Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Missing seized records must be considered while testing ITC claim; duplicate GST demands ordered corrected: Delhi High Court. *  GST appeal can’t be rejected without addressing taxpayer’s grounds: Allahabad High Court. *  Surplus IGST credit can offset CGST, SGST shortfall: GSTAT. *  GST refund can’t be denied when cancelled airfares are returned with tax: GSTAT. *  3 Hearing notices issued within 2 minutes: Gujarat High Court flags portal flaw, seeks report. *  GSTR-9, GSTR-9C filing for FY 2025-26 enabled; pending GSTR-1 and GSTR-3B must be filed first. *  Dupattas are exempt fabrics, can’t be taxed as fibres at 4%: Madras High Court. *  Full transitional credit allowed on capital goods received after GST rollout: GSTAT denies Rs. 6.99 lakh export duty credit. *  GST return mismatch alone can’t justify fraud proceedings: GSTAT orders fresh adjudication under section 73. *  Supplier found non-existent later can’t alone justify input tax credit denial: GSTAT. *  GST interest stops once tax reaches government account, can’t run until return filing: GSTAT. *  Cancelled flat booking- GST refund can’t be denied without excluding COVID period from limitation: GSTAT. *  India notifies rules of origin for India–New Zealand FTA. *  Incomplete E-bike kits classifiable as complete vehicles, but not eligible for CKD duty concession: CESTAT. *  Same GST rate on main input and output can’t by itself bar inverted duty refund: GSTAT. *  Unjust enrichment doesn’t apply to customs refunds from assessments finalised before July 13, 2006: Gujarat High Court. *  CENVAT credit can’t be denied solely because plant And machinery are embedded in earth: Karnataka High Court. *  DFIA exports ineligible for RoDTEP benefits; customs directs repayment with applicable interest. *  Second E-Way bill alone doesn’t prove another supply: GSTAT. *  Bail denied in Rs. 1.19 crore fake GST refund case over risk of accused absconding again: Punjab and Haryana High Court. *  GST registration can be restored after revocation deadline if outstanding dues are paid: Gauhati High Court. *  Multiple GST proceedings over same suppliers: Calcutta High Court directs dept. to share findings for adjudication. *  E-Governance portal services not OIDAR, fixed deposit interest not taxable: CESTAT. *  Rs. 500 Stamp duty required on authority letters for CAs, CMA and GST practitioners in Pune GST division.  *  Rs. 1.10 crore GST refund must be paid in cash after business closure: Allahabad High Court. *  Godown rent attracts 18% GST even when used exclusively for exempt agricultural warehousing: AAR. *  GST portal launches "Multi-State Registration" facility: one master TRN for registration applications across multiple States/UTs. *  RoDTEP scheme extended till 31st December, 2026.  *  Mere disagreement with order can’t override Rs. 20 lakh appeal limit: GSTAT. *  Customs interest can’t be backdated before confiscation liability is determined; nearly 8 year period excluded: Delhi High Court.
Subject News *  GST summons: anticipatory bail maintainable without arrest order, but relief denied in evasion case: Allahabad High Court. *  GST Appeal can’t be decided without hearing taxpayer’s objections to fresh evidence: Allahabad High Court. *  GST ITC can’t be reversed merely because supplier grants discount without reducing tax liability: GSTAT. *  Mere quoting of GST provision is not a valid charge: GSTAT quashes ITC denial. *  Personal hearing mandatory before adverse GST order, even without taxpayer’s request: Rajasthan High Court. *  Parallel bail pleas without full disclosure amount to abuse of process Rs. 43.08 crore GST case sent for fresh hearing: Supreme Court. *  GST refund based on unchallenged advance ruling can’t be recovered using later circular: GSTAT. *  Payment of GST alone doesn’t end interest and penalty liability when tax and interest remain unpaid beyond 30 days of notice: GSTAT. *  GST demand over builders’ 80% procurement rule requires reasoned adjudication: GSTAT. *  Eligible ITC doesn’t automatically entitle taxpayers to compensation cess refund on domestic sales: GSTAT. *  GST confiscation order passed before reply deadline invalid: GSTAT. *  GST interest can’t be retained after tax refund on delayed export receipts: Punjab & Haryana High Court. *  GST appeal can’t be dismissed over pre-deposit shortfall without opportunity To respond: Bombay High Court. *  DGGI SCN can’t be challenged before reply and adjudication:Chhattisgarh High Court. *  GST input tax credit can’t be denied solely due to supplier’s retrospective registration cancellation: GSTAT. *  GST notice must explain fraud allegations; merely repeating section 74 Is not enough:  Himachal Pradesh High Court. *  Audit detection alone can’t justify GST fraud penalty; specific suppression must be proved: GSTAT. *  GST order uploaded only under ‘Additional Notices’ tab without separate intimation set aside: Calcutta High Court. *  Service Tax appeal can’t be rejected for missing pre-deposit proof when payment is already recorded: CESTAT. *  SGST dept. can’t hear appeal against CGST order: Calcutta High Court. *  Mere dispatch of tax order can’t prove service or make appeal time-barred: CESTAT. *  Dealer incentives can’t be taxed merely on ledger entries: CESTAT. *  DGFT orders quashed for failure to supply DRI letter relied upon in SCN: Bombay High Court. *  GST penalty u/s 122(1A) can’t apply to Pre-2021 transactions; unregistered beneficiaries also covered: Delhi High Court. *  Expired E-way bill caused by wrong PIN code can’t justify GST penalty without intent to evade tax: GSTAT. *  Used railway rails can’t be taxed as track material without proof they are fit for reuse: CESTAT. *  Earlier DGGI notice doesn’t bar separate GST demand on different issue: Delhi High Court. *  ITC dispute involves no question of law: GSTAT directs appeal to Vice-President. *  Earlier DGGI notice doesn’t bar separate GST demand On different issue: Delhi High Court. *  No E-way bill required for interstate goods movement in november 2017: GSTAT quashes detention and penalty.  

