2004 (97) ECC 372 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Zonal Bench -- Mumbai

Ms. Jyoti Balasundaram, Member (J) and Shri Moheb Ali M., Member (T)

Pfizer Limited

Versus

Commissioner of Cen. Excise & Customs, Chandigarh

Appeal No. E/2051/02-Mum

[Arising out of Order-in-Appeal No. 107/CE/CHD-1/2002 dated 18.3.2002 passed by the Commissioner of Central Excise (Appeals), Chandigarh]

Order No. A/1184/WZB/2004/CI, dt. 30.7.2004, Certified on 3.8.2004

Assessable Value

"Salinomycin 350 Mycelia' -- Duty demand of Rs. 3,46,31,643 on the product as a result of classifying the same under CET Sub-Heading 2941.90 as an antibiotic, holding that the declared value of the whole product forms basis of payment of duty, has been rightly demanded. There is no material on record to establish that the quantities of Salinomycin 350 Mycelia shown as produced in batches in kilograms in Cost Accountant's Cost certificates were later doubled at the time of clearance. The cost data also clearly mentions the value of the goods as per kg and not per kgA. The value taken for quantifying the demand being the one declared by the appellants as per the relevant cost data has been correctly applied for determining the assessable value of the goods. The product in dispute falls for classification under CET sub-heading 2941.90 as antibiotic -- The appellant's claim for reduction in the value is not supported by the plea that there was a practice of obtaining a quantity, double the quantity of Salinomycin obtained (in kilograms, not kgA) per batch. The impugned order is upheld.

Appeal is rejected

PRESENT :

Shri C.S. Lodha, Adv. for the appellant.

Shri M.K. Gupta, Jt. CDR for the respondent.

Per : Ms. Jyoti Balasundaram

The above appeal arises out of the order of the Commissioner of Central Excise (Appeals) upholding a duty demand of Rs. 3,46,31,643 on the product "Salinomycin 350 Mycelia' as a result of classifying the same under CET Sub-Heading 2941.90 as an antibiotic, rejecting the claim of the assessee for classification as animal feed pre-mix under CET Sub-Heading 2302.00 and holding that the declared value of the whole product forms basis of payment of duty, rejecting the appellants contention that they were entitled to reduce the assessable value by 50% as the potency level of active mass of the product in the total dry mass varied by 50%.

2. We have heard both sides.

3. The undisputed process of manufacture of the product is as follows:

"Broth is obtained by a fermentation process using various inputs such as soya bean meal, soya bean oil, glucose, calcium hydroxide, yeast; the fermented broth is subjected to treatment with alkli and acid; the treated broth is filtered on rotary vacuum filter; the Wet Salinomycin Mycelium obtained from the rotary vacuum filter is dried; the filterate is sent to the effluent treatment plant. The residue is anti coccidial properties."

4. The test report of the CRCL shows that the sample was composed of complex organic compound. In the reply to the departmental query dated 24.6.93, the assessees have stated that the product is an organic chemical with generic name "Salinomycin Mycelia". Therefore, their claim that the product is complex mixture of organic and inorganic substances, unlike a pure antibiotic, is belied. The product is described by the assessees themselves as polyether Anti-biotic - Anti coccidial agent. The generic name is `Crude Salinomycin broth', the common or Pfizer name is Salinomycin broth, and the chemical name is "Concentrate containing the Sodium salt of a ethyl - 6-[5 - {2 (5 -ethyl tetrahydro - 5 - hydroxy - 6 - methyl - 2Hpyran2 - yl) - 15 - hydroxy - 2-, 10, 12 - trimethyl - 1, 6, 8 - trioxadispiro [4,1,5,3 ] - pentadec - 13 - en - 9yl} - 2 - hydroxy -1, 3 - dimethyl - 4-oxoheptyl } tetrahydro - 5-methyl - 2H - pyran-2-y1-acetic acid, Sodium salt." As seen from the Merck Index (12th Edition), (page 1434) Salinomycin is a Polyether ionophoric antibiotic produced by a strain of Streptomyces albus, and the use is as a coccidiostat. The goods are products of the same manufacturing process as are the appellants' other products of Heading 29.41 (antibiotics) -- the only difference is that instead of obtaining `mycelia' in the manner of their other products/antibiotics, the mycelia of Salinomycin are not separated, but dried alongwith the medium culture and then powdered and supplied to job-workers for further manufacture of Coxistac which is a pre-mix. The appellants do not dispute that the product is used in the further manufacture of the pre-mix Coxistac. Although, the appellants urged that the goods in dispute are not the products of anti-biotic manufacturing process, this plea is not supported by any evidence. The product is not coccidiostat and carrier as claimed by the appellant, but coccidiostat along ( dried alongwith medium culture) and therefore, not identical to the products covered by the Larger Bench decision in the case of Tetragon Chemie (1999 (30) RLT 336) and Li-Taka Pharmaceuticals (2000(121) ELT 203). In the case of Tetragon Chemie, the dispute was between Chapter Heading 23.02 and Chapter Heading 29.36. The goods were vitamins manufactured synthetically and put up in unit containers bearing labels that the goods were meant for animal feeding (end use was relevant). In the case of Litaka, the Revenue did not place on record any material to show that the preparations were not used in animal feeding, while, on the other hand, M/s. Litaka Pharmaceuticals produced evidence of such use. In the present case, no such evidence has been adduced by the assessee that the product in dispute is used in animal feeding and further, they had claimed that the product was not brought to the market and hence not marketable/and not excisable.

