2016(05)LCX0122

IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE

S/Shri M.V. Ravindran, Member (J) and Ashok K. Arya, Member (T)

Lgc Promochem India Pvt. Ltd.

Versus

COMMR. OF CUS. & S.T., BANGALORE

Final Order Nos. 20357'-20360/2016, dated 20-5-2016 in Appeal Nos. C/23377-

Cases Quoted -

Akbar Badruddin Jiwani v. Collector - 1990(02)LCX0057 Eq 1990 (047) ELT 0161 (S.C.) - Referred [Para 4]
Damodar J.Malpani v. Collector - 2002(09)LCX0203 Eq 2002 (146) ELT 0483 (S.C.) - Referred [Para 4]
Fitwell Fastner (India) Pvt. Ltd. v. Collector - 1993(07)LCX0050 Eq 1993 (068) ELT 0050 (Cal.) - Referred [Para 4]
Hotel Leela Venture Ltd. v. Commissioner - 2009(01)LCX0007 Eq 2009 (234) ELT 0389 (S.C.)- Referred [Para 5]
Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner- 1991(08)LCX0031 Eq 1991 (055) ELT 0437 (S.C.) - Referred [Para 5]
Motiram Tolaram v. Union of India -1999(08)LCX0353 Eq 1999 (112) ELT 0749 (S.C.) - Referred [Para 5]
Opal Exports Pvt. Ltd. v. Collector - 1991(03)LCX0034 Eq 1992 (060) ELT 0232 (Cal.) - Referred [Para 4]
Unipatch Rubber Ltd. v. Commissioner - 2007(11)LCX0439 Eq 2011 (272) ELT 0340 (S.C.)- Referred [Para 4]
United Offset Process Pvt. Ltd. v. Collector - 1998 (038) ELT 0568 (S.C.)- Referred [Para 4]
Witco Match Works v. Union of India - 1981(11)LCX0004 Eq 1983 (012) ELT 0345 (Mad.) - Referred [Para 4]

Advocated By -

S/Shri D.B. Shroff, Sr. Advocate, Ms. Rukamani
Menon, Kir an S. Javail and Laxminarayan, Advocates, for the Appellant.
Shri P.R.V. Ramanan, Special Counsel, for the Respondent.

[Order per : M.V. Ravindran, Member (J)]. -

All these appeals are directed against Order-in-Original No. BLR-CUSTM-000-COM-024-14-15, dated 30-9-2014. Since all these appeals are challenging the findings arising out of the same Order-in-Original and are interconnected, they are being disposed of by a common order. M/s. LGC Promochem India Pvt. Ltd. (hereinafter referred to as main appellant), is contesting the demand of duty and also the confiscation order by the adjudicating authority with an option to redeem the goods on payment of fine, interest on the demand of duty and penalties imposed while other appel-lants are contesting the penalties imposed on them by the adjudicating authority under the Customs Act, 1962.


2. The relevant facts that arise for consideration, after filtering out unnecessary details are, the main appellant imported chemicals of various descriptions declared them as Pharmaceutical Reference Standards (PRS) classifying the same under Customs Tariff Item No. 3822 00 90 claiming the benefit of Notification No. 21/2002-Cus., dated 1-3-2002 (SI. No. 138, read with Condition No. 17) and Notification No. 12/2002-Cus., dated 17-3-2012 (SI. No. 164 read with condition No. 12). It is the case of the Department that the goods imported for the period prior to the issuance of show cause notice as well as one of the live consignments are Certified Reference Materials (CRM) and not complying with the Chapter Note 2(A) and 2(B) of Chapter 38. The imported goods are classifiable under respective Chapter Heading Numbers based upon the chemical composition and not under CTH 3822 as claimed by the main appellant. Investigation was taken up and various statements were recorded. On conclusion of the investigation, show cause notice was issued for demand of differential duty on the goods imported by the appellant and by denying the benefit of notifications, proposing to impose penalties on the appellants herein. The main appellant as well as other appellants contested the issue on merits as well as on limitation and justified their classification of the product under Chapter Heading No. 3822 and also claimed that their availment of benefit of notifications was correct. The adjudicating authority did not agree with the contentions raised and by the impugned order held as under :

ORDER
1 reject the classification of goods, imported by them vide the Bills of Entry as listed in Annexures (i)Al-ACC to A6-ACC (in respect of the clearances made at ICD Bangalore) to the show cause notice and the same should be reclassified under the respective chapter headings of the Tariff Act, as indicated in the said Annexures;