Comments

Print   |    |  Comment

PJ/Case Law/2020-2021/3586

Classification of ‘Nicotine Polacriliex Lozenge’ manufactured by the applicant and Rate of GST
M/s. STRIDES EMERGING MARKETS LTD 2020(32) G.S.T.L. 633 (AAR-GST-Kar)
Brief Facts-The Appellant is a pharmaceutical company engaged in the development and manufacture of generic and IP led niche pharmaceutical products. The Appellant is registered as a 100% Export Oriented Unit (EOU) in Karnataka. The Appellant has developed a new product “Nicotine Polacrilex Lozenge” (NPL) which is purportedly used for therapeutic purpose for nicotine consumption cessation. The product is available in dosages of 2 mg and 4 mg depending on the power of the medicine and the manner of intake of NPL is mentioned on the usage manual which is kept inside the NPL packets. The presence of nicotine in tobacco contributes towards addiction of a particular person to smoke tobacco. However, in NPL, the primary ingredient nicotine is present in a non-harmful quantity. NPL when taken in prescribed quantum, provides the body with adequate nicotine intake. However, there is gradual decline in the dependency of the body on nicotine. Given this, the harmful effects of smoking tobacco are nullified by taking NPL.
Issue-Classification of ‘Nicotine Polacriliex Lozenge’ manufactured by the applicant and Rate of GST
AAR Ruling-The Karnataka AAR held that the only alternative left for the classification of the instant product is Chapter Heading 38.24.
“The instant product, Nicotine Polacriliex Lozenge, is rightly classifiable under the heading 38.24. Accordingly, the product is covered under serial number 97 of Schedule III to Notification No. 01/2017-Central Tax (Rate), dated 28-6-2017 and attracts GST at the rate of 18% (9% CGSST, 9% SGST)”.
Applicant appealed before AAR after aggrieved by AAR order.
 
