/269/2005, Ld. Senior Advocate Shri V. Lakshmi Kumaran made oral and written submissions which can be broadly summarised as under:-
(i) The main issue is whether Reishi Gano and Ganocelium capsules manufactured by the Appellant are classifiable under Chapter 21 of the First Schedule to the Central Excise Tariff Act, 1985 as a food supplement or under Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985 as Ayurvedic Proprietary Medicines. The applicable rate of duty is the same for both the competing tariff entries and the only difference is that products classifiable under Chapter Heading 2108 are liable to be assessed under Section 4A of the Excise Act as compared to Section 4 for products falling under Chapter Heading 3003.
(ii) Reishi Gano and Ganocelium are both parts of the mushroom Ganoderma lucidum. RG and GL are the top portion and bottom portion of the mushroom respectively.
(iii) Mushroom is described in the Ayurvedic textbook Bhavaprakasha as Bhumichatra. Both these parts are dehydrated and then subject to micro powderation. The resultant product is the powdered version of RG and GL. The product contains polysaccharide, adenosine, triterpenoids, protein and fibre.
(iv) The product is a detoxification agent and cleanses the body of toxins such as uric acid, excess cholesterol, fat, calcium deposits, bad tissue and chemical accumulation. The product has therapeutic properties to cure diseases like High blood pressure, piles, rheumatism, asthma etc.
(v) The Appellant imports bulk powder of RG and GL from Malaysia, repacks them in capsules and sells them to stockists. Initially, the product was sold by Daehsan as a food supplement. The Drug Authorities in Gujarat and Kerala took objection to the same and seized the products, holding that they are Ayurvedic medicines and could not be marketed without a drug licence. Subsequently, the Appellant applied for a drug licence which was granted.
(vi) The question for consideration whether the product is a food supplement as originally sold by the Appellant/Daehsan or an Ayurvedic medicament is now set to rest by issue of drug license by the Drug Controller.
(vii) The twin tests laid down by the Honble Tribunal in the decision of Richardson Hindustan Ltd. v. CCE, Hyderabad 1988 (35) ELT 424 (Maintained by the Honble Supreme Court in 1989 (42) E.L.T. A100 (S.C.)) in order to classify a product as an Ayurvedic medicament under Chapter Heading 3003 are as follows:
(i) that the product should be known as medicament in the common parlance and,
(ii) the ingredients should be mentioned in Ayurvedic text books.
(viii) For applying the common parlance test, the adjudicating authority has relied on the past practice followed by the Appellant and has ignored the relevant practice followed by the Appellant in classifying the products.
(ix) For applying the second test referred to hereinabove, the adjudicating authority has given a finding that the botanical name of the impugned product is not found in the Ayurvedic textbooks.
(x) Various documents in support of its contention that the impugned product was classifiable as an Ayurvedic medicament were placed and relied upon by the Appellant before the adjudicating authority as well as the Tribunal in the first round of litigation. They have not been considered.
(xi) With regard to the second test, it is submitted that the Ayurvedic textbooks mention mushrooms in generic category as Bhuchatra. When authentic Ayurvedic texts refer to medicine in a generic manner, it is submitted that all species and varieties are also covered.
(xii) Adjudicating Authority, at internal page 25 and Para. 57.2 of the Order-in-Original dated 22.03.2005, has noted that the opinion of Dr.Sharma nowhere says that the products in question are ayurvedic. This observation is incorrect as Dr.Sharma, vide the last para of his opinion has concluded that the product is an Ayurvedic oushadham.
(xiii) Therefore, the relevant material like the expert opinion, drug licences, literature etc. has not been looked into by adjudicating authority to arrive at the conclusion and only the irrelevant material like Clinical Trial Reports (CTR) and past actions of the Appellant has been looked into. In the light of the same, no demand can be sustained against the Appellant.
(xiv) Chapter Note 1 to Chapter 21 excludes medicament falling under Chapter 30 from the ambit of Chapter 21. Further, Chapter Heading 2108 is a residuary entry while Chapter Heading 3003 is a specific entry for Ayurvedic Medicaments. By application of Chapter Notes and Chapter Headings, the product is classifiable under Chapter Heading 3003. Even otherwise, by application of Rule 3(a) as also Rule 3(c) of the Rules of Interpretation, the product in question is classifiable under Chapter Heading 3003 and not under Chapter Heading 2108.
(xv) The records would show that appellant changed its stand on classification due to the directions given by the Drug Authorities and not with any nefarious intention to deprive the Government Exchequer of its dues. The Appellant submits that change in classification due to the directions given by the Drug Authorities would not amount to fraud or suppression on their part.
(xvi) Present matter does not demand invocation of extended period of limitation or imposition of penalty as it is trite law that issues of classification concerning bona fide interpretation of the tariff entries do not warrant invocation of extended period of limitation or imposition of penalty under Section 11 AC of the Excise Act.
7. The Learned Counsel Shri S.Muthuvenkataraman appeared on behalf of appellants in E/331 to E/334/2006 and Shri M. Karthikeyan, Ld. Advocate appeared for appellants in E/404-405/2006. They adopted the arguments advanced by the Learned Senior Counsel Shri Lakshmi Kumaran. It was submitted that following the action taken by drug control authorities, the appellants had to review the classification of the subject items. Thus the marketing company had obtained drug licence under Chapter IV A as Ayurvedic drug and thereafter licence was issued by Food and Drug Administration for sale of these items as Ayurvedic medicines. From 2/2002 RG & GL were sold as Ayurvedic Proprietary medicine all over India. For a short period i.e. 2/2002 to 5/2002 appellants manufactured the products under loan license agreement with Madras Pharmaceuticals. The duty demand is raised merely basing upon the fact that Daeshan had earlier classified it as food supplement. The allegation that the drug license was forged was countered by stating that till date the authorities have not cancelled the licence. The products would pass the twin test laid by the Hon'ble Supreme Court in the case of Richardson Hindustan Ltd 1988 (35) E.L.T. 424. Learned Counsels pleaded that the extended period is not invokable and that penalties imposed are unwarranted.
8. The Department was represented by Shri A. Cletus (ADC) who supported the adjudication and opposed the appeal. He also made oral and written submissions which can be summarized as under :
(i) Appellants originally imported the items classifying them under CTH 2108.99 as food supplements. Later, only to evade duty they have misclassified the goods under 3003.39, which is leviable to duty at 16% but chargeable as per Section 4 of Customs Excise Act 1944. The product falling under Chapter 2108.99 would also attract 16% duty but chargeable as per Section 4A of Customs Excise Act 1944. Though appellants contend that products are Ayurvedic Proprietary Medicines they do not claim classification under Chapter 3003.31 which attracts Nil rate of duty. Therefore the issue whether the products are APM is not an issue for consideration in the case.
