Dietary Supplements Not Eligible For Area-Based Excise Exemption Meant For Pharmaceuticals: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that dietary food supplements cannot be treated as pharmaceutical products and are not eligible for the area-based excise duty exemption meant for medicines.

Orchid Bio-Tech Pvt. Ltd., the appellant company, cleared goods without paying central excise duty by claiming exemption under Notification No. 49/2003-CE. In its declaration to the department, the company stated that it was manufacturing pharmaceutical products classifiable under Chapter 30 of the Central ExciseTariff.

Acting on specific information, departmental officers visited the company’s factory on 17 March 2015. During the inspection, it was found that the company was actually manufacturing dietary food supplements such as tablets, capsules, syrups, and drops. These products were manufactured under licences issued by food authorities and not under drug licences.

The company had classified these products as pharmaceuticals and cleared them without payment of duty. After investigation, a show cause notice dated 15 July 2016 was issued. The notice proposed classification of the dietary supplements under tariff heading 21069099, denial of exemption under Notification No. 49/2003-CE, recovery of unpaid duty along with interest, and imposition of penalties on the company and its Plant Head.

The Joint Commissioner confirmed the demand and penalties. On appeal, the Commissioner (Appeals) upheld the order while reducing the penalty imposed on the Plant Head. Aggrieved by this decision, the company approached CESTAT.

The company’s counsel argued that the order violated principles of natural justice. It was argued that the products were nutritional preparations and were not excluded by Chapter Note 1(a) of Chapter 30. The company also argued that the goods could not be classified under heading 2106, that the exemption was rightly claimed, and that there was no intention to evade duty.

It further challenged the invocation of the extended period of limitation and the imposition of penalty.

The revenue counsel argued that the company was fully aware that dietary supplements are not pharmaceutical products. It relied on Chapter Note 1(a) of Chapter 30, which clearly excludes food supplements from the scope of pharmaceuticals.

The revenue counsel also relied on the food licences obtained by the company and the statement of the Plant Head to show that the company knowingly mis-declared the goods to wrongly claim exemption and avoid payment of duty.

The two-member bench comprising Ms. Binu Tamta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member) observed that Chapter Note 1(a) to Chapter 30 clearly excludes food supplements, except those meant for intravenous administration.

The tribunal explained that a complete reading of the chapter note leaves no doubt that dietary supplements cannot be treated as pharmaceutical products. The tribunal also observed that the company’s conduct showed clear intent to mis-declare the goods.

The tribunal held that the goods were correctly classifiable under heading 21069099, were not eligible for exemption under Notification No. 49/2003-CE and that the extended period of limitation and penalty under Section 11AC were rightly invoked. The appeal was dismissed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates