PANACEA BIOTECH LTD. Vs. COMMISSIONER OF CUSTOMS (ACC)

JUDGEMENT

(1.) The issues involved in this Appeal, filed by M/s. Panacea Biotcch 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 90C and sterilization temperature adjustable from 100C to 130C 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 (88) E.L.T. 609 (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 arc 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.