Excise Duty Demand on Dietary Supplements Upheld; CESTAT Denies Area-Based Exemption

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld a substantial excise duty demand and ruled that dietary supplements cannot be classified as pharmaceutical products and are therefore not eligible for area-based excise exemption under Notification No. 49/2003-CE. The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has dismissed the appeal filed by the assessee and affirmed the orders passed by the lower authorities, including confirmation of duty demand, interest, and penalty under Section 11AC of the Central Excise Act, 1944. The appellant was engaged in the manufacture of dietary food supplements during the period July 2011 to March 2015at its factory located in Haridwar, Uttarakhand. During this period, the company cleared its products without payment of central excise duty, claiming exemption under Notification No. 49/2003-CE, which grants excise exemption to specified goods manufactured in Uttarakhand and Himachal Pradesh. The assessee declared that it was manufacturing pharmaceutical products falling under Chapter 30 of the Central Excise Tariff and accordingly availed the exemption. However, departmental investigations revealed that the products were dietary supplements, manufactured under PFA/FSSAI licences, and not drugs licensed by the Drugs Controller. Following an investigation conducted on 17 March 2015, the department found that the products were dietary Food Supplements classifiable under CETH 21069099 and manufactured under Food Safety licences, not drug licences. A show cause notice dated 15 July 2016 was issued proposing reclassification of goods under Chapter 21, denial of exemption under Notification No. 49/2003-CE, recovery of ₹1.63 crore along with interest, and imposition of penalty on the company and its Plant Head The Joint Commissioner confirmed the demand and imposed an equivalent penalty on the company, along with a personal penalty on the Plant Head. The appellant repeatedly failed to appear before the Tribunal on multiple hearing dates. Relying on the Supreme Court’s ruling in Balaji Steel Re-Rolling Mills (2014), the CESTAT proceeded to decide the appeal on merits, holding that appeals cannot be dismissed merely for non-prosecution and must be adjudicated substantively. The central issue before the Tribunal was whether dietary supplements could be classified as pharmaceutical products under Chapter 30. Rejecting the assessee’s arguments, the Tribunal relied heavily on Chapter Note 1(a) to Chapter 30, which explicitly excludes: “Food supplements, tonic beverages and mineral waters, other than nutritional preparations for intravenous administration.” The Tribunal observed that the appellant selectively quoted the Chapter Note in its appeal while omitting the crucial phrase “for intravenous administration”, thereby attempting to misrepresent the scope of exclusion. Accordingly, the Tribunal held that dietary supplements are clearly excluded from Chapter 30. They are correctly classifiable under CETH 21069099. Such goods are not covered by Notification No. 49/2003-CE On the issue of limitation, the Tribunal found that the appellant had declared only pharmaceutical products in exemption declarations, suppressed the manufacture and clearance of dietary supplements and obtained separate licences under FSSAI, indicating knowledge that the goods were not drugs. The Tribunal concluded that mens rea and intent to evade duty were clearly established from the conduct of the assessee, justifying invocation of the extended period of limitation and imposition of penalty under Section 11AC. The CESTAT upheld the classification of goods under CETH 21069099, denial of area-based excise exemption, demand of ₹1.63 crore with interest, penalty equal to duty amount on the company, and personal penalty on the Plant Head (as reduced by Commissioner Appeals) Case Details Case Title: M/s Orchid Bio-Tech Pvt. Ltd. Versus Commissioner, CGST, Dehradun Case No.: Excise Appeal No. 51847 Of 2021 Date: 18.12.2025 Counsel For Appellant: None Counsel For Respondent: Bhagwat Dayal Click Here To Read Order Read More: CESTAT Quashes Rs. 18.84 Crore Service Tax Demand on Multiplex Food Sales

Excise Duty Demand on Dietary Supplements Upheld; CESTAT Denies Area-Based Exemption

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