1 deny the benefit of exemption under Notifications (i) No. 21/2002-Cus., dated 1-3-2002 (SI. No. 138), and (ii) No. 12/2012-Cus., dated 17-3-2012 (SI. No. 164), as claimed by the importer in respect of the goods imported vide the Bills of Entry listed in the said Annexures Al-ACC to A6-ACC and Al-ICD to A6-ICD and confirm the demand of duty short paid amounting to Rs. 10,86,08,470/- (Rupees ten crores eighty-six lakhs eight thousand four hundred and seventy only) under Section 28(4)/proviso to erstwhile Section 28(1) of the Customs Act, 1962;

I confirm the demand of applicable interest on the duty short-paid as mentioned in (b) above under Section 28AA/erstwhile Section 28AB of the Customs Act, 1962;

I hold the goods valued at Rs. 290,01,56,557/- (Rupees two hundred ninety crores one lakh fifty-six thousand five hundred and fifty-seven only) {which are exclusive of the goods seized on 7-1-2014 valued at Rs. 27,27,783/-} imported vide the Bills of Entry listed in the said Annexures Al-ACC to A6-ACC and Al-ICD to A6-ICD liable for confiscation under Sec'ion 111(d) and (m) of the Customs Act, 1962;

(e) I order confiscation of the goods valued at Rs. 27,27,783/- (Rupees twenty-seven lakhs twenty-seven thousand seven hundred and eighty-three only) which were seized on 7-1-2014 from the importers premises under Section 111(d) and (m) of the Customs Act, 1962.



(f)
(8)

I impose a penalty equivalent to the duty confirmed in (b) above along with interest thereon as in (c) above on M/s. LGC Promochem India Pvt. Ltd., Bangalore under Section 114A of the Customs Act, 1962;

I impose a penalty of Rs. 3,00,00,000/- (Rupees three crores only) on M/s. LGC Promochem India Pvt. Ltd., Bangalore under Section 114AA of the Customs Act, 1962;

(h)
I impose a penalty of Rs. 40,00,000/- (Rupees forty lakhs only) and Rs. 60,00,000/- (Rupees sixty lakhs only) on Shri B. Suryanarayana Rao, Managing Director, M/s. LGC Promochem India Pvt. Ltd., Bangalore under Section 112 and Section 114 A A, respectively;

(i) I impose a penalty of Rs. 20,00,000/- (Rupees twenty lakhs only) and Rs. 30,00,000/- (Rupees thirty lakhs only) on the CHA M/s. New India Shipping Services, Bangalore under Section 112 and Section 114 A A respectively; and

(j) I impose a penalty of Rs. 2,00,000/- (Rupees two lakhs only) and Rs. 3,00,000/- (Rupees three lakhs only) on Shri S.S. Prasad, Partner M/s. New India Shipping Services, Bangalore under Section 112 and Section 114AA respectively.


Learned Sr. Counsel Shri D.B. Shroff and Ms. Rukmani Menon, Advocate appeared on behalf of the main appellant, Shri Kiran S. Javali and Shri Laxminarayan, Advocates appeared on behalf of the other appellants; and Shri P.R.V. Ramanan appeared as Special Counsel for the Revenue.


