Dr. Reddy’s Laboratories Ltd. Vs Commissioner of Customs (AIR) (CESTAT Chennai)
CESTAT Chennai held that ‘Saccharomyces Boulardii’ being yeast is classifiable under chapter 21 and not under CTH 29183090 as ‘Carboxylic acid’.
Facts- The appellant imported a consignment of 270 Kg ‘Saccharomyces Boulardii’ in bulk, valued at Euro 80190 (CIF) vide Bill of Entry dated 21.03.2009 under DEPB Scheme. The Bill of Entry was facilitated through RMS without assessment and examination.
The appellant had declared the classification as CTH 29183090 and duty was debited by the system accordingly. During post clearance audit, it was noticed from the analytical certificate dated 26.02.2009 issued by the supplier, that the goods imported are mentioned as ‘Lyophilized Saccharomyces Boulardii’. The description was noted as ‘light brown powder with characteristic odour’ and identified as ‘ovoid yeasts to the exclusion of all other micro organism’. The report did not mention the presence of any other ingredient.
The Department was of the view that the goods are rightly classifiable as yeast under chapter 21 and not under CTH 29183090 as ‘Carboxylic acid’. Yeast, active or inactive is specifically mentioned under CTH 2102. The ‘Saccharomyces Boulardii’ being yeast falls under CTH 21021090.
Show Cause Notice was issued proposing to redetermine the classification of the goods and for demand of differential duty along with interest. After due process of law the original authority confirmed the classification under 21021090 and also confirmed the demand of the differential duty of Rs.13,57,549/- along with interest. On appeal, the Commissioner (Appeals) vide order impugned herein upheld the same. Hence this appeal.
Conclusion- We are of the considered opinion that the decisions passed by the Tribunal as to the classification in the case of Kasturi Foods and Products Ltd. as well as in the case of M/s. Zymonutrients Pvt. Ltd. would apply and the impugned goods are to be classified under Chapter 21 as determined by the Department. The issue is answered in favor of revenue and against the appellant. In the result, the impugned order is sustained. The appeal is dismissed.
FULL TEXT OF THE CESTAT CHENNAI ORDER
1. Brief facts are that the appellant imported a consignment of 270 Kg ‘Saccharomyces Boulardii’ in bulk, valued at Euro 80190 (CIF) vide Bill of Entry dated 21.03.2009 under DEPB Scheme. The Bill of Entry was facilitated through RMS without assessment and examination. The appellant had declared the classification as CTH 29183090 and duty was debited by the system accordingly. During post clearance audit, it was noticed from the analytical certificate dated 26.02.2009 issued by the supplier, that the goods imported are mentioned as ‘Lyophilized Saccharomyces Boulardii’. The description was noted as ‘light brown powder with characteristic odour’ and identified as ‘ovoid yeasts to the exclusion of all other micro organism’. The report did not mention the presence of any other ingredient. The Department was of the view that the goods are rightly classifiable as yeast under chapter 21 and not under CTH 29183090 as ‘Carboxylic acid’. Yeast, active or inactive is specifically mentioned under CTH 2102. The ‘Saccharomyces Boulardii’ being yeast falls under CTH 21021090. Show Cause Notice was issued proposing to redetermine the classification of the goods and for demand of differential duty along with interest. After due process of law the original authority confirmed the classification under 21021090 and also confirmed the demand of the differential duty of Rs.13,57,549/- along with interest. On appeal, the Commissioner (Appeals) vide order impugned herein upheld the same. Hence this appeal.
2. On behalf of the appellant the learned counsel Shri. P.R. Renganath appeared and argued. It is submitted that the goods imported are ‘Lyophilized Saccharomyces Boulardii’ which is Saccharomyces Boulardii cells and 13% of lactose. The authorities below erred in observing that the test report issued by supplier did not mention the presence of any other ingredient. A mere perusal of the certificate issued by Biocodex (the manufacturers) clearly indicates the imported material to be “bulk of lyophilized Saccharomyces Boulardii, composed of Saccharomyces Boulardii cells and 13% of lactose”. It is to be noted that lactose is a necessary component or in pharmaceutical terms is an “active ingredient” without which the drug substance “lyophilized Saccharomyces Boulardii” would be unviable, that is, it will not perform the pharmacological function that is meant to be performed. The process of lyophilisation with the adjunct of lactose is absolutely essential to render the probiotic characteristics to the drug substance, which is the ability of the drug substance, lyophilized Saccharomyces Boulardii to pass through the gastric system without being broken down as part of the digestive process and to be delivered in the gut where its therapeutic process commences. Without the lyophilisation with the adjunct of lactose, Saccharomyces Boulardii by itself would be unviable. Also lactose the SECOND CONSTITUENT is not present in trace quantities but at a SIGNIFICANT 13% (THIRTEEN PERCENT) weight by weight. This clearly goes on to establish that the said product as in the form in which it is imported falls under Chapter 3003 of CTA, 1975 satisfying the criteria, “consists of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale.”