(ii) Prior to manufacture in India, the impugned goods were imported into India by classifying them under Customs Tariff Heading (CTH) 2108 as food supplements and not under 3003 as medicines. According to appellant, a case is said to have been booked by Kerala State Drugs Control Authorities and that they started classifying under CH 3003 as Ayurvedic medicines after obtaining a Drug Licence. So the change of classification was not based on change of product or on understanding of Central Excise law but on compliance of another statute.
9.1 Heard both sides and have gone through the facts.
9.2 In all the appeals, the main issue in dispute is whether the products RG & GL are classifiable as APM under CETA 1985 as contended by appellants or as Food supplements, under 2108 as alleged by department.
9.3 The matter is once again before this forum in consequence of the order dt. 07.08.2015 of the Hon'ble Supreme Court in C.A. No.1215/2016 filed by appellant. Relevant portion of the order of Hon'ble Apex Court in appeals E/365-369/2005 is reproduced for ready reference :
"It is pointed out by Mr. V. Lakshmikumaran, learned counsel for the appellants, that plethora of material was given to the Commissioner as well as CESTAT in support of the contention that the products in question i.e. Reishi Gano (RG) and Ganocelium (GL), Ayurvedic Proprietary Medicines, are used in curing so many diseases. The submission is that the said material has not been taken into consideration either by the Commissioner or the CESTAT.
We find that this was the precise reason because of which while issuing show cause notice, this Court indicated that the matter may be remanded back to the Tribunal for fresh consideration.
We, accordingly, set aside the order passed by the CESTAT and remand the case to the CESTAT for fresh examination considering the material placed by the assessee. We make it clear that insofar as this Court is concerned, no opinion on the merits of the case is expressed.
It would be open to the Tribunal to examine the issue afresh after considering the submissions of both the parties. Since the matter is old, we request the Tribunal to decide the case within six months from the date of receipt of a copy of this order."
The above order of the Hon'ble Supreme Court was passed on 16.07.2015. The mater came before us on 20.04.2017 and was re-heard on 22.09.2017.
9.4 Accordingly, on the lines directed by Hon'ble Apex Court, we intend to analyze issues relating to these appeals. The main thrust of the appellant's contention is that the product Reishi Gano (referred to as RG) and Ganocelium (referred to as GL) are Ayurvedic Medicaments as accepted by Drug Controller and that they satisfy the twin tests laid down in the decision of Richardson Hindustan Ltd. Vs CCE Hyderabad - 1988 (35) ELT 424 (Tribunal) (maintained by Hon''ble Supreme Court in 1989 (42) ELT A100 (SC), namely, (1) product should be known as medicament in the common parlance (2) ingredients should be mentioned in Ayurvedic text books. Various documents have been submitted by appellant to justify their stand that the impugned goods are classifiable as Ayurvedic medicaments and Ayurvedic text books mention mushrooms in generic category of Bhuchatra. According to appellants, these documents would establish that the products are Ayurvedic medicaments which merit classification under Chapter 3003.39.
9.5 The main ground raised by appellants before the Hon'ble Apex Court was that the Tribunal failed to consider the documents produced by them. This Bench vide Misc.order had directed the appellants to file an affidavit as to the details of documents produced by them. Appellants have subsequently filed an affidavit in this Tribunal on 30.02.2017 wherein, they have affirmed that following evidences have been placed before Commissioner during adjudication proceedings :
S.No. Particulars Acknowledgment
1.
Opinion of Dr. K.S. Viswanatha Sharma (Vaidya Visarada Ayurveda Siromani) Acknowledged on 22.11.2004 by CCE, Pondicherry.
2. Ganotherapy Treatment against disease with RG & GL (Old version) Acknowledged on 19.11.2004 by the Central Excise Department. Annexure B.1/Sl.no:1
3. Ganotherapy Treatment against disease with RG and GL (New version) Acknowledged on 19.11.2004 by the Central Excise Department Annexure B.1/Sl.no:2
4. Extracts from Ayurvedic textbook Charak Samhita Acknowledged on 19.11.2004 by the Central Excise Department Annexure B.2
5. American Herbal Pharmacopoeia and Therapeutic Compendium Acknowledged on 19.11.2004 by the Central Excise Department Annexure B.3/Sl.no:1
6. Pharmacopoeia of the Peoples Republic of China Acknowledged on 19.11.2004 by Central Excise Department Annexure B.3/Sl.no:2
7. Therapeutic Goods Administration (TGA) Certificate, Australia & Certificate of Medicine Listing Acknowledged on 19.11.2004 by Central Excise Department Annexure B.3/Sl.no:3
8. Extract from Growing Gourmet and Medicinal Mushrooms by Paul Stamets Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:1
9. Extract from MycoMedicinals An Informational Treatise on Mushroom by Paul Stamets.
Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:2
10. Extract from Chinese Herbs by Henry C. Lu, Ph.D. Principal of the International College of Traditional Chinese Medicine, Vancouver, Canada Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:3
11. Reishi Mushroom Herb of Spiritual Potency and Medical Wonder, Terry Willard, Ph.D. Research by Kenneth Jones Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:4
12. GanodermaLucidum, Ling Zhi Mystical Remedy of the Ancients by Dr. Clarence S. Stanislaus Acknowledged on 19.11.2004 by Central Excise Department Annexure B.4/Sl.no:5
13. Copies of Bills of Entry Acknowledged on 19.11.2004 by Central Excise Department Annexure D.1/Sl.no:1
14. Letter of Port Health Officer dated 14.02.2002 Acknowledged on 19.11.2004 by Central Excise Department Annexure D.1/Sl.no:3
15. Drug License (License to Manufacture for Sale of Ayurveda drug) from 13.03.2002 till 31.12.2003 Acknowledged on 19.11.2004 by Central Excise Department Annexure D.2/Sl.no:1
16. Certificate of Renewal of License to Manufacture for Sale of Ayurveda Drug from 01.01.2004 to 31.12.2005 Acknowledged by Central Excise Department on 19.11.2004, Annexure D.2/Sl.no:2
17. Decision dated 31.05.2004 passed by the Karnataka Sales Tax Appellate Tribunal Acknowledged on 22.11.2004 by CCE, Pondicherry.
It is therefore proposed to take into consideration seriatum the aforesaid documents, in compliance of the directions of the Hon'ble Apex Court to address the classification issue :-
1) Opinion of Dr. K.S. Viswanatha Sharma:
This opinion found in pages 81-91 of paper book submitted by appellant on 26.10.2005 has been issued on 18.11.2004. The perusal of the same indicates that learned Shri K.S. Viswanatha Sharma has discussed the properties of Ganoderma lucidum from a ayurvedic viewpoint in which he inter alia states as follows on page 88 :
"Mushrooms have been mentioned in ancient texts, very sporadically and broadly as Chatraka and Bhuchatras. Botanical terms and Latin names have been prevalent only in the last 2 centuries.
It is pertinent to mention here that the ancient texts like Charaka Samhita, Sushruta Samhita have identified mushrooms with their functional properties without naming any particular species. Some of the Ayurvedic scholars subsequently have named Agaricus campestris as one such mushroom. However, there is nothing to infer that the ancient sages have missed out or had any intention to miss out any of the other varieties of medicinal mushroom.