The Sr. Counsel for the main appellant after taking us through the show cause notice and the Order-in-Original draws our attention to the speech of the Finance Minister in respect of reduction of the effective duty on the reference standards. He submits that prior to 2003, the goods which were imported by the main appellant were considered as reference standards and concessional rate of duty was extended only if the goods are imported by the Central Drug Laboratory, Kolkata; subsequently, the said Notification No. 26/2003-Cus., dated 1-3-2003 was extended to all the importers by amending the entry and also the reference standards were substituted by an entry as "Pharmaceutical Reference Standards". It is his submission that the appellant herein had availed the benefit of said notification for almost 13 years. He would submit that the Customs authorities in 2013 started denying the benefit to the appellant only on the ground that these imported goods are not "Pharmaceutical Reference Standards" but are "Certified Reference Materials" and having not complied with the condition of Chapter Note 2(A) and 2(B) of Chapter 38 demanded the differential duty. It is his further submission, after taking us through the packing slip, commercial invoices and bills of entries filed by the main appellant that goods which are imported are nothine but reference stanHarHc the issue in detail, he would submit that the pharmaceutical goods manufacturers need to adhere to the standards of Pharmacopoeia either USP or BP or EP or IP and to ascertain whether the products manufactured by them are conforming to the standards or not, they use the reference samples sold by USP, BP, EP and IP convention. He would further submit that the purchasers of these reference standards used in HPLC (a High Performance Liquid Chromatography) by generating the chromatography of the reference standard and subsequently matching the same with the results of the final products manufactured by them. It is his further submission that the Department had accepted the classification of the imported goods under Chapter Heading 3822 for so many years and also extended the benefits of Notification. He would then take us through the Chapter Heading 3822 and submit that the said Chapter Heading squarely covers the products imported. He would submit that the reference to Chapter Note 2(A) of Chapter 38 by the adjudicating authority is incorrect as appellant never claimed the products as certified reference materials. He would then draw our attention to the HSN Explanatory Notes and submit that certified reference material is a different class of goods which requires certificate indicating the values of certified properties, methods used to determine these values and degree of certainty associated with each value and which are suitable for analytical, calibrating or recording purposes. Subsequently, he would take us through the catalogue of the products imported by them as forwarded by USP convention and submit that the labels in the products and the catalogue indicate that the products imported by the main appellant are not certified reference materials. It is his submission that the conclusion reached by the adjudicating authority that the main appellant had not produced any certificate as per the definition of the reference materials is totally incorrect inasmuch as the main appellant had not claimed product as certified reference material. He would submit that the reliance placed by the adjudicating authority on the invoices raised by European Directorate for Quality of Medicines to come to a conclusion that the goods imported by the appellant are nothing but certified reference material, is also misplaced as said European Directorate for Quality of Medicines subsequently amended the invoices and recorded in the invoices that the goods imported were "pharmaceutical reference materials"; that the adjudicating authority has incorrectly concluded that the reference material is special category of certified reference material. It is his submission that in the absence of any certificate as envisaged in Chapter Note No. 2(A) of Chapter 38, product cannot be classified as "certified reference materials". It is his further submission that according to Rules of interpretative rules of Customs Tariff, classification has to be determined on the basis of description in the Chapter Heading read with Chapter Notes and in the case in hand, the adjudicating authority has improperly applied the said rule. He would submit that the Apex Court in the cases of United Offset Process Pvt. Ltd. v. ACC - 1998 (038) ELT 0568 (S.C.) and Akbar Badruddin Jaiwani v. CC -1990(02)LCX0057 Eq 1990 (047) ELT 0161 (S.C.); has settled the law that definition of a particular expression if it is not given it must be understood in its popular or commonsense. He would then take us through the definition of a reference standard and certified reference material as per the training material prepared by European Directorate for Quality of Medicines and submit that both are different and the goods imported by the main appellant are nothing but reference standards. It is his further submission that the adjudicating authority himself had pointed out that on landing of the goods in India, the main appellant has as per the understanding of the product filed the classification. It is his submission that in the matters of classification, if the Department had a different view, it can at the most seek or direct the importer to produce additional documents which in this case was not done so, hence the extended period invoked for the demand of the differential duty is incorrect. It is his further submission that the observation of the adjudicating authority that the certificates were not found in the dockets containing bills of entry and supporting documents is an observation which is out of context as the goods when they were cleared by the import-ers were produced as per the examination report and was conducted as directed by the seniors and all the documents were given to the authorities. Tt is his submission that the Customs authorities, after ascertaining the propriety of all the documents produced before them accepted the contentions of the main appellant and cleared the goods by extending the benefit of the notifications which itself would mean that the documents were there and non-presence of such documents in the dockets is not to the knowledge of the appellant. He would then draw our attention to Final Order No. 21420 of 2015, dated 19-6-2015 of this Bench in the case of CHA whose licence was revoked in the very same issue and submit that the Bench had clearly held that there was no deliberate attempt to suppress the facts from the Department. He would then read Paragraph 36.8 of the Order-in-Original and submit that these findings are totally invariance with the submissions made by them. It is his submission that the adjudicating authority has justified the confirmation of the demand of extended period by recording that under self-assessment system no verification of documents is done by the officers. He would submit that these findings are incorrect and draws our attention to the various documents filed by them which indicate the queries raised by the Customs Officer, replies given by the main appellant and subsequent clearance of the imported goods. It is his further submission that the reliance placed by the adjudicating authority on the article appearing on net in Wikipedia is incorrect as it is a common knowledge that Wikipedia is not an authoritative material to come to a conclusion in respect of classification of the goods. It is also his submission that various other importers in Goa, Mumbai and Delhi are importing the very same products from the very same suppliers and declaring the same as pharmaceutical reference standards classifying the same under CTI 3822 00 90 claiming the benefit of notifications for reduced duty liability, which extended and the said imports are not questioned. He would draw our attention to the details furnished by them in respect of clearances that took place in Goa. It is his submission that it is a hostile discretion against the main appellant and relies upon the following decisions.