5. The arguments advanced by the Ld. counsel that the product in dispute is not chemically defined and therefore, cannot fall under Chapter 29 is not tenable in view of Note 1(c) of Chapter 29 from which it is seen that for coverage under Chapter 29.41 (which is where the department has slotted the product), it is not necessary that the goods should be chemically defined. Further, HSN notes to Heading 23.09 (which is akin to Chapter 23.02 of the Schedule to the CETA 1985) excludes "(h) intermediate products of anti-biotic manufacturing process obtained by filtering and first stage extraction and the residues of this process with an anti-biotic context generally not exceeding 70%." The product in dispute has anti-biotic content of 35% and therefore is excluded from Chapter 23 of the Schedule of the CETA 95.

6. In the light of the above discussion, we hold that the product in dispute falls for classification under CET sub-heading 2941.90 as antibiotic.

7. Now we come to valuation of goods. The declared assessable value pertaining to relevant periods submitted vide cost data shows the cost of product on per kg basis and the said declared value formed the basis for payment of duty on the quantities of finished product cleared. The appellants, however, determined and paid the duty multiplying the assessable value with only the active mass and not the total mass of the finished goods on the ground that the potency level of the active mass of the product in the total dried mass varies around 50% and therefore, they had reduced the assessable value uniformly by 50% while calculating the duty liability. We find, on the perusal of the costing statement, that the assessable value has been arrived on the basis of total expenditure incurred on the definite number of batches. The cost data per kg during the 12 month period ending with 30.11.98 is reproduced below :

|  | Cost per kg
1. | Raw Material | 72.10
2. | Packing Material | 7.49
3. | Direct Wages | 15.47
4. | Utilities |
| (a) Power | 4.88
| (b) Water | 2.24
| (c) Steam | 14.48
| (d) Air | 43.58
| (e) Chilled Water | 14.71
5. | Repairs and Maintenance | 9.06
6. | Quality Control | 3.28
7. | Depreciation | 8.98
8. | Administration Overheads | 22.58
9. | Other Overheads (Warehouse expenses, personnel dept expenses, Effluent treatment Plant, spore Lab expenses, Canteen expenses etc. | 49.24
|  | 268.05
10. | NOTIONAL PROFIT 5% on Rs. 268.05 | 13.40
11. | Cost of Salinomycin 350 Mycelia per kg | 281.45

8. From the above it is seen that the output of total quantity in kilograms of Salinomycin 350 Mycelia per kg was obtained from those definite number of batches. The appellant's claim for reduction in the value is not supported by the plea that there was a practice of obtaining a quantity, double the quantity of Salinomycin obtained (in kilograms, not kgA) per batch. In other words, there is no material on record to establish that the quantities of Salinomycin 350 Mycelia shown as produced in batches in kilograms in Cost Accountant's Cost certificates were later doubled at the time of clearance. The cost data also clearly mentions the value of the goods as per kg and not per kgA. Therefore, we agree with the Authorities below that the value taken for quantifying the demand being the one declared by the appellants as per the relevant cost data has been correctly applied for determining the assessable value of the goods.

9. In the result, we uphold the impugned order and reject the appeal.

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