Lack of specific terminology for naming different species of mushrooms in ancient texts, does not in any way obscure the fact, that Ganoderma lucidum, which is found very much in India and, having tremendous healing properties have not been considered in the wisdom of the ancient sages."
The elucidation by Dr. Sharma, while highlighting the medicinal properties of mushrooms however, admits that specific entries on medicinal mushrooms are not named in ayurvedic texts like Charaka, Sushruta etc. The last paragraphs of Dr. Sharma's opinion on page 91, which has been relied upon by ld. advocate is only a statement that Ganoderma and Shitake (the medicinal mushrooms) are ayurvedic Oushadham, by its extraordinary rasa, guna, virya, vipaka, pravabhava virtues described in all ayurvedic texts to prevent, mitigate, treat and cure diseases and disorders ancient and modern. However, it is noted that Dr. Sharma has given broad properties of Ganoderma and Shitake and however, not named any specific ayurvedic usage of the said mushrooms for any specific human ailment or conditions as laid down by Ayurvedic protocol.
2) Ganotherapy Treatment against disease with RG & GL This is the booklet called "Ganotherapy Ganoderma (Linghzhi) The Miraculous King of Herbs" authored by Dr. Lim Siow Jin. Interestingly, this author is also the Chief Executive Officer and Director of M/s.Daeshan Trading (India) Pvt. Ltd. who is the appellant in Appeal E/366/2005. Dr. Lim Siow Jin himself is an appellant in Appeal No.E/366/2005. In the first place, the opinion of such a person who is also one of the appellants in these batch of appeals cannot ordinarily be considered as an unbiased and unfounded opinion, as it cannot be denied that Dr. Lim Siow Jin is interested party in this matter. Be that as it may, the said booklet does give historical and technical background of Ganoderma mushrooms and list of ailments which can be treated by the said mushroom. Interestingly, the list of such treatable ailments is as unending as a list of English alphabets, purportedly treating any sick condition in every part of the body, from eyes to nostrils, throat, skin to joint ankle feet, urination, diarrhoea as well as constipation, body pain, kidney function etc. In one page of the booklet, contents of GL are shown as (1) Polysaccharide (2) Organic germanium (3) A whole spectrum of vitamins (4) A whole spectrum of minerals. Interestingly, in the last page of the booklet, it has been claimed that Ganoderma brings benefit and has special properties in health maintaining and condition (sic). It is thus noted that while Ganoderma is touted by Dr. Lim Siow Jin as a cure for many ailments while selling the product the benefits thereof are limited to bringing benefit and health maintenance and no claims whatsoever of ayurvedic proprieties or effects have been indicated anywhere in the booklet.
3) Ganotherapy Treatment against Diseases with RG & GL This is a ten page booklet. The contents of RG have been indicated as (1) Polysaccharides (2) Organic germanium (3) Adenosine (4) Triterpenoids (5) Ganoderic Essence (6) Protein (7) Fibre. The very first page of the booklet claims that the product is effective in (1) Scanning diseases (2) Cleansing Toxins (3) Regulating body functions (4) Ensuring recovery of health (5) Preserving youthfulness. Second page of the booklet shows the contents of Ganocelium as (1) Polysaccharide (2) Organic germanium (3) A whole spectrum of Vitamins (4) A whole spectrum of Minerals. On page 2 of the booklet, the benefits of GL have been given as under :
1. Brain tonic, Nerve stabilisation
2. Prevents tumour growth
3. Strengthens body resistance
4. Cleanses toxins out of body
5. Effective for Gastric and kidney disorders The pages on Reishi Gano and Ganocelium carry an identical tag line "An ounce of prevention is better than a pound of Cure".
From the above literature given along with product, what emerges is that GL and RG are touted as a toxin cleaner, for regulating body functions, for preserving youthfulness and the like. Certainly, there is no reference or claim made therein that RG and GL are Ayurvedic products or for that matter, that they have Ayurvedic properties and functionalities.
Nonetheless, from the photocopy of the label found in page 54 of the paper book, the products RG & GL get christened as Chatrakh and Bhuchatras and termed as Ayurvedic Proprietary Medicines. Interestingly, both Ganoderma and G Mycellium are given the same 'Ayurvedic' name "Chatrakh".
4. Extracts from Ayurvedic textbook Charak Samhita This document has been listed at page 56-58 in Gujarathi with a not-very-clear translation from Gujarati-Hindi-English on page 59-60. From a perusal of the said Gujarati-Hindi-English translation, what is garnered is that the pages relied upon discuss qualities of Amalika (presumably root of ginger), Root of Pindaluk, Sinapis glance (Sarson ka saag), and qualities of best fruit grape. There is also a reference to mushrooms and opinion of "Sushrut" that mushrooms will grow up during rain reason, stops cough and clears the toxins from stool and urine, that its vegetable is sweet when cooked and has the quality of clearing the cough; that it causes a bit of pitta and cough and is also flatulent. The very same mushroom has been claimed to clear cough and at the same time there is assertion that it causes cough. In the event, no further analysis of this document can be made.
5. American Herbal Pharmacopoeia and Therapeutic Compendium This is found in pages 66 to 91 of the paper book. This is a write up on "Reishi Mushroom" and "Ganoderma lucidum" indicating standards of analysis, quality control and therapeutics. The write up at page 80 states that "most of the reported activity of reishi mushroom has been centered around four therapeutic actions : immune-enhancing, cardiovascular-regulating, hypoglycemic, and hepatoprotectant." In conclusion of part of the report at page 84, inter alia, states that "there is a tremendous amount of data on the chemistry and pharmacology of reishi mushroom, but relatively little information on its clinical applications. Much of the research has focused on the ability of the reishi polysaccharides to enhance specific and nonspecific immune responses, as a result, a wide array of medical indications associated with immune functions have been claimed but remain to be substantiated" (Emphasis added). Towards the end of the write up, under the head, 'Safety Profile' at page 86, it is indicated that the said mushroom is classified by the American Herbal Products Association as Class 1 Herbs that can be safely consumed when used appropriately. Under the head, "International Status", at page, 87 the following is indicated :
"United States Regulated as a dietary supplement China Included in the Pharmacopoeia of the People's Republic of China (2000). Approved for the treatment of dizziness, insomnia, palpitations, shortness of breath, and cough and asthma due to consumption.
Japan Not included in the Japanese pharmacopoeia. Not used in Kampo medicines."
Thus the above write up, while dwelling into the claimed benefits of Reishi mushroom, has however cautioned that there is relatively little information on its clinical applications. It also states that much of the research has focused on the ability of the polysaccharides in the mushroom and the various effects of those chemicals which have on the biological systems. For these reasons, the write up also cautions that "findings of studies utilizing specific polysaccharide or protein fractions cannot be used to substantiate the effectiveness of orally administered commercial reishi mushroom mycelium biomass products because of a potential lack of bioavailability. Interestingly, the write up also confirms one of the Revenue's contentions, namely that the main product is otherwise known in most western countries as a dietary supplement.
