Full Judgment Text
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CASE NO.:
Appeal (civil) 2736-2738 of 1999
PETITIONER:
Sarabhai M. Chemicals
RESPONDENT:
Commis.of Central Excise,Vadodara.
DATE OF JUDGMENT: 16/12/2004
BENCH:
S.N.VARIAVA,Dr.AR.LAKSHMANAN&S.H.KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
These appeals under section 35L(b) of Central
Excise Act, 1944 are directed against a majority decision
dated 11.1.1999 passed by the Customs, Excise and Gold
(Control) Appellate Tribunal, New Delhi, by which
common order, the Appeal Nos.E-736/91-C, E-738/91-C
and E/747/91-C filed by the appellant were dismissed.
The facts, briefly, stated are as follows:
M/s Sarabhai M. Chemicals, the appellant herein,
is a manufacturer of bulk drugs in India. It manufactures
Ascorbic Acid and Salts of I.P. (Vitamin ’C’) as well as
Sorbitol Solution U.S.P. The said goods fall under
chapter heading 29 of Central Excise Tariff Act, 1985.
By notification no.234/86 dated 3.4.1986, the
Central Government exempted the bulk drugs as defined
in the said notification from payment of excise duty. The
appellant submitted its classification list for approval
claiming exemption under the said notification. By letter
dated 17.4.1986, the Assistant Collector permitted the
appellant to clear the bulk drugs under the above
notification subject to production of a certificate from the
Drugs Controller, Government of India. The appellant
obtained certificates from the Drugs Controller dated
17.4.1986, 15.5.1986, 21.5.1986 and 6.8.1990, in respect
of their claim for exemption under the aforestated
notification. In the classification list, exemption was
sought by the appellant under notification no.234/86 on
the basis of certificates received by the appellant from the
Drugs Controller, Government of India. The
classification lists were scrutinized, verified and
approved by the Assistant Collector. The appellant
cleared the goods upon submission of the gate passes in
which they disclosed the names of the consignees. The
appellant also submitted its monthly returns on excisable
goods manufactured by it in the prescribed RT-12 forms,
which gave the particulars of the goods removed, gate
passes under which the goods were removed etc.
Three show-cause notices were received by the
appellant on 30.12.1987, 6.4.1988 and 20.6.1988 from
Collector of Central Excise, Vadodara, denying the
exemption under notification no.234/86. All the three
show-cause notices alleged that the appellant has
wrongly availed nil rate of duty in respect of its
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clearances by not bringing to the notice of the department
the fact that certain quantities of sorbitol solution and
vitamin "C" had been sold to non-pharma concerns
knowing fully well that the commodities would not be
normally used as drugs or medicines by its customers. By
the said show-cause notices, the appellant was asked to
show-cause inter alia as to why excise duty should not be
recovered under section 11-A(1) of the said Act read with
rule 9(2) of the Central Excise Rules, 1944. The said
three show-cause notices related to the period, April 1986
to November 1986, March 1984 to February 1986, and
April 1986 to 30th April, 1987. The grounds for demand
stated that on verification of the records of the appellant,
it was noticed by the department that the appellant had
cleared sorbitol solution to cigarette manufacturers,
which fact was not brought to the notice of the
department at the time of clearance.