(i) Unipatch Rubber Ltd. v. Commissioner of Central Excise, Bhopal - 2007(11)LCX0439 Eq 2011 (272) ELT 0340 (S.C.)

(ii) Damodar J. Malpani v. Collector - 2002(09)LCX0203 Eq 2002 (146) ELT 0483 (S.C.)


(iii) Opal Exports Pvt. Ltd. v. Collector of Customs - 1991(03)LCX0034 Eq 1992 (060) ELT 0232 (Cal.)

(iv) Fitwell Fastner (India) Pvt. Ltd. v. Collector of Customs - 1993(07)LCX0050 Eq 1993 (068) ELT 0050 (Cal.)


(v) Witco Match Works, Kalugumalai and Am. v. Union of India and Anr. -1981(11)LCX0004 Eq 1983 (012) ELT 0345 (Mad.).

It is his submission that without prejudice to all the submissions made hereinabove, as an alternative submission, the products which are imported are also classifiable under Chapter No. 98 and more specifically Heading 9802 as these products are used as laboratory chemicals and are not exceeding the packages of 500 gram or 500 millilitres. He would submit that this submission of alternative classification was not accepted by the adjudicating authority without recording any findings on the same.


4.1 Learned Shri Kiran S. Javali and Shri Laxminarayan, Advocates for M/s. New India Shipping Services, (CHA), while adopting the arguments made by the learned Sr. counsel for the main appellant has specifically stated that there was no mistake on the part of the CHA and had always produced the documents as sought for by the assessing officers. It is the submission that there was no commission or omission on the part of the CHA as the main appellant has been importing these goods for more than 13 years and the classification as claimed by the main appellant during the relevant period was accepted by extending the benefit of notification. It is the submission that it cannot be said that the appellant CHA had the intention to derive unintended benefit to the main appellant. They would also rely upon the Final Order passed by this Bench in their own case on 19-6-2005 to support their claim that there was no serious omission and the Customs Broker Licence which was revoked was restored by the Tribunal.


5. The learned special counsel appearing for Revenue would take us through the Order-in-Original. It is his submission that the case of the Department is that the goods which were imported are "Certified Reference Material" and hence have to comply with the Chapter Note 2(A) and 2(B) of Chapter 38. It is the submission that the requirement of the Chapter Notes are not complied with hence the imported goods are classifiable under respective Chapter Heading Numbers based upon the chemical composition. He would then submit that the goods imported are not Pharmaceutical Reference Standards (PRS) but are Certified Reference Material (CRM) and are not eligible for the benefit of exemption Notification Nos. 21/2002 and 12/2012. It is the submission that if the importer wants to have the benefit of concessional rate of duty, then he has to produce certificate and copies of documents as per the condition. It is the submission that the adjudicating authority has recorded a finding that the importer or the main appellant has argued that they need not submit any certificates unless called for by the Department, is not a correct finding as it is a settled legal principle of interpretation that in order to avail the exemption notification, the appellant or the importer has to produce all the evidences which are in his support. He refers to Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner -1991(08)LCX0031 Eq 1991 (055) ELT 0437 (S.C.); Motiram Tolaram v. UOl - 1999(08)LCX0353 Eq 1999 (112) ELT 0749 (S.C.) and Hotel Leela Ventures Ltd. v. Commissioner of Customs (General), Mumbai - 2009(01)LCX0007 Eq 2009 (234) ELT 0389 (S.C). It is his submission that the main appellant produced certificates only for a six months period and it was not possible to correlate any of the certificates produced with invoices and bills of entry, hence the adjudicating authority has correctly recorded that the main appellant failed to discharge onus cast on them. It is his submission that the adjudicating authority has correctly recorded the finding that the goods imported were CRM as the dockets of the goods imported and cleared showed that the invoices described the goods as CRM whereas in two remaining cases the goods are described as laboratory reagents by the supplier and nowhere the documents mention that these goods are Pharmaceutical Reference Standards; it was not possible to verify it at the stage of adjudication, correct description of the goods with reference to the PRS, thus the importer's contention that the goods were PRS is unsubstantiated. It is his submission that in few cases, the supplier has described the goods as laboratory reagents, in that se the benefit of exemption would not be available as the notification benefits which are being claimed by the main appellant are in respect of "Pharmaceutical Reference Standards". It is his submission that the question as to whether the imported goods are CRM or PRS is not satisfactorily answered as the goods are identical then why in some cases certificates were apparently available and in some cases it was not so. He would then submit that the meaning of the word "Certified Reference Materials" and "Pharmaceutical Reference Standards" as per Wikipedia are different. It is his further submission that there is no specific entry for PRS in the Customs Tariff and Heading 3822 does not cover PRS by direct reference, hence PRS has to be either laboratory reagent or CRM. He would submit that the goods which are in question are in the nature of reference standards and material substances of known purity but are not compliant with the Chapter Notes of Chapter 38, hence classification has to be done according to the chemical composition of the said goods which is done so by the adjudicating authority either under Chapter 28 or Chapter 29. It is his further submission that the findings in respect of the wilful misstatement and suppression of facts are very clear as the main appellant has availed ineligible benefit of the notification by incorrectly describing the products as Pharmaceutical Reference Standards in the documents and as the main appellant was clearing the consignments under RMS, they were not assessed by the lower authorities and it was self-assessment. He would submit that in few cases, the assessing officers have revised the classification of similar products imported by the main appellant into Chapter 28 or Chapter 29 and it was accepted by the main appellant and did not contest the same, hence the contentions raised by the appellant today that the issue is hit by limitation is incorrect. He would than bring to our notice the catalogue which is printed from the site of United States Pharmacopoeial and in respect of the reference standard and certificate reference material. He would submit that the item certified reference material is totally a different item than the reference standard. It is his submission that the United States Pharmacopoeial Convention itself accepts that both the items are different and the absence of any direct reference to pharmaceutical reference standards, the classification should be in accordance with the product under Chapter 28 or Chapter 29. He would also rely upon the meaning of the word "reagent" as given in the Condensed Chemical Dictionary 10th Edition and New Webster Dictionary of the English Language and submit that the reference standards has to be considered as reagent. It is his submission that alternate classification as claimed by the appellant is also incorrect.