6. Pharmacopoeia of the Peoples Republic of China This relied upon document is found in pages 92 to 93 of the paper book. The extract, inter alia, concerns the entry of Ganoderma (Lingzhi). In the Chinese Pharmacopoeia, the action and indications of the Ganoderma are given as follows :
Action : To replenish qi and ease the mind, to relieve cough and asthma, Indications : Dizziness, insomnia, palpitation, short breath, asthema, cough and asthma All that we are able to glean from this document is that Ganoderma is included in the Chinese Pharmacopoeia along with main therapeutic use for cough and asthma, and definitely not the long list of purported remedies that is claimed in the RG and GL pamphlet of the appellant. Interestingly, on the same page, Gypsum Fibrosum (Shigao) is also indicated in the pharmacopoeia. Possibly, the Ganoderma and Gypsum Fibrosum may surely have same purpose and usage in Chinese medicine but the fact thereof will not make all the items listed in the Chinese Pharmacopoeia as products eligible to be also classified as Ayurvedic product.
7. Therapeutic Goods Administration (TGA) Certificate, Australia & Certificate of Medicine Listing This document is found at pages 94 to 100 of the paper book. The document, issued by Department of Health and Ageing, Therapeutic Goods Administration, Australian Government, certifies that both RG and GL are listed in the "Australian Register of Therapeutic Goods". It has categorically stated as under :
"The sponsor of the listed medicine must not by any means intentionally or recklessly advertise the medicine for an indication other than those accepted in relation to the inclusion of the medicine in the Register."
Interestingly, however, the indications that have been accepted in the said Australian Registry have not been submitted by the appellant. Nor is there any conclusion possible to be drawn from these documents as to whether RG and GL are sold in Australia specifically for certain therapeutic values or for specific ailments or merely as an dietary or food supplement as contended by Revenue. In the circumstances, we are unable to glean any worthwhile information that would be useful in deciding upon the issue at hand.
8. Extract from Growing Gourmet and Medicinal Mushrooms by Paul Stamets These documents are found in pages 102 to 112 of the paper book. The said publications appears to be issued as a companion guide to "The Mushroom Cultivator". The write up states that Ganoderma lucidum is renowned for its health stimulating properties and traditionally associated with royalty health and recuperation, longevity wisdom and happiness. The article further elucidates on various types of cultivation of the mushroom and hints for harvesting and cooking. It also states that complex group of polysaccharides have been isolated from this mushroom which reportedly stimulate the immune system. Article makes a reference to studies on modulating effects on blood pressure and lipid levels, glucose levels and presence of immuno-modulating proteins. Various other claims of cure have been reported in the article. However, what is interesting to note that the article predominantly concentrates on the aspects of cultivation and harvesting mushroom. In any case, while the claims of the said mushroom having properties of curing many health conditions may well be true, that would not automatically make it a shoo-in candidate for being called as an "Ayurvedic" product. To our knowledge, there are any number of vegetables, fruits and other natural products like mushrooms, for example, ginseng, ginkgobilova etc. are also touted, inter alia, for increasing vigour, and vitality, however in our opinion, mere presence of curative properties of such products will not automatically qualify them to don the mantle of ayurvedic medicines.
9. Extract from MycoMedicinals An Informational Treatise on Mushroom by Paul Stamets.
This extract found in pages 111 to 125 of the per book, is yet another write up by the same Mr.Paul Stamets, which is another treatise on mushrooms. The book carries the tag line "Informational Treatise on Mushroom" and contains information on "Forest fungi, Activities of medicinal mushrooms in the treatment of disease, Types of poly pores and mushrooms etc". While discussing GL, its medicinal properties have been indicated as "immune enhancing, biological response modifier, stimulating macrophage and antimicrobial.
While this treatise does provide information inter alia, on Ganoderma lucidum it however does not help our purpose to decide on whether the main product can be termed as "Ayurvedic Medicine".
10. Extract from Chinese Herbs by Henry C. Lu, Ph.D. Principal of the International College of Traditional Chinese Medicine, Vancouver, Canada.
This document found on page 126 to 130 of the paper book contains "Recipes for Health and Healing". GL has been listed under Chinese name Ling-zhi and various healing actions and indications have been listed.
11. Reishi Mushroom Herb of Spiritual Potency and Medical Wonder, Terry Willard, Ph.D. Research by Kenneth Jones
12. GanodermaLucidum, Ling Zhi Mystical Remedy of the Ancients by Dr. Clarence S. Stanislaus The appeals were heard on 20.04.2017 and 24.06.2017 and reserved for orders. Thereafter since certain clarification were needed these appeals were relisted and heard on 22.09.2017. The Bench then informed the Learned Counsel Sh. Lakshmi Kumaran for appellant, that the documents 11 & 12 in the affidavit is not seen as part of the records. The Learned Counsel assured to provide copies of these documents within two days. Nothing has come forth. Therefore we have not been able to peruse these documents.
13. Copies of Bill of Entry Among other items imported, "Bulk Reishi Gano Powder" and "Bulk Ganocelium Powder" have been classified by importer-appellant under CTH 30039090. Bill of Entry under CTH 30039090 that has been studied is B/E No.705256 dt. 28.10.2004 (available at page 303 in Annexure D1). The goods have been declared as falling under Customs Tariff Heading 30039090 and CETH Heading 3003.10. The tariff headings are the same even at final assessment. Interestingly, the CETH 3003.10 covered "Patent or proprietary Medicaments, other than those medicaments which are exclusively, Ayurvedic, Unani, Siddha, Homoeopathic or Bio-chemic (Emphasis added). While the Bills of Entry have been relied upon by the appellant, a perusal thereof reveals that the appellant themselves were classifying it under Central Excise Tariff, as "other than those medicaments which are exclusively Ayurvedic Medicaments". This only serves to indicate that RG & GL imported in powder form in bulk were never claimed to be "Ayurvedic Products" at the stage of imports.
14. Letter of Port Health Officer dated 14.02.2002 This document is found in page 354 of the paper book (Annexure-D1) submitted by the appellant. This is a certificate issued only for the purpose of customs clearance certifying that sample from consignments of Reishi Gano Powder is not an Article of food and hence it does not come under the purview of PFA Act, 1954 and that it may be referred to as Asst. Drugs Controller. In this regard, we find that efforts of the department is to classify the impugned item as "Food Supplement" and not as an "Article of food". In any case, the said certificate is issued by the Port Health Officer only for customs clearances from aspects of port health etc. By no stretch of imagination can the Port Health Officer be considered as an expert on determining whether the imported goods is Ayurvedic product having medicinal properties or whether it is only herbal product etc. and certainly the said officer's views cannot be the basis for determining the classification under Customs or Central Excise Tariff Headings.
