Panacea Biotech Ltd. vs Commissioner of Customs (Acc), New Delhi>2002(11)LCX0084

2002(11)LCX0084

IN THE CEGAT, COURT NO. II, NEW DELHI

S/Shri S.S. Kang, Member (J) and V.K. Agrawal, Member (T)

PANACEA BIOTECH LTD.

Versus

COMMISSIONER OF CUSTOMS (ACC), NEW DELHI

Final Order No. 468/2002-B, dated 8-11-2002 in Appeal No. C/449/2001-B

Cases Quoted

Associated Cement Co. v. Collector — 2001(01)LCX0352 Eq 2001 (128) ELT 0021 (S.C.) — Distinguished. [Paras 3, 6]

Collector v. Essar Gujarat Ltd. — 1996(11)LCX0031 Eq 1996 (088) ELT 0609 (S.C.) — Referred............................ [Para 3]

Northern Plastics v. Commissioner — 1998(07)LCX0097 Eq 1998 (101) ELT 0549 (S.C.) — Referred................... [Para 3]

Advocated By : S/Shri V. Lakshmikumaran with R. Parthasarthy, Advocates, for the Appellant.

Shri M.P. Singh, JDR, for the Respondent.

[Order per : V.K. Agrawal, Member (T)]. - The issues involved in this Appeal, filed by M/s. Panacea Biotech Ltd., are whether the fermenter imported by them is classifiable under sub-heading 8419.89 of the First Schedule of the Customs Tariff Act as claimed by them or under sub-heading 8479.89 as decided by the Commissioner in the impugned Order; whether benefit of Notification No. 16/2000-Cus., dated 1-3-2000 (S.No. 202) is available to the Fermenter and whether the payment for the documents relating to design, engineering and site run is to be included in the assessable value of the fermenter.

2. Shri V. Lakshmi Kumaran, learned Advocate, submitted that the Appellants are, inter alia, engaged in the manufacture of life saving drugs including vaccines of Hepatitis “B”; that for the manufacture of said vaccine, they require fermenters and other ancillary equipments; that they imported a pilot fermenter (Biostat-C) and two commercial fermenters; that in addition they also imported from the supplier of the fermenter, documents capturing design, Engineering and site run of the fermenters and claimed classification under sub-heading 4911.91 of the Tariff; that Heading 84.19 of the Tariff specifically covers machinery for the treatment of materials by a process involving a change of temperature; that the change of temperature may be brought about by processes such as heating, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, steaming etc. that it is apparent from Page 6 of the Catalogue that the fermenter provides automatic in situ sterilization with a choice of steam heating or electrical heating system; that the impugned goods thus performs sterilization and also involves heating by steam or electricity; that the catalogue shows that fermenter has a thermostat system which has a closed loop hot water system with a circulating pump and two heat exchangers for cooling water; that catalogue further, mentions that the thermostat system enables operating temperature up to 90°C and sterilization temperature adjustable from 100°C to 130°C. The learned Counsel thus contended that the impugned fermenter involves treatment of the cell medium by a process involving change of temperature and also sterilization which are specifically covered by Heading 84.19; that accordingly the fermenter has to be classified under Heading 84.19. He also added that the show cause notice categorically admits that the vaccine production takes place in the fermenter by way of increase in temperature; that HSN Explanatory Notes, Heading 84.10 covers vessels, vats, etc. which involve treatment of materials by heating etc., that in view of this categorical position from the HSN Explanatory Notes and the catalogue and the admission in the show cause notice, classification under sub heading 8419.89 is the correct classification. Alternatively he mentioned that if the impugned product is classified under sub-heading 8479.89, benefit of Notification No. 6/2000-Cus. is available; that serial No. 202 of the said Notification covers “machinery for production of commodities”; that since the fermenter produced vaccine, which is a commodity, exemption under the notification is available; that the reasoning of the Adjudicating Authority that the fermenter alone cannot be said to produce the vaccine is incorrect as the vaccine is produced in the fermenter and is only bottled in the vials by a different equipment.