In rejoinder, it was stated by the counsel for the appellants that the adjudicating authority has not anywhere stated that PRS imported by the appellant is not laboratory reagent; nor held that they are not so; it is the submission that first time the learned counsel is making this contention which is beyond the findings of the Order-in-Original. It is further submitted that Pharmacopoeia like United States Pharmacopoeia, European Pharmacopoeia and British Pharmacopoeia from whom PRS are imported are part of regulation set up by the respective Governments who regulate the quality of exports or imports of pharmaceutical goods in their respective countries and the PRS which are imported by the main appellant are the standards which need to be complied with for import or export of the said pharmaceutical goods.

We have considered the submissions made at length by both sides and perused the records.


7.1 The undisputed facts are that the main appellant had imported var ious Pharmaceutical Reference Standards which are sold by them to Pharmaceutical Companies; discharged the duty liability after availing the benefit of Customs Notification No. 21/2002, dated 1-3-2002 (SI. 138 read with Condition No. 17) and Notification No. 12/2012, dated 17-3-2012 (SI. 164 read with Condition No. 12) (hereinafter referred to as notification) declaring to the Customs Department that the products are classifiable under Chapter Heading 3822. It is also undisputed that the consignments were cleared by Customs Department after final assessment and the period involved is 1-3-2009 to 2-1-2014 while the show cause notice is dated 28-2-2014, invoking extended period as also seeking to con-fiscate the seized goods and directing all the appellants to show cause as to why penalties should not be imposed on them.

The adjudicating authority after considering the submissions made has held against the main appellant for confirmation of demand of Customs duty on the ground that the classification of the goods as imported by the main appellant cannot be done under Chapter Heading 3822 and needs to be classified under respective Chapter of either 28 or 29 as the case may be; holding that in order to avail the benefit of exemption as per the notifications, the importer has to comply with the condition of Chapter Note No. 2(A) and (B) which in this case was not done so. It is also held by the adjudicating authority that the main appellant had intentionally misdeclared the goods in order to avail ineligible benefit of exemption notification.
We find the issue that needs to be decided in this case is regarding the classification and subsequent eligibility to the benefit of notification to the importer/main appellant. The main appellant had classified the product under Chapter Heading 3822 and sought benefit of notification which needs to be read-
"3822 Diagnostic or laboratory reagents on a backing, prepared
diagnostic or laboratory reagents whether or not in a backing other than those of heading 3002 or 3006; certified reference materials
3822.00 Diagnostic or laboratory reagents on a backing, prepared diagnostic or laboratory reagents whether or not on a backing, other than those of heading 3002 or 3006; certified reference materials :
For medical diagnosis: 3822.00 11 Pregnancy confirmation reagents 3822 00 12 Reagents for diagnosing AI l)S 3822 00 19 Other 3822 00 90 Other-Notification No. 21/2002-Customs