15. Drug License (License to Manufacture for Sale of Ayurveda drug) from 13.03.2002 till 31.12.2003
16. Certificate of Renewal of License to Manufacture for Sale of Ayurveda Drug from 01.01.2004 to 31.12.2005 We find that this is the copy of the licence on page 379 of paper book (Annexure-D1). It is seen that the licence has been issued to manufacture following ayurvedic products (i) Reishi Gano (RG) capsules (2) Ganocelium (GL) capsules. In the annexure to the licence, the contents of RG and GL have been given as Chatrakh and Bhuchatra. This document on page 381 of paper book (Annexure-D1) indicates that the original licence for manufacture of RG & GL has been renewed from 1.1.2004 to 31.12.2005. However we find that the issue of the drug licence is also mired in controversy since the department alleges that they have been obtained on the basis of forged clinical trials.
17. Decision dated 31.05.2004 passed by the Kerala Sales Tax Appellate Tribunal This decision dt. 31.05.2004 is found in page 70 of the paper book. The decision thereon is not passed by Karnataka Sales Tax Tribunal as mentioned in the affidavit but by Kerala Sales Tax Appellate Tribunal. Possibly, a typographical mistake may have occurred while submitting the affidavit. However, in the synopsis submitted by the appellant on the date of hearing, the order of Sales Tax Appellate Tribunal, Kerala has been indicated. We find that the issue in that decision concerned was whether GL and RG capsules are really Ayurvedic Property Medicines for the purposes of Sales Tax assessment and taxation as coming under Entry 141 of the First Schedule to the Kerala General Sales Tax Act. After various discussions and arguments relating to the documents produced/made by the appellant, the Kerala Sales Tax Appellate Tribunal has held that there is no justification in treating the items as food supplements and that they are particularly ayurvedic preparations as claimed by the appellant and directed the assessing authority to treat the items as Ayurvedic preparations accordingly. While this may be so, what is important is whether this decision, rendered in a sales tax issue, by another Tribunal, can have precedential, or for that matter, persuasive application. The facts that have been gone into by the Tribunal are those relating to the capsules sold as Ayurvedic medicine and dispute having arisen thereon on their taxability. Surely, the Hon'ble Sales Tax Tribunal did not have access to all the facts of the matter before us, including the fact that these very items had earlier been imported as found herein above, as drugs other than ayurvedic medicaments. This being so we are afraid that this decision will not help the case of the appellant.
9.6 Thus, after careful consideration of all the documents listed in the affidavit by the appellant, we are certainly not convinced that the impugned products RG and GL are ayurvedic medicines. In such circumstances, before we take a final call in the matter it would be prudent and also in the interests of justice to carefully consider other facts and evidences of this case.
10. The twin test laid down by the Hon'ble Apex Court in the Richardson Hindustan case judgment cited by the Ld. Advocate for the appellant has indeed laid down the following tests to justify classification as product under Ayurvedic Medicament under Chapter Heading 3003 :
(i) that the product should be known as medicament in the common parlance and,
(ii) the ingredients should be mentioned in Ayurvedic text books.
We therefore intend to subject the impugned products to these two tests. Whether the product is known as APM, a medicament or for that matter, in any common parlance.
11.1 Though strong arguments and reliance on above discussed documents are advanced by the Learned Counsel to contend that the products are Ayurvedic Proprietary Medicines, on perusal of the label of the product we cannot find anything suggesting so. Bottles of the products GL were placed before us by Ld. Sr. Advocate. For ready reference, a scanned copy of the bottle label is reproduced below:
This space is purposely put blank.
The label indicates the product to be an Ayurvedic Proprietary Medicine. It is shown that each capsule contains Chatrakh and Shiitake. The dosage is mentioned as one capsule three times daily. The label however does not indicate that it would cure any particular disease. The label also does not indicate that the capsule is to be taken for any particular symptom. Label on a product is the basis which has to satisfy the first test of common parlance, since, it is the label which conveys to the customer the disease that can be cured using the medicament. Merely by mentioning it as APM or by stating that the product contains some quantities of Chatrakh & Shiitake the appellant cannot contend that it is a medicament. The only inference that can be drawn from the indications in the label is that the product is only meant for general well being. As stated earlier, it is also a fact that the products were originally sold as food supplements. Though the Learned Sr. Counsel Sh. Lakshmi Kumaran took assistance of various literature, reports of clinical studies and other documents, which we have analyzed herein above, to canvass the argument that these products cure many an ailment and has therapeutic properties, however on the labels there is nothing to indicate that they cure any specific disease. Even the pamphlets accompanying the product does not claim to cure any disease, but in fact suggests that prevention is better than cure. The Learned Sr.Counsel has laid much thrust on the factum that dosage is indicated, and therefore the product would have therapeutic value. Nonetheless what are the diseases the products intend to cure by taking such measured doses, is not conveyed through the label or the pamphlet to satisfy the common parlance test. What is important is how the consumer looks at the product, and what is his perception in respect of the product.
11.2 The goods which were imported earlier from Malaysia were marketed as "food supplements". In fact, from the record it emerges that they were then called as "The Miraculous King of Herbs".
11.3 While marketing the said products, appellant had issued a advisory "What all DXN distributors should know", which made the following caution :
"Do not make any claims. Herbal food supplements are strictly classified as foods and regulated as such. Extra care must be done to avoid making specific claim about what the products can do to the body. Any food may be categorized as a drug, if it is claimed that the product is for treatment, cure prevention and mitigation of a disease. The important word is disease. When a product is offered as a specific treatment for a disease, it becomes a drug.... It is very important to bear in mind that you are recommending a food supplement and that you do not intend to be misconstrued as a recommending a drug."
From the investigations conducted with distributors and stockists, it is seen that a number of stockists / distributors from whom statements were taken categorically stated that the RG and GL are not used to prevent any specific diseases but are only used to improve general health; that the company had informed them to promote the product as food supplement only; that these capsules basically are used as food supplement and are non-prescription drugs; that RG and GL capsules which had come as food supplement till December 2001, had started to market as APMs only from 2002; that however there is no change in composition or quality of RG and GL.
11.4 Earlier, while marketing the said products, the accompanying pamphlets for both RG & GL highlighted a common tag line An ounce prevention is better than a pound of cure. In respect of RG, the claim was made that the commodity contains more than 200 active elements divided into three categories consisting 30% water soluble elements, 65% organic soluble elements and 5% volatile elements. The contents were indicated as Polysaccharides, Organic germanium, Adenosine, Triterpenoids, Ganoderic Essence, Protein, Fibre. Nowhere in these pamphlets was a claim made that they were ayurvedic medicines, or for that matter that they had any ayurvedic preparations. The pamphlets also do not make any claim that the items are Ayurvedic preparations. On the other hand, it was only claimed that in respect of RG the contents were Ganoderma Lucidum harvested exactly the 100th day of growth and in case of GL that the product was Myceilum of Ganoderma Lucidum harvested after 21 days of growth. Scanned copies of these relevant pamphlets are reproduced below :
This space is purposely put blank.
