CESTAT Grants Duty Exemption to HIV-Viral Load Test Kits, Recognizes Them as Life-Saving Diagnostic Tools
Pranav B Prem
In a significant ruling that promotes a progressive and purposive interpretation of exemption notifications, the New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that HIV-Viral Load (HIV-VL) test kits qualify as life-saving diagnostic kits and are hence eligible for exemption from basic customs duty (BCD), countervailing duty (CVD), and liable to only 5% IGST under the relevant notifications.
The Tribunal, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), delivered its judgment in an appeal filed by M/s Cepheid India Private Limited, the Indian subsidiary of the California-based Cepheid Group, which is engaged in the trading of molecular diagnostic testing equipment, test cartridges, and reagents under the trade names GeneXpert® and Xpert®.
Background of the Dispute
The dispute arose in relation to goods imported by the appellant between August 2016 and April 2021 through 85 Bills of Entry. The appellant had claimed exemption from BCD and CVD on HIV-VL test kits under Notification Nos. 12/2012-Cus. and 50/2017-Cus., along with concessional IGST @5% under IGST Rate Notification No. 1/2017, citing that the kits are life-saving and used in the treatment and monitoring of HIV. However, the Principal Commissioner of Customs, New Delhi rejected this claim, stating that the test kits were not for the detection of “HIV antibodies,” as specified in the exemption lists, but for detecting HIV viral load — and thus not covered under the notification.
The declared value of the goods was also rejected under Rule 12 of the 2007 Customs Valuation Rules, and re-determined under Rules 4, 5, and 9, leading to a duty demand of over Rs. 3.55 crores, interest under Section 28AA, and penalty under Section 114A of the Customs Act, 1962.
CESTAT’s Findings on Exemption
Addressing the central issue of whether the HIV-VL test kits qualify for exemption, the Tribunal traced the evolution of HIV testing technologies and noted that while the exemption notifications refer to “diagnostic kits for detection of HIV antibodies,” the HIV-VL kits play an equally vital role in the detection and prognosis of the disease.
The Tribunal extensively referred to national HIV guidelines, WHO protocols, import licenses, and product catalogues of the appellant. The Tribunal observed: “These kits not only detect the presence of HIV infection, but being more sensitive and accurate, are used for regular monitoring of the spread of HIV infection in the body… They help determine the failure of the first course of treatment and enable switching to a different treatment plan.”
Importantly, it held that mere detection of HIV antibodies is not sufficient for effective treatment and that technological advances such as Nucleic Acid Amplification Tests (NAAT) and RT-PCR-based viral load tests are now integral to managing the disease.
Relying on Supreme Court rulings in Lekhraj Jessumal & Sons and Ethnor Ltd [1996(82) E.L.T. 162 (S.C.)], the Tribunal stated that customs exemptions should not be interpreted in a static manner, especially in the context of life-saving technologies. The object behind the exemption — curbing the spread of HIV and ensuring access to affordable healthcare — must guide its interpretation.
Tribunal’s View on Valuation
The Tribunal also examined the valuation issue arising from the alleged under-invoicing due to the relationship between the appellant and its foreign suppliers. The valuation dispute had initially been taken up by the Special Valuation Branch (SVB), which suggested a uniform loading of 93.93% on declared prices. However, the Principal Commissioner, in the impugned order, adopted a range of loading percentages from 0% to 822% across different categories of goods, relying on data and Bills of Entry not referenced in the original Show Cause Notice.
CESTAT held that this approach violated the principles of natural justice. The SVB report, which was heavily relied upon, had not been supplied to the appellant, and the adjudicating authority travelled beyond the scope of the Show Cause Notice by applying varying loading rates without prior notice.
The Bench further noted that the valuation adopted failed to properly apply Rules 4, 5, and 9 of the 2007 Valuation Rules, and also failed to provide reasonable adjustments for commercial level and quantity differences, as required under the law.
Verdict
Summing up its findings, the Tribunal held that:
The HIV-VL test kits imported by Cepheid India qualify as life-saving diagnostic kits and are eligible for full exemption from BCD and CVD under Notifications 12/2012-Cus. and 50/2017-Cus.
The kits are also subject to only 5% IGST, as listed in List 1 of the IGST Rate Notification.
The re-determination of assessable value by the Principal Commissioner was procedurally flawed and violated the principles of natural justice.
As a result, the impugned order was set aside and the appeal was allowed.
Appearance
For Appellant/Assessee: Adv. Rohan Shah
For Respondent/Department: Adv. S.K. Rahman
Cause Title: M/s Cepheid India Private Limited v. The Principal Commissioner of Customs
Case No: Customs Appeal No. 52186 OF 2022
Coram: Justice Dilip Gupta [President], P.V. Subba Rao [Technical Member]