20. EFFECTIVE RATES OF DUTY FOR GOODS OF VARIOUS C H A PTERS / HE ADINGS
GENERAL EXEMPTION NO. 107

Exemption and effective rates of basic and additional duty for special goods of Chapters 1 to 99. - In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and in supercession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 17/2001-Customs, dated the 1st March, 2001 [G.S.R. 116(E), dated the 1st March, 2001), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods of the description specified in column (3) of the Table below or column (3) of the said Table read with the relevant List appended hereto, as the case may be, and falling within the Chapter, heading or sub-heading of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in column (2) of the said Table, when imported into India, -

from so much of the duty of customs leviable thereon under the said First Schedule as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table;
from so much of the additional duty leviable thereon under sub-section (1) of section 3 of the said Customs Tariff Act, as is in excess of the rate specified in the corresponding entry in column (5) of the said Table,
subject to any of the conditions, specified in the Annexure to this notification, the condition No. of which is mentioned in the corresponding entry in column (6) of the said Table :
Provided that nothing contained in this notification shall apply to -
the goods specified against serial Nos. 239, 240, 241 and 242 of the said Table on or after the 1st day of April, 2003;
the goods specified against serial Nos. 250, 251, 252 and 415 of the said Table on or after the 1st day of March, 2005.
Explanation. - For the purposes of this notification, the rate specified in column (4) or column (5) is ad valorem rate, unless otherwise specified.

17. If the importer produces a certificate of the Reference Standard copies of documents to substantiate that the organization or institute from where the Reference Standard has been imported is approved by the World Health Organisation or International Organisation for Standards.

Notification No. 26/2003-Customs, dated 1st March, 2003
(Relevant Extracts)
G.S.R. (E). - In exercise of the power conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the erstwhile Ministry of Finance (Department of Reve-
nue) No. 21/2002-Customs, dated the 1st March, 2002, published in the
Gazette of India vide number G.S.R. 118(E), dated the 1st March, 2002, namely :-
In the said notification. -
I
II
(i)
(xlvi) against S. No. 138, for the entry in column (3), the entry "Pharmaceutical Reference Standard : shall be substituted.

7.4 We have reproduced the Chapter 3822, the notification and the Conditions to the notification in order to avail the benefit of reduced rate of duty. The Condition of Notification Nos. 21/2002, 26/2003 and 12/2012 remain the same. We would also reproduce the Chapter Note 2(A) and (B) of Chapter 38 in Customs Tariff as under :-
"2. (A) For the purpose of heading 3822, the expression "certified reference materials" means reference materials which are accompanied by a certificate which indicates the value of the certified properties, the methods used to determine these values and the degree of certainty associated with each value and which are suitable for analytical, calibrating or referencing purposes.
(A) With the exception of the products of Chapter 28 or 29, for the classification of certified reference materials, heading 3822 shall take precedence over any other heading in the Schedule."

The products which were imported by the appellants and claimed them as per Pharmaceutical Reference Standard are various standard bulk drugs. Few of them, on reference to the invoices, we find Ampicillin, zidovudine, Am-lodipine, Famotidine, etc. In our considered view, the samples as indicated hereinabove and various other samples which are imported by the main appellant, are nothing but Reference Standard samples of various bulk drugs which are used for testing the parameters of either the raw materials or the finished goods of the main appellant's clients.

On going through the history of reduced customs duty on the Reference Standard it needs to be understood that first Notification No. 21/2002, dated 1-3-2002 granted exemption to Reference Standards. In that notification, the Govt, of India have granted reduced payment of Customs duty on the Reference Standard imported by Central Drug Laboratory, Kolkata as indicated at SI. 138 subject to the condition. The reason for issuing of such notification, to our mind, seems to be that the bulk drugs which are consumed in the manufacturing of pharmaceuticals and also manufacturing of bulk drugs in India need to be tested to the standard of USP, BP or EP. Unless the bulk drugs conform :-> the specification given in the Pharmacopoeia thereof and manufacturer of such bulk drugs, the same could not have been marketed by the clients of main appellant. In order to facilitate and in the interest of common man, the Govt, of India thought fit to reduce the customs duty on the Reference Standard of bulk drugs imported by Central Drug Laboratory, Kolkata. Subsequently, it seems that Govt, of India thought the Reference Standard need not to be only imported by the Central Drug Laboratory, Kolkata but can be imported by any other person. Hence by a Notification No. 26/2003 amended the entry at SI. 138 and brought "Pharmaceutical Reference Standard" which would mean that any importer can import Pharmaceutical Reference Standards. To our mind the intention of the Govt, of India for reducing the import duty of Pharmaceutical Reference Standards was very obvious; to facilitate and encourage the use of standard bulk drugs in the medicines that are manufactured.