11.5 Interestingly, pursuant and possibly due to the investigations, these claims underwent a transformation. The new pamphlets accompanying the products were redesigned to make the claim that RG and GL were Ayurvedic Proprietary Medicines and Ayurvedic Preparations. Still, the pamphlets do not convey that it cures any specific disease. The scan of the redesigned pamphlets are reproduced below :
This space is purposely put blank.
11.6 Evidently, the appellants have redesigned these pamphlets to counter the department's finding that the goods were not sold as ayurvedic medicine but only as a food supplement. Notwithstanding all these efforts, it will be seen that the pamphlets of both RG and GL only claim to help to improve a body functions - systematic & metabolic corrective", in the case of RG and helps to improve your body functions restore & metabolic corrective, in the case of GL.
11.7 Evidently, the appellants were taking great pains to emphasize the distributors that they should sell the items as food supplements only and not to misrepresent it as a drug. From the facts on record, it also emerges that the statements of various stockists had been taken who have admitted that the impugned goods were sold only as food supplement. Appellants have themselves registered the trade mark REISHI and GANO with the Trade Mark Registry under the category of food supplements even while they have obtained license for manufacture of Ayurvedic drugs. All these facts go to prove that inasmuch as in common parlance test, the impugned goods are definitely products sold and known only as food supplements and certainly not as a drug and most certainly not as an ayurvedic drug.
11.8 Thus, notwithstanding the concerted efforts by the appellant to reposition their product as an ayurvedic medicine, we find that in common parlance, for the general public and especially for the users, they still remain to be known only as a food supplement for general improvement of health, vigour etc. 11.9 While arriving at this inescapable conclusion, we also draw sustenance from the ratio of the Hon'ble Apex Court in the landmark judgment in CCE Nagpur Vs Shree Baidyanath Ayurved Bhawan Ltd. [2009 (237) ELT 225 (SC)]. Para 38 of the judgment makes for illuminating reading :
"38.?We endorse the view that in order to determine whether a product is covered by cosmetics or medicaments or in other words whether a product falls under Chapter 30 or Chapter 33 : twin test noticed in Puma Ayurvedic Herbal (P) Ltd., continue to be relevant. The primary object of the Excise Act is to raise revenue for which various products are differently classified in New Tariff Act. Resort should, in the circumstances, be had to popular meaning and understanding attached to such products by those using the product and not to be had to the scientific and technical meaning of the terms and expressions used. The approach of the consumer or user towards the product, thus, assumes significance. What is important to be seen is how the consumer looks at a product and what is his perception in respect of such product. The users understanding is a strong factor in determination of classification of the products. We find it difficult to accept the contention of the learned senior counsel for Baidyanath that because DML is manufactured exclusively in accordance with the formulae described in Ayurveda Sar Sangrah which is authoritative text on Ayurvedic system of treatment and is notified in the First Schedule to the Drugs and Cosmetics Act, 1940 and the said product is sold under the name Dant Manjan Lal which is the name specified for the said product in Ayurveda Sar Sangrah, the common parlance test is not applicable. As a matter of fact, this contention is based on misplaced assumption that Chapter Sub-heading 3003.31 by itself provides the definition of Ayurvedic Medicine and there is no requirement to look beyond."
12.0 Whether the ingredients of the impugned goods are mentioned in the authoritative books of Ayurveda?
12.1 No doubt, the appellants have claimed that the ingredients in respect of RG are Ganoderma (Chatrakh) and Shiitake (Bhuchatra) and in respect of GL also, ingredient Shiitake (Bhuchatra) has been shown and another ingredient Ganomycelium has also been indicated as Chatrakh. To counter this, Revenue have obtained a statement from Dr. D.Athisayaraj, Head of Section of Siddha/Auurveda, Aringnar Anna Hospital of Indian Medicine who has deposed that Bhuchatra does not mean Shiitake and he does not know botanical name for Ganoderma Lucidum and Ganoderma Mycelium. In cross examination, Dr. Athisayaraj stated he has read the original text of Ayurvedic medicine and the name of Chatrakh and Bhuchatra are available in olden times as well as modern times. Although the appellants have produced an articulation on the issue by Dr. K.S.Viswanatha Sharma as already found herein above, that write up do not categorically state that the impugned products are Ayurvedic medicines.
12.2 It is also not disputed that Dr. D. Athisaya Raj, Head of Siddha, Ayurvedic Department, Arignar Anna Hospitals of Indian Medicine who had earlier recommended classification of RG and GL capsules as ayurvedic proprietary medicines but later had admitted that his recommendation was incorrect since it was based on bogus clinical reports. It further appears that Dr. D. Athisaya Raj was cross examined before the adjudicating authority, on which occasion also, he deposed that he did not consider 'Ganoderma' and 'Shiitake' as ayurvedic medicines. It also emerges that in response to a letter from the Director of Drugs Control, Tamil Nadu, the said HOD, Ayurveda had opined as under :
"These items (Chatraka & Buchatra) are basically food supplements may be used to give therapeutic value with some other drug to be given for identified diseases and that these items cannot be used independently to cure any disease"
12.3 One of the documents relied upon by the appellant in their defence while espousing their case is a booklet called Ganotherapy Ganoderma (Linghzhi) as brought out in para (7.1) herein above, Dr. Lim Siow Jin is the Chief Executive Officer and Director of Daeshan Trading (India) Ltd., who is the appellant in E/3662005. From the statement of Dr. Jin, which was never retracted, it has been admitted that there is no difference between RG & GL in capsules (goods under consideration) and RG and GL powder imported from Malaysia. Dr. Jin has also stated that there was no change in nutritional contents of the products even when their classification was changed as ayurvedic medicines. In a statement dt. 18.9.2002, Dr. Jin deposed that the classification of RG and GL products as Ayurvedic Proprietary Medicines was taken on the advice of some consultants; that the name of Chatrakh and Bhuchatra was mentioned in the labels of their RG and GL products as he was told that they are the Sanskrit words for mushrooms; however he has gone through the literature, texts personally to verify the names. Dr. Jin further admitted that the said products are marketed only for functional proprieties and not for any specific therapeutic purpose of diseases.
12.4 Even in respect of purported addition of shitake in the product Shri D. Prem Kumar, Assistant Factory Manager, in his statement dt. 18.1.2003, has admitted that there are no methods for analysis available with the appellant for identification of Shitake.
Shri D.Premkumar also admitted that appellants have no pharmacopoeial standards for the products RG and GL.
12.5 This being so, we are not able to find any infirmity in the finding of the adjudicating authority in para 57.3 of the impugned order that as the ingredients viz. Ganoderma and Shitake are not mentioned in the authoritative medicine texts prescribed in Schedule I of the Drugs & Cosmetics Act, 1940, the goods in question also failed to pass the second test propounded by the Apex Court.