3. The learned Counsel also submitted that the manuals for design engineering and site run have also been supplied for DM 3.30 Lakhs; that though the Adjudicating Authority has accepted the classification of the same under Chapter 49 of the Customs Tariff, he has included the value thereof in the assessable value of the fermenter under Rule 9(1)(c) of the Customs Valuation Rules read with the decision of the Supreme Court in Collector of Customs v. Essar Gujarat Ltd. - 1996(11)LCX0031 Eq 1996 (088) ELT 0609 (S.C.); that the Manuals in question are not for the manufacture of the fermenter nor for the vaccines; that the manufacture of vaccine is undertaken under WHO Guide to Good Manufacturing Practice Requirement (GMP); that GMP is that part of quality assurance which ensures that products are consistently produced and controlled by the quality standards appropriate to their intended use and as required by marketing authorization; that the GMP covers not only the manufacturing process but also the equipment used to manufacture the said vaccines; that the Appellants have sought documentations pertaining to Installation Qualifications (IQ) and Operational Qualifications (OQ) of the imported fermenter; that these manuals document the process by which the fermenters were manufactured by the supplier in Germany; that M/s. B. Braun Biotech International, Supplier, under letter (at Page 85 of Paper Book) had clarified that the fermenter would be sold at a price of D.M. 10.20 Lakhs without these tests and the manuals; that the said letter clearly establishes that the consideration for the manuals is not a condition for the sale of fermenter; that as such Rule 9(e) of the Customs Valuation Rules would not apply; that Interpretative Note to Rule 4 categorically provides that the value of the imported goods shall not include charges or costs for technical assistance undertaken after importation provided that the said costs are distinguished from the price actually paid or payable; that the cost for the manuals is distinguished separately from the price paid for the ferments; that if the manuals are to be treated as technical assistance for manufacture of vaccine, then it amounts to charges for technical assistance undertaken after importation of the goods. The learned Advocate also relied upon the decision in the case of Associated Cement Co. v. C.C. - 2001(01)LCX0352 Eq 2001 (128) ELT 0021 (S.C.) wherein the Supreme Court has held that drawings, designs, manuals, etc. imported in printed form are classifiable under Chapter 49. Finally the learned Advocate mentioned that filing of two Bills of Entry for two different types of goods or claiming classification under a particular Tariff Item cannot attract confiscation or penalty. He relied upon the decision in the case of Northern Plastics v. CCE - 1998(07)LCX0097 Eq 1998 (101) ELT 0549 (S.C.).

4.1 Countering the arguments, Shri M.P. Singh, learned DR, mentioned that Mc Graw Hill Dictionary of Scientific and Technical Terms defines “fermentation” as under :

“Fermentation (Microbio) An enzymatic transformation of organic substances, especially carbohydrates, generally accompanied by the evolution of gas; a physiological counter part of oxidation, permitting certain organisms to live and grow in the absence of air; used in various industrial process for the manufacture of products such as alcohols, acids and cheese by the action of yeasts, molds, and bacteria; alcoholic fermentation is the best known example.”

4.2 The learned DR submitted that fermentation takes place by the action of bacteria and not by the treatment of materials by a process involving a change of temperature; that admittedly the appellants use fermenter for the manufacture of vaccine for Hepatitis ‘B’. He, further, submitted that the impugned goods have certain parts which have heating element but that cannot be factors determining the classification of the products; that machine as a whole has to be considered for determining its classification in the Customs Tariff and not on the basis of only one part; that whole fermenter cannot be classified on the basis of a single part; that as such Heading 84.19 is completely ruled out. He also mentioned that manuals in question came along with machines as per contract, that the Price summary mentioned the price of Fermenters and Design Engineering and Site Run; that both the prices taken together constitute the contract; that Design Engineering and Site Run are required for manufacture of vaccine as per requirements of WHO; that both were imported under one master Air Way Bill; that the Appellants de-linked both the items and filed separate Bills of Entry; that the classification of documents is not in dispute; the issue is whether their value has to be included in the value of the Fermenters imported by them. Regarding the eligibility to Notification No. 16/2000-Cus., the learned DR reiterates the findings as contained in the impugned order. In reply, the learned Advocate mentioned that if the classification of the Manuals is not disputed by the Revenue, no controversy survives as the duty, if any, would be payable under Chapter 49.