7.7 In our considered view, the Pharmaceutical Reference Standard are required for analytical measurement which depend on many variable to provide data needed to make informed decisions. The quality of this data is as good as the Reference material used and high quality Reference material are available only from the organizations with robust quality system viz. US Pharmacopoeia, British Pharmacopoeia, etc. The Reference Standard of the Organisations like United Standard Pharmacopoeia and British Pharmacopoeia instill confidence, as to that the products which are tested against the standard as laid down by these pharmacopeias would qualify to be used safelv- On this background the goods imported by the main appellant are to be considered whether they are Pharmaceutical Reference Standards or otherwise. The phrase "Reference Standards" is not defined or described in Customs Act, 1962 or Customs Tariff Act that appeared to establish appropriate product description as early as in the year 2004, a particular reference seeking clarification on the description of "Pharmaceutical Reference Standards" was made to appropriate and competent authority in this matter, i.e., Drugs Controller General (India) under Directorate General of Health Services (Drug Division) who vide his letter reference No. X19014/10/04-D, dated 17-11-2004 stated as under :-

X19014/10/04-D
DIRECTORATE GENERAL OF HEALTH SERVICES
(DRUG SECTION)
Nirman Bhawan, New Delhi' 17th November, 2004 To
M/s. LGC Promochem India Pvt. Ltd. P.O. Box 8.061, # 142m 3rd Floor, 5 th Cross, RMV Extn., Bangalore,-560 080.
Subject: Clarification regarding Reference Standards Sir,
Please refer to your letter dated 12th June, 2004 on the subject above.

The Director, Central Drug Testing Laboratory, Mumbai who was consulted in the matter has opined that Reference Standards are substances of known purity which are intended to be used exclusively for a specified analytical calibrating or referencing purpose and not to be used as Drugs, which may be clearly stated on the label and/or accompanying certificate or literature.
Yours faithfully,
Sd/-
(Ashwini Kumar) Drugs Controller General (India) 7.8 Plain reading of the above letter from the Drugs Controller General (India) would clearly indicate that the Reference Standards are substances re-quired for analytical calibrating or referencing purpose which would be required to estimate the standard of the product manufactured or consumed by the clients of the main appellants. It is to be noted that based upon the above clarification, the Central Drug Testing Laboratory Mumbai vide letter No. 80/CDTL-M/2004-05/1469, dated 13-8-2004 clarified as under :-
GOVERNMENT OF INDIA
(Ministry of Health & Family Welfare)
CENTRAL DRUGS TESTING LABORATORY - MUMBAI
4th Floor, ES1S Hospital Bldg., Road No. 33, Wagle Estate, Thane - 400604
Ref. No.: 80/CDTL-M/2004-05/1469 Date: August 13, 2004
To,
The Drugs Controller General (I),
DGHS, Nirman Bhavan,
New Delhi-110 01 I
Subject : Clarification Regarding Reference Standards to be considered drug or not.
Reference: Dte. Letter No. F.No. X.19014/10/04-D, dated 22-7-2004 with copies of relevant literature on reference standards.
Sir,
With reference to the above loiter as the subject mentioned, given he-low is the clarification sought on Reference Standards based on the enclosed literature.
'Reference Standards are substances of known purity which are intended to be used exclusively for a specified analytical, calibrating or referencing purpose and not to be used as Drugs, which may be clearly stated on the label and /or accompanying certificate or literature."
Yours faithfully,
Sd/-
(Dr. K.V. Jogi)
Director
CDTL - Mumbai

7.9 Plain reading of both the communications from the competent authority to comment upon the issue seems to establish that intended use of Pharmaceutical Reference Standards, are Chemicals (Reagents) are substance of known purity which are intended to be used exclusively for a specified analyti cal, calibrating or referencing purpose and the same should be stated on the label and or accompanying certificate or literature.