12.6 Much reliance is placed by the appellant on the fact that drug authorities of TN and Pondicherry have issued drug licence for RG and GL capsules classified as APM. It further appears that the drug licence obtained from Food and Drugs Administration (FDA), Pondicherry was based on clinical report purported to have been given by one Dr. P. Selvakumar, Asst. Medical Officer, Nagapattinam. This clinical report has turned out to be a forged one. In a statement, Dr. P.Selvakumar has unequivocally stated that no such clinical report has been issued by him and that it was a forged one and that it was not signed by him. Dr. P.Selvakumar has also affirmed that Ganoderma is not figuring in Ayurvedic Text. We are unable to fathom how the appellant had no knowledge of the fraudulent nature of the clinical report submitted to the FDA on which basis only Drug license was issued. In enquiries extended to the drug licensing authorities, the Asst. Commissioner, FDA Pondicherry has informed that grant of licence for APM for RG and GL capsules was done on the basis of drug licence granted by the Drug Control Authority, Tamil Nadu. The said Asst. Commissioner, FDA, Pondicherry, admitted that he had not verified the RG and GL formula with the prescribed ayurvedic texts. As discussed earlier, the licence issued by FDA Pondicherry was based on forged clinical trials and the recommendation of Dr. D. Athisaya Raj which was subsequently retracted.
12.7 In any case, based on the information as garnered by Revenue and conveyed in the written submissions dt. 22.6.2017, the said drug license has been cancelled by the FDA Pondicherry. The relevant portion of the submissions filed by Revenue read as follows :
"In this regard, an enquiry was made with the Department of Drugs Control, Government of Pondicherry in the case of license issued to M/s.DXN Herbal Manufacturing India Ltd. and its reply dated 18.5.2017 (copy enclosed) as follows :
"Whereas it is to inform that from the available records, it is ascertained that the firms licences has been renewed only from 01.01.2012 to 31.12.2014 and it has applied for renewal on 06.11.2014 and thereafter it was not renewed as the firm did not comply with the norms of Schedule M of Drugs and Cosmetics Act and Rules for the memo vide No.DDC/Drugs/U.II/2015/2128 dt.30.03.2015"
With regard to M/s.Roshan Commercial Traders Pvt. Ltd. and M/s.Daeshan Trading India Pvt. Ltd., enquiry was made with the Director of Drugs Control, Tamil Nadu. It was learned from them that licensing pertaining to Indian Medicine has been separated from Director of Drugs Control and has been vested with a newly created State Licensing Authority (Indian Medicine) by a Government Order dated 07.11.2007. They relied vide an Email that no manufacturing licence was given to ?
(1) M/s.Roshan Commercial Traders Pvt. Ltd.
(2) M/s.Daeshan Trading India Pvt. Ltd.
From the above it is obvious that the above mentioned companies do not hold valid drug licence as on today."
12.8 Thus the license has not been renewed as the firm did not comply with the norms of the Schedule M of the Drugs and Cosmetics Act and Rules vide No.DDC/Drugs/U.II/2015/2128 dt.30.03.2015. Revenue has also informed in the written submissions that licence pertaining to Indian medicine has been separated from Director of Drugs Control and has been vested with newly created State Licensing Authority (Indian Medicine) by a Government Order dt. 7.11.2007. It is further confirmed that no manufacturing licence was given either to Roshan Commercial Traders Pvt. Ltd. or Daeshan Trading India Pvt. Ltd. from 2007 till date.
12.9 From the facts on record, in addition it emerges that the second clinical trial report which was submitted for issue of Drug Licence was in the name of Dr. S.S. Raviselvan, AMO, Aringnar Anna Government Hospital, Chennai. It emerges that the said Dr. Raviselvan though admits having issued such report nonetheless also admitted that the report was issued at the request of Daeshan without conducting any clinical test. Appellant did not seek examination of any of these two doctors. At the cost of repetition, it is to be noted that even Dr. Athisayaraj has confessed that he had wrongly recommended issuance of drug license to the appellant for manufacture of the impugned products as Ayurvedic medicine. We find from the record that Dr. Athisayaraj even wrote to the Drug Control Authority to cancel the license. The Honble Apex Court has observed in various judgments that "Fraud vitiates everything. Such view was reiterated by the Honble Apex Court in New India Assurance Co. Vs Kamla & Others - 2001 (4) SCC 342 and State of U.P & Others Vs Ravindrakumar Sharma & Others. SLP (C) No.8880/2011 dated 03.02.2016.
12.10 The Drug Licence by itself cannot be the basis for classification. The classification for the purpose of collection of revenue is to be on the basis of Excise / Customs legislations. The primary object of Excise Act being to raise revenue, the classification of the product so as to determine the rate of duty has to be considered independent from the Drugs and Cosmetics Act, 1940 and like legislations. The Honble Apex Court in the case of Shree Baidyanath Ayurved Bhawan Ltd. (supra) opined in para 41 as under :
"41.?True it is that Section 3(a) of the Drugs and Cosmetics Act, 1940 defines Ayurvedic, Sidha or Unani Drug but that definition is not necessary to be imported in New Tariff Act. The definition of one statute having different object, purpose and scheme cannot be applied mechanically to another statute. As stated above, the object of Excise Act is to raise revenue for which various products are differently classified in New Tariff Act."
Based on the discussions herein above, we are therefore of the considered opinion that the impugned goods in question cannot be claimed to be Ayurvedic Proprietary Medicines for the purpose of classification in the Central Excise Tariff Act.
13. The next issue is where then would these goods be correctly classified?
13.1 Revenue have contended that said goods merit classification under sub heading 2108.99 of the CETA as food supplement requiring assessment of the goods under Section 4A for the purpose of payment of duty of excise in view of Notification 13/2002-CE (NT) dt. 1.3.2002 notifying the goods falling under that sub heading for assessment under Section 4A. In this regard, entries under heading 2108 of the CET, are reproduced for ready reference :
Heading No. Sub-heading No. Description of goods Rate of duty (1) (2) (3) (4) 21.08 Edible preparations, not elsewhere specified or included 2108.10
- Preparations for Lemonades or other Beverages intended for use in the manufacture of Aerated Water 16% 2108.20
- Sharbat 16% 2108.30
- Prasad or Prasadam Nil 2108.40
- Sterilised or Pasteurised Miltone Nil
- Other:
2108.91
-- Not bearing a brand name Nil 2108.99
-- Other 16% 13.2 As per chapter Note 9 (b) of Chapter 21 of the CETA 1975, the Heading No. 21.08, inter alia, includes "preparations for use, either directly or after processing (such as cooking; dissolving or boiling in water, milk or other liquids), for human consumption". From the HSN Chapter Note 16 of the Harmonised System of Nomenclature (HSN), it is indicated that "Preparations often referred to as food supplements, based on extracts from plant, fruit concentrates, honey, fructose etc. and containing added vitamins and sometimes minute quantities of iron compounds often put up in packagings with indication that they maintain general health or well being" would be included within that entry "FOOD PREPARATIONS NOT ELSEWHERE SPECIFIED OR INCLUDED. HSN further goes on to elucidate that such similar preparations however intended for the prevention of treatment of diseases or ailments are excluded from that entry and would feature in 30.03 or 30.04.
13.3 From the facts and the findings and discussions herein above, both the impugned goods fail both the twin tests for being considered as Ayurvedic Medicament. On the other hand, from application of both these tests, the indubitable conclusion that has resulted is that the products in question are nothing but a food supplement promoted mainly only for general health or well being and therefore meriting classification only under 2108 of the CETA and more specifically in 2108.99 as it stood at the appointed time, and assessed accordingly under Section 4A of the Act for discharge of duty liability. The issue of classification is thus held in favour of Revenue and against assessee. So ordered.
14. The Ld. Counsels appearing for appellants have also argued on the ground of limitation. The facts as narrated above would show that appellants had imported the products rightly classifying them as food supplements. Later, they have obtained drug licence which was obtained on forged / incorrect clinical trial reports. The classification of a product cannot change on obtaining a drug licence when the character and nature of the product remains the same. Thus the intention of changing the classification and claiming the products to be Ayurvedic Proprietary Medicines was only to evade payment of duty. The appellants have consciously declared on the labels that the products contain Chatrakh & Bhuchatra as an endeavour to create an impression that the products are different from that what was earlier imported by them. The facts and evidence placed in the case of E/331/2006 to E/405/2006 would prove otherwise. It is categorically established that the bulk powder imported was made into capsules, repacked and relabelled by M/s.Roshan. The period involved in these appeals is 2/2002 to 3/2002 whereas the period involved in appeals E/365/2005 to E/369/2005 is March 2002 to July 2002. But for the investigation conducted by department, the misdeclaration and undervaluation would not have come to light. Hence in our view, the invocation of extended period is not without grounds. The argument of the appellants on this count fails.
15. Having found that the invocation of extended period is justified, the provisions of Section 11AC will statutorily require to be invoked and hence penalty equal to the duty or differential duty determined will necessarily have to be imposed. In arriving at this conclusion, we draw sustenance from the ratio laid down by the Honble Apex Court in the landmark judgment of UOI Vs Dharamendra Textile Processors 2008 (231) ELT 3 (SC) and the subsequent judgment in UOI Vs Rajasthan Spinning & Weaving Mills 2009 (238) ELT 3 (SC). Accordingly, we hold that appellants M/s.DXN Herbal Manufacturing cannot escape the penalty of Rs.2,03,04,544/- imposed on them under Section 11AC of the Central Excise Act, 1944 as ordered by the adjudicating authority. The said penalty is therefore upheld.
16. Coming to penalty of Rs.1 lakh imposed under Rule 25 of the Central Excise Rules, 2002 on DXN, as the equal penalty under Section 11AC has already been imposed, we hold that the same will meet the ends of justice and further penalty on DXN under Rule 25 is uncalled for. The same is therefore set aside.
17. Thus in respect of Appeal E/365/2005 filed by DXN, Duty demand with interest and Penalty imposed under Section 11AC is upheld. Penalty under Rule 25 of Central Excise Rules, 2002 is set aside.
18. Coming to other penalties in respect of first batch of appeals E/366-369/2005, imposed under Rule 26 of Central Excise Rules, 2002, Rs.25 lakhs each on Dr. Lim Siow Jin (E/366/05), M/s.Daeshan Trading (India) Pvt. Ltd. (E/367/05) and M/s.Roshan Commercial Traders (P) Ltd. (E/368/2005), we are of the view that this penalty is too high and there is sufficient reason to cause reduction of penalty to Rs.5,00,000/- each (Rupees Five lakhs each). Penalty of Rs.10 lakhs imposed under Rule 26 of CER 2002 on Shri K. Thevaraja (E/369/2005) is reduced to Rs.1,00,000/- (Rupees one lakh only). So ordered.
19. Adjudicating authority has ordered confiscation of RG & GL capsules in bottles totally valued at Rs.15,44,70,060/- in paras 5, 6 & 7 of the impugned order. Evidently, these goods have been detained / seized at the warehouse / branch office of the appellants. However, no evidence has been put forth by the department to indicate that DXN kept these goods in the warehouse with the expressed intent of removing them clandestinely. There is also no allegation that clearance of these goods have not been accounted for in the concerned records. At the most, if these goods had not been seized, they would have possibly been removed as APM, and hence only resultant short payment of duty would have arisen. However, in the circumstances, confiscation of these goods and imposition of huge redemption fines for their release are certainly an overkill. For these reasons, the order of confiscation and redemption fine in paras, 5, 6 & 7 of the impugned order cannot sustain and is therefore set aside.
20. In respect of second batch of appeals E/331-334, 404,405/2006, in Appeal E/331/2006 for the reasons as discussed above, the classification of impugned products under CETA 2108.99 and their assessment under Section 4A of the Act, for discharge of duty liability is upheld. The differential duty demand of Rs.53,79,870/- on clearances of RG & GL as also the demand of duty demand of Rs.14,20,521/- in respect of inputs removed as such are upheld. As we find that the ingredients of Section 11AC ibid are satisfied the equal penalties of Rs.53,79,870/- and Rs.14,20,521/- respectively imposed are sustained. The penalty of Rs.15 lakhs imposed under Rule 25 of Central Excise Rules, 2002 and penalty of Rs.5 lakhs imposed under Rule 13 of Cenvat Credit Rules, are in our view, unwarranted in the light of the penalties imposed under Section 11AC ibid.
21. For the same reasons discussed herein above, we find penalties on the other persons requires interference being on the higher side. We order reduction of penalty imposed under Rule 25 of CER 2002 on the other persons as follows :
Appeal No. Appellant Penalty imposed under 26 of CER 2002 (Rs.) Penalty reduced to (Rs.) E/332/2006 Dr. Lim Siow Jin, CEO&Director 10,00,000/-
1,00,000/-
E/333/2006 Daehsan Trading (India) Pvt. Ltd.
10,00,000/-
1,00,000/-
E/334/2006 K. Thevaraja, Director 10,00,000/-
1,00,000/-
E/404/2006 A.M. Sulaiman, Managing Partner 10,00,000/-
1,00,000/-
E/405/2006 The Madras Pharmaceuticals 10,00,000/-
1,00,000/-
23. In the result, the appeals are disposed in above terms. The Misc. Application No.40157/2017 for change of cause title filed by M/s.DXN Herbal Manufacturing (India) Private Limited to change their name as M/s.DXN Manufacturing (India) Private Limited is allowed. Since the appeals are disposed, EH petitions filed by Revenue also get disposed of.
(pronounced in court on 08.11.2017) (Madhu Mohan Damodhar) (Sulekha Beevi C.S) Member (Technical) Member (Judicial) gs 64 Appeal Nos.E/Misc/40157/2017 & E/EH/40208-40212/2017 & E/365-369/2005 E/331-334,404,405/2006