By its reply dated 2.3.1988, 18.7.1988 and
6.10.1988 respectively, the appellant submitted that the
Drugs Controller to the Government of India had issued a
certificate certifying sorbitol solution etc. as a Bulk Drug
after scrutinizing and examining the product; that the
sorbitol solution manufactured by the appellant met the
requirement of the said notification; and that the word
"normally" used in the notification did not restrict the
exemption based on individual end use. It was urged that
if the intention was to restrict use of sorbitol solution by
drug manufacturing units only for diagnosis, treatment,
medication or in prevention of diseases or as an
ingredient in any formulation then the Legislature would
have used the word "exclusively" instead of the word
"normally"; that the notification did not require the
appellant to ascertain the end use at the time of clearance
of a bulk drug from the factory and that once the
certificate from the Drugs Controller was issued in terms
of the notification no.234/86, no further requirement
remained to be complied with in the matter of availing
exemption under the notification. It was argued that the
proviso to the notification did not leave any scope for
further enquiry regarding the end use of the product on
the part of the proper officer to grant exemption to the
product which was certified as ’bulk drug’ by the Drugs
Controller. It was submitted that the Government did not
intend to put the burden of production of end use
certificate on the appellant; that had the Government
intended to do so, some such provision would have been
made in the notification. It was further submitted that the
certificate granted by the Drugs Controller was final for
all clearances of bulk drugs for exemption. It was
submitted that the demand of duty by the department on
sorbitol solution was without jurisdiction and without any
authority of law; that it was based on misinterpretation of
the word "normally" used in the notification and
consequently, the demand notice was bad-in-law and a
nullity. It was submitted that a conjoint reading of the
proviso and the explanation given in the notification
indicated that when the Drugs Controller issues a
certificate under the notification to the effect that the
goods in question were bulk drugs as given in the
explanation, the goods were entitled to exemption. On
the point of limitation, it was submitted that the appellant
had filed their classification list to which the department
had never objected. It had filed RT-12 assessments and
the same were approved by the department from time to
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time. The appellant bonafide believed that the goods in
question fell under the said notification. The appellant
was allowed to clear the goods by the department and
consequently, invocation of rule 9(2) of the Central
Excise Rules by the department was not warranted, as
there was no violation of rule 9(1). It was argued that the
normal trade pattern of putting sorbitol solution in the
market was through distributors and consequently it was
impossible to get an end use certificate at the time of
clearance of the consignments at the factory gate.
By orders dated 23.11.1990, 22.11.1990 and
23.11.1990, the Collector rejected the contentions of the
appellant and confirmed the demands in all the three
notices.
Being aggrieved by the three orders passed by the
Collector, the appellant filed three separate appeals,
referred to above, before the Customs, Excise Gold
(Control) Appellate Tribunal, New Delhi (hereinafter
referred to as "the Tribunal"). The appellant argued the
matter before the Tribunal on the point of limitation as
well as on merits. The Judicial Member (J.M.) took the
view that the above show-cause notices were time barred
and no case was made out for invoking the extended
period of limitation as the demands mentioned in the
three show-cause notices have been worked out from the
gate passes without further investigation by the
department with the consignees mentioned in the gate
passes. According to the J.M., the matter was squarely
covered by the judgment of the Madhya Pradesh High
Court in Jayant Vitamins Ltd. v. Union of India reported
in [(1991) 53 ELT 278]. The J.M. observed that crucial
point was \026 whether the appellant has suppressed any
facts or had cleared the goods by misrepresentation, fraud
or collusion? According to the J.M., the appellant
bonafide believed that their product was covered by the
exemption notification and on the strength of the
certificate from the Drugs Controller and their
classification list, duly approved by the department, they
had cleared the goods and, therefore, the department was
precluded from invoking the proviso to section 11A(1) of
the said Act, 1944. In the circumstances, the J.M. set
aside the show-cause notices-cum-demands as time
barred and allowed all the three appeals filed by the
appellant. However, in his concluding paragraph, the
J.M. clarified that the appeals stood allowed only on the
question of limitation and that he was not recording any
order on the merits of the case.
The Technical Member (T.M.) disagreed with the
J.M. holding that the product cleared to a pharmaceutical
factory alone became "bulk drugs"; that "bulk drugs"
cleared to a pharmaceutical factory alone could be
manufactured and sold for diagnosis or treatment or
prevention of diseases in human beings and animals; that
the appellant was well aware that if they sold their
product to a non-pharmaceutical company (consumer), it
was evidently intended for non-medicinal use and,
therefore, would not be covered by the exemption
notification. It was observed that mere obtaining a
certificate from the Drugs Controller by itself would not
absolve the appellant, when they knowingly sold a
specified quantity to non-pharmaceutical concerns being
fully aware that those customers are not going to use the
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product as drugs or medicines. The T.M. further
observed that since the language of the notification was
clear and since it did not admit any ambiguity, there was
no merit in the plea of the appellant that they bonafide
believed that the items were covered by the exemption
notification. It was further held that in the present case,
the department did not demand duty from the appellant in
respect of the quantity sold to pharmaceutical concerns,
but the department had demanded duty only in respect of
the quantity of sorbitol solution and vitamin ’C’ sold to
non-pharmaceutical concerns. On facts, the T.M. came
to the conclusion that the appellant had deliberately
continued to take benefit of the exemption notification
even in respect of the quantity about which they were
aware would not constitute a drug or medicine in the
normal course. That it was evidently done with the
intention to sell to the non-pharmaceutical concerns,
which fact was withheld from the department. It was
further held that indication of names of the consignees on
the gate passes was by itself not sufficient to exclude the
extended period of time available to the department.