5. We have considered the submissions of both the sides. Heading 84.19 of the Customs Tariff covers machinery and plant designed to submit materials to a heating or cooling process in order to cause a simple change of temperature or to cause a transformation of the materials resulting principally from the temperature change. The heading mentions “heating” and “sterilizing” as some of the temperature changes. The appellants want to classify the fermenter under this Heading as the fermenter provides in situ sterilization and also involves heating. On the other hand, the Revenue has contended that the fermenter is used for manufacture of vaccine which does not take place on account of change of temperature. The learned DR has referred to the definition of term “fermentation” as given in Mc Graw Hill Dictionary of Scientific and Technical terms according to which fermentation is an enzymatic transformation of organic substances and is used in various industrial process by the action of yeasts, molds and bacteria. Fermenter, according to said Dictionary, is a vessel used for fermenting. We also observe that it is mentioned in Kirk-Othmer Encyclopedia of Chemical Technology that though the fermentation process is used in a number of products ranging from amino acids to enzymes, the technology used is somewhat standardized. According to the said Encyclopedia, “Although the word fermentation referred originally to the anaerobic metabolism of organic compounds by micro-organisms or their enzymes to produce products simpler than the starting material, the modern definition is that of any microbial action controlled by man to make useful products. Products from aerobic metabolism include antibiotics (qv), organic acids (see carboxylic acids), enzymes (qv) and vitamin (qv)“. It further mentions that “Molds, yeasts (qv), bacteria and streptomycetis are among the microorganisms used in fermentation process today.” It is thus evident that fermenter is not a machinery or equipment for the treatment of materials by a process involving a change of temperature as required for the goods to be classified under Heading 84.19 of the Tariff. As such, we uphold the classification of the fermenter under sub-heading 8479.89 of the Customs Tariff.

6. Regarding documents for design engineering and site run, the learned Advocate for the Appellants have contended that these are not manuals which are required for the manufacture of the fermenter or vaccines. According to him manufacture of vaccines is undertaken under WHO Guide to Good Manufacturing Practice (GMP) Requirements. According to the Introduction, this guidance document has been prepared to aid vaccine manufacturers in the preparation and performance of the validation studies required by GMP of the World Health Organization. The Good Manufacturing Practices, according to WHO, is that part of quality assurance which ensures that products are consistently produced and controlled to the quality standards appropriate to their intended use and as required by the marketing authorization. GMP covers all aspects of the manufacturing process. It is thus apparent that these documents are essential for the appellants to manufacture vaccines as per the GMP requirements. In view of this, the value of these documents has been rightly added into the value of the fermenter. The letter of the foreign supplier does not advance the case of the Appellants as it merely mentions that fermenters are also sold without the manuals. But the facts remains that a manufacturer of vaccine for conforming to GMP requirements has to take manuals with machine from the supplier only. The letter makes it clear that tests and documents are not ordinarily performed made available and Installation Qualification and Operational Qualification tests are conducted only were strict requirements according to WHO Guide to GMP requirements specified by the buyers. The ratio of the decision in the case of Associate Cement Companies Ltd. is not applicable as facts are entirely different since the issue involved therein was assessment of drawings, designs and technical material imported through couriers. We hold that the value of the manuals has to be added to the value of the fermenter for the purpose of levy of Customs Duty. We, however, agree with the learned Advocate that the goods cannot be confiscated merely because they filed two Bills of Entry as the issue involved is one of interpretation as to whether the cost of manuals is to be included in the value of imported goods or not. There is no other allegation that any fact or document was suppressed from the Department. We, therefore, set aside the confiscation and consequential redemption fine and penalty imposed on the Appellants. Regarding eligibility of the impugned fermenter to the benefit of Notification No. 16/2000-Cus., we find that the same has not been considered by the Adjudicating Authority. We, therefore, remand the matter to the Adjudicating Authority only to consider hearing the Appellants as to whether the goods in question are eligible to the benefit of Notification No. 16/2002.

7. The Appeal is disposed of in the above manners.

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Equivalent 2003 (151) ELT 132 (Tri. - Del.)

Equivalent 2002 (053) RLT 0764