Appellant’s Contention:-The Appellant submitted that the term ‘such as’ used in the entry at clause 1(b) of Chapter Notes to Chapter 30 is a specific term which restricts the scope of the entry and is to be interpreted to mean that only the items included under the said entry would be covered. They submitted that the product manufactured has therapeutic uses and is hence classifiable under Chapter 30 and is subject to GST at 12%; that the product is a ‘lozenge’ but not a gum which is used for therapeutic or prophylactic purpose of nicotine consumption cessation that safeguards the patient against life harming diseases such as chronic obstructive pulmonary disease, heart disease, diabetes, etc. and therefore it is a medicament in true sense and can be classified under Chapter Heading 3004 at 12% GST in terms of Entry No. 63 of Schedule II of Notification No. 1/2017-C.T. (R).
The appellant further submitted that as per the general rules for classification of goods, specific entry needs to be given preference over a generic entry; that given the same, the AAR order which seeks to classify the said product which has therapeutic uses and approved by the regulatory body viz. Drug Controller as a medicine, under the generic heading viz. residuary heading, is illegal and deserves to be set aside.
The appellant also submitted that, it is clear that NPL is certified as a drug and is a Medicine and hence deserves classification under Chapter 3004; that, NPL is a product having therapeutic uses; that, since NPL has therapeutic uses, it qualifies as a medicament under Tariff Head 3004 and thereby would not fit into the exclusion under clause (b) to Note 1 to Chapter 30. That the said exclusion is for “preparations in general” and does not apply where the said product qualifies as a medicament and hence deserves treatment as a pharmaceutical product.
Reasoning of Judgment-The appellate Authority found that the impugned product is merely an aid used in Nicotine Replacement Therapy to assist smokers to quit smoking. In Nicotine Replacement Therapy, the intensity of the withdrawal symptoms (mainly a craving for nicotine) is reduced. This is because the product used in the Nicotine Replacement. Therapy provides the person a small controlled amount of nicotine without any of the other dangerous chemicals found in cigarette smoke. This helps satisfy the craving for nicotine and reduces the urge to smoke thereby helping the person manage the withdrawal symptoms. As already mentioned above, the product is not a medicament used to treat any illness or disease. It is only a preparation used to assist smokers to stop the habit of smoking.
No doubt the product is sold in measured doses of 2 mg. and 4 mg. and is to be taken in a prescribed manner as indicated in the label. However, this fact will not categorize the product as a medicament classifiable under Chapter 30. It may be noted that use of this substance for prolonged periods of time may lead to a dependence on nicotine polacrilex. Therefore, the use of the product in the manner prescribed is mainly to transfer the physiologic dependence from ‘nicotine contained in tobacco’ to ‘nicotine bound in a polacrilex’. Such stop smoking aids cannot be classified under Chapter 30 in view of the exclusion given in Chapter Note 1(b) to Chapter 30. In view of the aforesaid, The Appellate authority are not inclined to accept this argument of the Appellant.
The Appellate Authority moved on to determine the Chapter under which the product can be classified. The Chapter Note 1(b) to Chapter 30, while excluding from its purview preparations intended to assist smokers from smoking, proposes to classify such preparations under either 21.06 (Food preparation not elsewhere specified) or under 38.24 (Miscellaneous chemical products).Chapter 21 pertains to miscellaneous edible preparations and Chapter Heading 21.06 covers food preparations not elsewhere specified.
In this case, the impugned product contains the active ingredient “Nicotine Polacrilex” which, as already stated earlier, is a substance comprising of nicotine which is bound by a resin (Polacrilex). Clearly, the combination of these ingredients cannot be considered as a food preparation. Hence, Nicotine Polacrilex Lozenge is not classifiable under Chapter Heading 21.06. The other alternative chapter heading provided in Chapter Note 1(b) to Chapter 30 for classifying preparations which assist smokers to stop smoking, is Chapter Heading 38.24. Chapter 38 of the Customs Tariff Act relates to “Miscellaneous chemical products” and the Chapter Heading 38.24 covers “Prepared binders for foundry moulds or cores; Chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.”
The Appellate Authority further found that the active ingredient in “Nicotine Polacrilex Lozenge” is Nicotine which is a natural alkaloid. Nicotine is bound to an ion-exchange resin (polymethacrilic acid) and administered in the form of tablets, chewing gum, lozenge or patches. The chemical formulation of the nicotine bound to the resin polacrilexis such that it provides the user of the product blood nicotine levels via buccal absorption that will approximate those produced by the inhalation of tobacco smoke. We find that the Nicotine Polacrilex Lozenge is a chemical preparation and hence is more aptly classifiable under Chapter Heading 38.24 of the Customs Tariff Act, 1975.
For GST rate of the product The Appellate Authority Considered that In the GST rate Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017, the “Prepared binders for foundry moulds or cores: Chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included” falling under Chapter Heading 38.24 are covered under entry Sl. No. 97 of Schedule III with a GST rate of 18% (CGST 9% plus SGST 9%).
 
Order:- In view of the above the appellate authority  have passed  the order that they uphold the Order passed by the Advance Ruling Authority and appeal filed by the appellant M/s. Strides Emerging Markets Ltd., stands dismissed on all accounts.

Prepared by Bharat Rathore
Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com