Accordingly, the T.M. dismissed the appeals.
In view of difference of opinion, the matter was
referred by the President of the Tribunal to a Third
Member to decide \026 whether the demand was time
barred? By the impugned judgment dated 11.1.1999, the
Third Member, concurring with the T.M., came to the
conclusion that the appellant had wrongly taken the
benefit of exemption notification to the extent of sorbitol
solution being removed to those, who were not the
manufacturers of medicines and who had nothing to do
with the diagnosis, treatment, mitigation or prevention of
diseases. It was held that when the appellant diverted
their consignments of bulk drugs to non-pharmaceutical
concerns, they were not complying with the statutory
requirements of the exemption notification. According to
the Third Member, "bulk drugs" were products which
were normally used for diagnosis, treatment, mitigation
or prevention of diseases in human beings or animals;
that they were to be normally used for specified purposes
and that they had to be actually used as bulk drug or as an
ingredient in any formulation. It was observed by the
Third Member that the appellant had admitted that
certain quantity of sorbitol solution, in respect of which
duty has been demanded, was cleared in favour of non-
pharmaceutical concerns and in the circumstances, the
Third Member agreed with the T.M. and accordingly
dismissed the appeals.
Being aggrieved by the majority decision, the
assessee has come to this Court by way of appeal under
section 35L(b) of the Central Excise Act, 1944.
Two points arise for determination, one is on
merits and other is on limitation.
Mr. Ravindra Narain, learned advocate appearing
on behalf of the appellant submitted, at the outset, that,
the impugned majority decision was patently erroneous.
In this connection, it was urged that the J.M. had decided
the question of limitation in favour of the appellant
holding the demands to be time barred and, therefore, he
did not decide the question of the applicability of the
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exemption notification. It was urged that when the T.M.
disagreed with the J.M. on the question of limitation, the
matter was referred to the Third Member, who while
concurring with the T.M., on the question of limitation,
erroneously dismissed the appeals instead of referring
them back to the Division Bench to decide the question
on merits. In the circumstances, it was urged that the
impugned majority decision dated 11.1.1999 dismissing
the appeals, without going into merits, was patently
erroneous.
On the question of applicability of the exemption
notification, Mr. Ravindra Narain, learned advocate
appearing on behalf of the appellant, submitted that the
appellant had obtained a certificate from the Drugs
Controller to the effect that the sorbitol solution was a
bulk drug within the meaning of "bulk drug" given in the
explanation to the notification as they were normally
used for diagnosis, treatment, medication or prevention
of diseases in human beings. They were normally usable
as "bulk drug" or as an ingredient in any formulation.
Since the Drugs Controller had issued the certificate in
favour of the appellant certifying sorbitol solution as a
bulk drug, the appellant’s product met the requirement
laid down in the exemption notification. According to
the learned advocate, the word "normally" as used in the
notification has to be assigned a dictionary meaning to
mean "under normal circumstances" or "ordinarily". The
word "normal", according to the learned advocate, is to
be read as opposed to the word "exceptional". According
to the learned advocate, in using the word "normally",
one is referring to something which is opposed to
abnormal or exceptional. According to the learned
advocate, the word "normally" used in the notification
cannot restrict the exemption. That the word "normally"
would rule out individual end use of the product.
According to the appellant, if it was the intention of the
Legislature to restrict use of sorbitol solution by drug
manufacturing units only for diagnosis, treatment,
medication etc., nothing prevented the Legislature from
using the word "exclusively" instead of the word
"normally". According to the appellant, the exemption
notification did not require the manufacturers to ascertain
the end use at the time of clearance of bulk drug from the
factory. It was urged that once the certificate from the
Drugs Controller was issued in terms of the notification
no.234/86, no further requirement remained to be
complied with in the matter of taking exemption in the
notification. There was no requirement of production of
end use certificate by the assessee in the said exemption
notification and in the absence of such provision, the
department was not entitled to insist on production of the
end use certificate. In the circumstances, it was
submitted that the demand of duty made by the
department on the bulk drug, manufactured by the
appellant, sorbitol solution was without jurisdiction and
without authority of law. The authority had wrongly
denied legitimate exemption to the appellant and,
therefore, the demand notices were bad-in-law and
nullity.