3. The learned counsel submitted that the imported goods being a medicament would be outside the scope of Chapter 21 of CTA, 1975. These are drugs within the meaning of Section 3(b) of the Drugs and Cosmetics Act, 1940. The learned counsel adverted to Chapter Note 1(f) of Chapter 21 and pointed out that this chapter note categorically states that ‘yeast put up as a medicament or other products of heading 3003 or 3004” are excluded from Chapter 21. Lyophilized Saccharomyces Boulardii contains 13% lactose and was imported in bulk. Therefore being a medicament cannot be classified under Chapter 21.
4. There is abundant medical literature that Saccharomyces Boulardii is a medicine used for treatment of antibiotic-associated diarrhoea, acute diarrhoea in children and in adults, traveller’s diarrhoea, AID’s related diarrhoea, clostridium difficile disease, relapses of Crohn’s disease etc. The product is sold as a medicine in pharmacies. The product is to be consumed as per the dosage prescribed by a Physician. Further, that the imported goods are drug within the meaning of Section 3(b) of the Drugs and Cosmetics Act, 1940. The appellant holds necessary permission under the Drugs and Cosmetics Act & Rules to import Saccharomyces Boulardii. In the Analysis Certificate issued by the supplier it is stated that it has expiry period which is 3 years. This itself would indicate that it is a medicine, rather than an edible preparation under chapter 21 which products have usually shorter shelf-life.
5. To support the argument that the goods are medicaments, the learned counsel relied on various literature which are as under:
(i) (Textbook) Gut Microflora-Digestive Physiology and Pathology-John Libbey Eurotext, Paris.
“Lyophilised Saccharomyces boulardii is produced by freeze-drying in the presence of lactose, a method which preserves the yeast’s viability and stability. Analysis of the pharmacodynamis properties of Saccharomyces boulardii has shown that its activities are largely dependent upon its ability to survive. As with all yeasts, Saccharomyces boulardii is naturally resistant to antibacterial antibiotics: its MIC for almost all antibiotics investigated is very high (over 128) mg/L) [7].
Saccharomyces boulardii is resistant to gastric acidity and to proteolysis, so that it can reach very rapidly high concentrations in the gastrointestinal tract and then persist there at a constant level in viable form [6]”
(ii) (Journal) Gastroenterology Clinics of North America, “Saccharmyces boulardii is a nonpathogenic yeast widely prescribed in a lyophilized form in many countries of the world and used in adults and children as a biotherapeutic agent [1,2]. Controlled clinical trials have demonstrated the efficacy of S boulardii for preventing or treating several intestinal disorders including antibiotic associated diarrhoea [3,4], recurrent Clostridium difficile discase [5,6], C difficile associated enterocolopathies in infants and children [7], acute diarrhoea in children [8] and in adults [9], traveler’s diarrhoea [10,11], diarrhoea I tube-fed patients [12], AIDS related diarrhoea [13], and relapses of Crohn’s disease [14] or ulcerative colitis [15].
S boulardii differs from S cerevisiae by several taxonomic, metabolic, and genetic properties [16,17]. Lyophilized S boulardii is obtained by cryodessication, a technique that allows it to preserve viability and
stability. The pharmacodynamic properties of S boulardii are linked mostly to the revitalization capacity of the yeast after oral administration to the host.
According to these pharmacological and clinical data, S boulardii is a biotherapeutic medication clearly distinct from nutrient probiotic foods containing various species of micro organisms or of substances able to modify the microflora and given in fermented milks or in yogurts to improve host physiology [11].”
(iii) [Article Review]-Therapeutic Effects of Saccharomyces Boulardii in Crohn’s Disease (adapted from Z Gastroenterol 1993; 31:129-134)
“The effects of the well-known yeast preparation Saccharomyces boulardii (S.b.), which has been used so far mainly in the treatment of acute diarrhoea and in the prevention of antibiotic-associated diarrhoea, are attributed partly to its inhibitory effect on the growth of interstinal germs and to the neutralization of toxins.” Furthermore S.b. has been shown to increase the activity of brush border disaccharidases in human volunteers and patients with congenital sucrose isomatase deficiency, an effect, which can be used in the prevention of diarrhoea in this syndrome. In addition, the immune system is probably supported by an enganced release of secretoy lgA into the intestinal lumen. Due to these specific effects of S.b. on the intestinal flora and in view of the mentioned immunopathogenic concepts concerning the etiology of Crohn’s disease, there was good reason to investigate also the effects of S.b. in patients suffering from Crohn’s disease.”