On perusal of the records, we find that the appellant had shown that the imported products, which had label and certificate of analysis from United State Pharmacopoeia convention indicating that Pharmaceutical Reference Standards is as per the standard laid down by them. It has to be noted that Pharmaceutical Reference Standards which are accompanied by the certificate issued by US Pharmacopoeia are distinctive product and gets classified under laboratory chemical or under Chapter Heading 3822 read with Chapter Notes of Chapter 38 as reproduced hereinabove. The conclusion that can be reached is that Pharmaceutical Reference Standard cannot be classified as certified Reference Materials and consequently not extending the scope of applicability of notification to products other than covered under Chapter Heading 28 and Chapter 29 is also not applicable.

Further we find that the adjudicating authority in the impugned Order-in-Original in Paragraph 36.8 has observed and held as under :-

"While observing as above, I am conscious of the fact that the exemption notification issued by the Government specifically covers PRS with classification under headings 2852 and 3822. Therefore, undoubtedly the PRS can be classified under heading 3822 as well. Preceding discussion only indicates that for being classified under heading 3822, even the PRS would have pass the rigours of Chapter Note 2A. Further, even otherwise, the notice has not produced the documents required under the said exemption Notification to avail the benefit."

It can be seen from the above reproduced paragraph that the adjudicating authority has come to a conclusion that Pharmaceutical Reference Standard can be classified under Chapter Heading 3822 as well but denied the benefit of notification of reduced rate of duty only on the ground that the appellant has not passed the conditions of Chapter Note 2A and not produced documents required under the said exemption notification to avail the benefit. As already reproduced by us, the condition of notification only requires that the certificate of Physician Reference Samples are issued by an organization accepted by the International Standard Organisation. In the documents produced before us, we find that the US Pharmacopoeia convention is recognized by International Standard Organisation in respect of the quality of the goods and the systems which they are following. As there is no dispute that the products imported being classified under Chapter Heading 3822, Revenue having not filed any appeal against the adjudicating authority's order by holding that the product imported are classifiable under Chapter Heading 3822, we have to draw adverse inference that Revenue has accepted that the Pharmaceutical Reference Samples are classifiable under Heading 3822. In our considered view, if the products are classifiable under Chapter Heading 3822, benefit of exemption notification cannot be denied to the appellant as per the facts in this case, and it is accepted that the goods which are imported are nothing but Pharmaceutical Reference Standard.


In yet another angle, World Health Organisation has defined the Reference Standard either of pharmaceutical or food related as "a particular lot or batch of drug substances specifically prepared either by an independent synthesis or by additional purification of production material and shown by an extensive set of analytical tests, to be authentic material of highest purity reasonably attainable. It is usually used for structural elucidation and is bench mark for working standards." Applying the above definition of Reference Standard to the products imported by appellant, it has to be held that imported products are Pharmaceutical Reference Standards, are squarely covered by the benefit of notification as these Reference Standards imported by the appellants from U.S. Pharmacopoeia Convention or other Pharmacopoeia Convention are for the use of their clients either in the manufacturing of bulk drugs or consumption of bulk drugs.


We find that the adjudicating authority has also not accepted the limitation aspect on the findings that the appellant had not produced any of the documents before the authorities while seeking clearances of the goods by claiming benefit of notification. In our view this approach of the adjudicating authori-tv on the point of limitation seems to be not in consonance with the law. It is undisputed that the bills of entry which are filed by appellant indicated these items as "Pharmaceutical Reference Standards" and all the relevant documents for clearance of goods were filed with the authorities, at the time of clearance of goods; which was accepted by the department, hence they permitted clearance on final assessment by extending benefit of notification. In our view Revenue cannot today say that appellant had suppressed the facts with intention to avail ineligible benefit of notification. It was for the Assessing Officers to seek further clarification on the matter, if they find that the appellant had claimed ineligible benefit of notification. In all probability the Assessing Officers when they cleared the consignments were of the view that the appellant is eligible for the benefit of notification as the goods imported were Pharmaceutical Reference Standard.


In our view on merits as well as on limitation, the demand for the duty liability is not sustainable and is liable to be set aside. Since we are holding that the duty liability is not sustainable, the question of imposing any penalties on main appellant or other appellants does not arise.


8. In view of the foregoing, in the peculiar facts and circumstances of this case, we set aside the impugned order and allow all the appeals with consequential relief.
(Order pronounced in open Court on 20-5-2016)

Equivalent 2016 (340) ELT 0406 (Tri. - Bang.)