Dietary Supplements Not Pharma Products, Not Eligible For Area-Based Exemption; CESTAT Delhi Upholds ₹1.63 Crore Excise Demand
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that dietary supplements cannot be classified as pharmaceutical products and are therefore not eligible for area-based excise exemption meant for pharmaceutical goods. Upholding the demand of ₹1.63 crore along with interest, the Tribunal also sustained the imposition of penalty equal to the duty amount on the company and a personal penalty on the plant head, dismissing the appeal filed by the assessee.
The Bench comprising Smt. Binu Tamta, Judicial Member, and Shri P.V. Subba Rao, Technical Member, was hearing an appeal filed by M/s Orchid Bio-Tech Pvt. Ltd. against an order passed by the Commissioner (Appeals), Dehradun, which had affirmed the adjudication order confirming the duty demand, interest and penalties. The appeal related to the period from July 2011 to March 2015.
The appellant was engaged in the manufacture of dietary supplements at its unit located in Uttarakhand and cleared the goods without payment of central excise duty by claiming the benefit of area-based exemption under Notification No. 49/2003-CE. The appellant classified the dietary supplements under Central Excise Tariff Heading (CETH) 3003, treating them as pharmaceutical products eligible for exemption. Acting on intelligence inputs, the Department conducted an investigation and found that the appellant was manufacturing dietary food supplements under licences issued by the Food Safety authorities, but had not paid excise duty on their clearances.
The Department alleged that dietary supplements were specifically excluded from Chapter 30 of the Central Excise Tariff by virtue of Chapter Note 1(a) and were correctly classifiable under CETH 21069099. Since goods falling under this tariff heading were not covered by Notification No. 49/2003-CE, the appellant was not entitled to exemption. Accordingly, a show cause notice was issued proposing denial of exemption, recovery of ₹1,63,92,750 as duty along with interest, and imposition of penalties on the company as well as on its plant head.
The adjudicating authority confirmed the demand and imposed a penalty equal to the duty on the company, along with a personal penalty of ₹5 lakh on the plant head, which was later reduced to ₹2 lakh by the Commissioner (Appeals). Aggrieved, the appellant approached the Tribunal.
Before the Tribunal, the appellant contended that dietary supplements were nutritional preparations and were not excluded by Chapter Note 1(a) of Chapter 30. It was argued that the goods were eligible for exemption under Notification No. 49/2003-CE and that the duty, if any, ought to have been calculated on the basis of MRP. The appellant also challenged the invocation of the extended period of limitation and the imposition of penalties, contending that there was no intention to evade duty.
The Department, opposing the appeal, submitted that there was no dispute about the nature of the goods as dietary supplements. It was argued that Chapter Note 1(a) to Chapter 30 expressly excludes food supplements from the scope of pharmaceutical products, except nutritional preparations for intravenous administration. The Department further pointed out that the appellant had obtained licences from the Food Safety authorities for manufacture of dietary supplements, clearly indicating that the goods were food products and not medicaments. It was also submitted that the appellant had mis-declared the nature of the goods while filing declarations to claim exemption, thereby justifying invocation of the extended period and imposition of penalties.
After examining the records, the Tribunal held that the classification adopted by the Department was correct. It noted that Chapter Note 1(a) to Chapter 30 categorically excludes “food supplements” from the scope of pharmaceutical products, except nutritional preparations meant for intravenous administration. The Tribunal observed that the appellant had selectively reproduced part of the chapter note while omitting the crucial qualifying words, which, when read in full, made it clear that dietary supplements did not fall under Chapter 30 at all.
The Tribunal further observed that the appellant was fully aware that the dietary supplements manufactured by it were not pharmaceuticals, as evidenced by the fact that separate licences were obtained from the Food Safety authorities. It held that the conduct of the appellant, including declaring the goods as pharmaceutical products to avail exemption, clearly indicated an intention to evade payment of duty. On this basis, the Tribunal upheld the invocation of the extended period of limitation.
On the issue of duty calculation, the Tribunal noted that the appellant had failed to provide any alternative computation or explain what the correct duty liability ought to have been. In the absence of any such material, the contention regarding incorrect calculation was rejected.
The Tribunal also upheld the imposition of penalty equal to the duty amount under Section 11AC of the Central Excise Act, holding that the same was justified once suppression and mis-declaration with intent to evade duty were established. The personal penalty imposed on the plant head was also sustained. In view of the above findings, the CESTAT Delhi upheld the confirmation of duty demand of ₹1.63 crore along with interest and penalties, and dismissed the appeal filed by the assessee, holding in favour of the Revenue.
Appearance
For Respondent: Mr. Bhagwat Dayal (Authorized Representative)
Cause Title: Orchid Bio-Tech Pvt. Ltd. vs. Commissioner, CGST, Dehradun
Case No: Excise Appeal No. 51847 OF 2021
Coram: Smt. Binu Tamta, Judicial Member, Shri P.V. Subba Rao, Technical Member