On the question of limitation, it was submitted on
behalf of the appellant that they were manufacturing bulk
drugs for which they have filed classification list from
time to time under Chapter 29 (Tariff Item 29.42). The
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department had approved the classification lists. On
approval, the appellant had cleared the goods. The
department had never objected to such clearances. The
appellant was not asked to clear the goods under
provisional assessment. The appellant has been filing
RT-12 forms from time to time. These forms were
approved by the department from time to time.
According to the appellant, as per the proviso to the
exemption notification, the manufacturer who sought to
take exemption was required to furnish a certificate from
the Drugs Controller, to the effect that the drug for which
exemption was claimed was a bulk product within the
meaning of "bulk drugs" given in the explanation to the
notification. It was submitted that on conjoint reading of
the proviso and the explanation, once a certificate of the
Drugs Controller was produced in connection with the
goods in question, they were entitled to exemption. It
was urged that where two interpretations of the
notification exist, the benefit should accrue to the
assessee. It was urged that in the present case, the
appellant believed that sorbitol solution and vitamin ’C’
stood covered under the exemption notification
no.234/86 and the appellant was allowed to clear the said
goods by the department. Therefore, it was not open to
the department to raise the dispute at a belated stage, by
invoking rule 9(2) of the Central Excise Rules, 1944,
particularly, when there was no violation of rule 9(1). It
was further contended that the normal trade pattern of
putting sorbitol solution I.P. in the market was through
the distributors and, therefore, it was difficult for the
appellant to obtain an end use certificate at the time of
clearance of the said goods at the factory gate. Lastly, it
was urged that out of quantity, on which duty has been
demanded, only 29850 Kgs. have been cleared to non-
pharmaceutical units, namely, soaps, ceramics, rubber
and cigarette units which represented 3.87% of the total
clearances during the period in dispute and, therefore,
96% of the total clearances was to the pharmaceutical
concerns and in the circumstances, the department was
not right in invoking the extended period of limitation.
Mr. R. Venkataramani, learned senior advocate
appearing on behalf of the department submitted that the
Third Member to whom the reference was made has
recorded a finding that the appellant has not contested the
matter on merits. He pointed out that the Third Member
to whom the reference was made concluded that the
appellant had availed of the benefit of the exemption
notification in respect of the quantities of sorbitol
solution cleared in favour of non-pharmaceutical
companies. Learned senior advocate submitted on behalf
of the department that they were not demanding duty in
respect of the quantity sold to pharmaceutical concerns
for pharmaceutical or medicinal purposes. The
department was demanding duty only in respect of that
quantity of sorbitol solution which admittedly has been
sold to non-pharmaceutical companies, knowing fully
well that they would not be used as drugs or medicines.
In the circumstances, it was urged that both the questions,
of limitation and applicability of exemption notification,
have been decided by the impugned decision and in the
circumstances, there was no merit in the contention
advanced on behalf of the appellant that the Third
Member should have referred back the matter to the
Division Bench for deciding the question on merits.
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On the question of applicability of the notification,
learned senior advocate appearing on behalf of the
department submitted that the word "bulk drug" is
defined under section 2(a) of the Drugs (Prices Control)
Order, 1979, enacted in exercise of the powers conferred
under section 3 of the Essential Commodities Act, 1955.