(iv) Journal Correspondence-Clinical infectious Diseases-February 1996-
“However, S. boulardii is a completely different species of yeast from baker’s, brewer’s, or wine yeast, and thus the results of S. boulardii therapy in the cited clinical studies are not applicable to S. cerevisiae therapy or to the four case descriptions. S. boulardii has been shown to be a separate species of Saccharomyces on the basis of several taxonomic, metabolic, and molecular parameters. S. boullardi is a wild Saccharomyces strain that does not produce ascospores or use galactose as a carbon source (as do wild S. cerevisiae strains). This strain is also given a separate designation by the American Type Culture Collection (ATTC #74012). S. boulardii has different oxidative utilization and fermentation patterns that can distinguish it from S. cerevisiae (Professor Jean-Marie Bastide, personal communication).”
6. The learned counsel pointed out that the authorities below had erroneously relied on the decision passed in the case of Kasturi Foods & Chemicals Vs CCE 1995 (77) ELT 584 (Tribunal) which is distinguishable on facts. Though similar issue came up for consideration, there was no medical literature furnished by the assessee therein to prove that the imported goods are medicaments. Further in that case the goods imported are “Saccharomyces Cerevisiae” which is different from the goods imported by the appellant herein. The goods were imported by assessee therein as raw materials for preparation of medicament. The appellant has imported the goods in bulk and is clearing them as such by packing them into sachets. The learned counsel therefore urged that the decision laid in Kasthuri Foods (supra) is not applicable as the facts are entirely different.
7. The learned counsel drew support on the judgment of the Hon’ble Apex Court in the case of Commissioner of Central Excise Vs. Wockhardt Life Sciences Ltd. 2012 (227) ELT 299 (S.C.) to argue that one major factor that has to be looked into is whether the goods are understood as pharmaceutical product in common parlance. Saccharomyces Boullardii is used as medicaments for gut related disease.
8. The decision in the case of CCE Hyderabad Vs. Sarvotham Care Ltd. 2015 (322) ELT 575 (SC) was relied to argue that when the product is used as per prescription of Physician, it would be a medicament. The learned counsel submitted that “Saccharomyces Boulardii” has to be taken in measured doses as per direction of physician, which would establish that it is a medicament.
“16. The use is suggested only on the advice of a Doctor and there is a suggestion that literature/material showing that dandruff is a disorder which affects the hairy scalp. It is generally triggered by a single celled organism which is kind of fungus, with scientific name ‘Pityrosporum Ovale’. For treatment of this disease, ‘Nizral Shampoo’ is to be used like a medicine, unlike other normal Shampoos.”
9. The decision in the case of CCE Chennai Vs. Hindustan Lever Ltd. 2015 (323) ELT 209 (SC) was relied to contend that the onus lies on the Revenue to establish that the product is not a medicament. The learned counsel prayed that the appeal may be allowed.
10. The learned AR G. Anandalakshmi Ganeshram supported the findings in the impugned order. The chapter heading in Chapter 21 was referred by the learned AR to explain that “Yeast (active or inactive); other single cell micro-organisms, dead (but not including Vaccines of heading 30.02); prepared baking powders” come under this heading. In ordinary parlance the impugned goods are known as yeasts’. The goods are not medicaments so as to merit classification under 3003 or 3004. The main argument of the appellant is that the imported goods contain one other ingredient viz; lactose which is added for its pharmacological function. The said argument is incorrect. As per the Analysis report issued by the supplier the goods are described as “Ovoid Yeasts to the exclusion of all other micro-organisms”. The presence of lactose in small quantity is only for the purpose of stabilization i.e; lyophilization. This not take away the essential nature of the goods which is nothing but active micro organism-yeast. The learned AR referred to Part (B) of Chapter 21 and argued that even if stabilizing agents and antioxidants are added, yeast has to be classified under Chapter 21. The relevant Part (B) of Chapter 21 reads as under:
“(B) OTHER SINGLE CELL MICRO-ORGANISMS, DEAD
This category covers single-cell micro-organisms such as bacteria and unicellular algae, which are not alive. Inter alia, covered here are those which have been obtained by cultivation on substrates containing hydrocarbons or carbon dioxide. These products are particularly rich in protein and are generally used in animal feeding.
Certain products of this group may be put up as food supplements for human consumption or animal feeding (e.g., in powder or tablet form) and may contain small quantities of excipients, e.g., stabilizing agents and anti-oxidants. Such products remain classified here provided that the addition of such ingredients does not alter their character as microorganisms.”
11. It is submitted that the very same issue came up for consideration in the case of Kasthuri Foods and Products (supra) and the Tribunal held that the goods are classifiable under Chapter 21. The said decision was followed in the case of M/s. Zymonutrients Ltd. Final Order No.41574-41580/2019 dated 26.11.2019. Learned AR prayed that the appeal may be dismissed.
12. Heard both sides.
13. The moot point to be decided is whether the imported goods merit classification under 29183090 as adopted by appellant or under 21021090 as determined by the Department. It is to be mentioned that at the time of import, though appellant classified the goods under CTH 29, the argument now advanced is that being a medicament which falls under CTH 30, the goods cannot be classified under Chapter 21. For better appreciation the relevant tariff headings are noticed as under:
