The Delhi Bench of Customs, Excise And Service Tax Appellate Tribunal (CESTAT) has held that customs duty exemption available on pregnancy test kits based on Agglutinating Sera.
The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that as agglutinating sera is the only active component and the rest of the components are passive, the pregnancy detection kits have their essential character defined by agglutinating sera only. Thus, the imported goods i.e. pregnancy test kits would be covered under the Exemption Notifications.
Table of Contents
Background
The asseassee/respondent, Rapid Diagnostics is a Private Limited Company engaged in the import and trading of comprehensive range of disposable items, laboratory, patient care, ICU & surgical equipments, and diagnostic test kits (serology kits, biochemistry and rapid test kits) since the year 1995.
During the period from 31.08.2016 to 07.07.2021, it claims to have imported “hCG Pregnancy Rapid Test Strip” and “hCG Pregnancy Rapid Test Cassette” through Bills of Entry and classified them under Custom Tariff Heading 3002 of the First Schedule to the Customs Tariff Act, 1975.
At the time of import of the disputed goods, Rapid Diagnostics classified the goods under CTH 3002 and so basic customs duty was required to be paid @ Nil rate under the Exemption Notifications.
However, proceedings were initiated against Rapid Diagnostics in respect of Bill of Entry No. 2874642 dated 23.02.2021. The Customs Officers examined the disputed goods under the cover of panchnama dated 23.07.2021. During the examination of disputed goods, a view was entertained by the Department that Rapid Diagnostics camouflaged the actual description of the disputed goods by adding the term “agglutinating sera” with an intent to avail the benefit under the Exemption Notifications.
Further investigation was initiated against the imports made by Rapid Diagnostics. During the investigation, various statements were recorded and samples of disputed goods were sent to AIIMS Biochemistry Department, New Delhi, and National Institute of Immunology, Delhi for testing purposes. The Test Reports from AIIMS Biochemistry Lab were received on 03.04.2021 and 15.04.2021. The Test report from the National Institute of Immunology was received on 14.06.2021.
During the investigation, Rapid Diagnostics also deposited Rs. 70,00,000/- towards duty and interest, without prejudice to its right to contest the proposal of duty.
Show cause notices dated 25.11.2021 and 03.09.2021 for the period 31.08.2016 to 07.07.2021 were issued to Rapid Diagnostics alleging that the disputed goods were not “agglutinating sera”, but complete pregnancy test kits in ready to use condition and, therefore, the benefit of exemption under the Exemption Notifications would not be available to Rapid Diagnostics.
Consequently, it was proposed to reject the exemption claimed by Rapid Diagnostics and a demand for differential duty under section 28(4) of the Customs Act, 19627 along with interest under section 28AA of the Customs Act was proposed.
Proposal for confiscation under section 111(m) and imposition of penalty under sections 112/114A and 114AA of the Customs Act were also made. Penalty on Bharat Bhushan Jindal, Director of Rapid Diagnostics was also proposed under sections 112 and 114AA of the Customs Act.
Rapid Diagnostics filed a detailed reply dated 09.11.2022 and submitted that the disputed goods are based on agglutinating sera and, therefore, the same are correctly classifiable under CTH 3002 attracting basic customs duty at nil rate under the Exemption Notifications.
The Commissioner held that the disputed goods deserve classification under CTH 3002 and so basic customs duty would have to be paid @ Nil under the Exemption Notifications since the essential character of the disputed goods comes from the agglutinating sera. The demands proposed in the show cause notices were, accordingly, dropped.
What is “Serum/sera”?
“Serum/sera” is the fluid fraction separated from blood after clotting. When an antigen is introduced in an animal, antibodies are produced in the serum. The “antibody” is an immunoglobin molecule having specific amino acid sequence that gives each antibody the ability to adhere to and interact only with the antigen that induced its synthesis. This antigen specific property of the antibody is the basis of the antigen- antibody reaction that is essential to an immune response.
When a woman becomes pregnant, the placenta produces high quantity hCG. This hCG is excreted through the urine. Detection of the presence of hCG in the urine is one of the indications to confirm that a woman is pregnant. Therefore, when urine contains hCG and if that is brought into contact with an agglutinating serum/sera which contains antibody to the hCG, it will agglutinate or clump.
It can, therefore, be said that the agglutinating sera used in the preparation of the disputed goods provide the essential character to the disputed goods.
Agglutinating sera is the most essential and only active component on which test reaction is based. The other components like membrane sheet, plastic cassette and absorbent are passive components which provide longer shelf life and stability to the kit. As the disputed goods are based on agglutinating sera, the benefit of the Exemption Notifications would be available to Rapid Diagnostics.
Arguments
The department contended that the imported hCG pregnancy rapid test strip cassette and agglutinating sera are not same, even though the latter is the main reactive agent or active ingredient of the test kit. The benefit of the Exemption Notifications is available only to agglutinating sera and not to pregnancy rapid test strip cassette
The department argued that other manufacturers, namely Medi Force Healthcare, Pvt Ltd having similar product with brand name “Prega News” import agglutinating sera as a raw material, and rightly claim benefit of the Exemption Notifications. This shows that the products test kit and agglutinating sera are distinct, and the latter is the raw material of the former. Raw material and finished products cannot be equated for availing exemption benefit.
The assessee contended that Rapid Diagnostics correctly availed the benefit of exemption under the Exemption Notifications. The disputed goods are classifiable under CTH 3002 of the Customs Tariff Act. The disputed goods are diagnostic test kits based on agglutinating sera.
Issue Raised
The issue raised was whether the “hCG Pregnancy Rapid Test Strip” and “hCG Pregnancy Rapid Test Cassette” deserve classification under CTH 3002 and whether basic customs duty at Nil rate as required to be paid under the Exemption Notifications.
Conclusion
The tribunal concluded that the disputed goods are based on “agglutinating sera” which is the chief component of the test kit that produces the result regarding the pregnancy. Thus, as agglutinating sera is the only active component and the rest of the components are passive, the pregnancy detection kits have their essential character defined by agglutinating sera only. Thus, the imported goods would be covered under the Exemption Notifications.
Case Details
Case Title: Commissioner of Customs Versus M/s Rapid Diagnostics Pvt Ltd.
Case No.: Customs Appeal No. 51743 Of 2023
Date: 19.11.2024
Counsel For Appellant: S.K. Rahman
Counsel For Respondent: B.L. Narasimhan