It was urged that the explanation to the exemption
notification no.234/86 has borrowed the definition of
’bulk drug’ from section 2(a) of the Drugs (Prices
Control) Order, 1979 to mean any substance including
pharmaceutical, chemical, biological or plant product
conforming to pharmacopoeial standards accepted under
the Drugs & Cosmetics Act, 1940, which is used as such
or as an ingredient in any formulation. It was submitted
that the certificate issued by the Drugs Controller, in the
present case, was a reproduction of the explanation to the
notification. The said certificate did not deal with the
uses other than the "normal uses" of such bulk drugs. It
was urged that there are distinct categories of bulk drugs,
namely, the class of drugs, which are normally used for
diagnosis, prevention and mitigation of diseases and
"used as such", as opposed to other classes which are not
normally used but which are also capable of being used
for the diagnosis, treatment etc. In the circumstances, it
was urged that there was no need for using the word
"exclusive" as is canvassed on behalf of the appellant. It
was submitted that the key expression in the notification,
namely, "normally used" and "used as such" should be
given their purposive meaning in order to facilitate the
taking of the benefit of exemption as also to prevent the
abuse of the exemption. The words "normally used"
indicated ’bulk drugs’ whose predominant use is for the
diagnosis, treatment etc. and which were otherwise
capable of being used for other purposes. These bulk
drugs stood apart from drugs which may not be normally
used in diagnosis, treatment, prevention or mitigation of
diseases. The latter class of drugs did not fall within the
scope of exemption notification. Similarly, the first
category of drugs referred to above, if and when diverted
for other uses, would also get excluded. In the
circumstances, the department was right in raising the
demand on the appellant.
On the question of limitation, it was urged on
behalf of the department that under the Self Removal
Procedure, unlike the physical control procedure, the gate
passes were not required to be endorsed at the time of
removal. The gate passes used by the appellant were pre-
authenticated by the proper officer. The gate passes were
required to be supported by the RT-12 returns (monthly
returns) to be submitted in terms of rule 173G (3). It was
submitted that rule 173B required filing of classification
list and rule 173C required filing of a price list. All that
the proper officer was required to do, when RT-12
returns were filed, was to endorse, approve or disapprove
the above list. Therefore, the completion of assessment
under the Self Removal Procedure did not relieve the
assessee, where exemption was claimed, from giving all
details relevant for the purpose of endorsing the contents
of the gate passes. It was submitted that clearance to a
non-pharmaceutical user without giving further details,
except the name of the consignee, would amount to
suppression of facts. In the alternative, it was submitted
that even assuming for the sake of arguments that the
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proper officer was either remiss, negligent or in default in
not asking for further information, at the time of
endorsing the RT-12 returns every month, the omission
on the part of the assessee in not disclosing the end use
cannot be condoned. The law allows a period of five
years to trace the wrong in any manner. In this
connection, reliance was also placed on section 11A of
the Act. In any event, the satisfaction of the proper
officer, even when there is no full disclosure, cannot be
said to be final and beyond review. It cannot debar the
department from reopening the approvals and
assessments. The assessee cannot be permitted to take
advantage of its own illegal act. In the circumstances, it
was urged that no inference is called for in the present
case.
We do not find any merit in the preliminary
submission made on behalf of the appellant. In the
present case, we are concerned with exemption
notification. It is well settled that an exemption
notification has to be strictly interpreted. The conditions
for taking the benefit of the exemption have to be strictly
interpreted. In the present case, the Third Member has
rightly rejected the contention advanced on behalf of the
appellant that more than one view was possible on
interpretation of exemption notification no.234/86. The
Third Member has recorded a finding that the appellant
has not disputed that a certain quantity of sorbitol
solution and vitamin ’C’ stood cleared to non-
pharmaceutical units, namely, soaps, ceramics, rubber
and cigarette units. The appellant had conceded before
the Tribunal of having cleared 3.87% of the total
clearances to non-pharmaceutical companies who could
not have used the said solution as drugs or medicines.
Moreover, in the present case, the department has not
demanded the duty in respect of quantity sold to
pharmaceutical concerns for pharmaceuticals or
medicinal purposes. In the present case, the dispute was
not whether the appellant was entitled to the benefit of
the exemption notification in respect of the entirety of
goods manufactured and cleared during the period in
question, but the dispute was regarding the taking of
exemption benefit under the notification in respect of the
quantum of bulk drugs cleared to consumers other than
the pharmaceutical concerns. In the circumstances, the
Third Member was right in deciding the question of
limitation as well as the question of applicability of
exemption notification no.234/86. In any event, the said
two questions are interlinked and, therefore, we do not
find any merit in the preliminary objection raised on
behalf of the appellant.
Before going into the question of applicability of
the exemption notification and in order to understand the
arguments advanced before us, we quote herein below
the notification no.234/86-CE dated 3.4.1986:
"G.S.R. 593(E):\027In exercise of the
powers conferred by sub-rule (1) of rule 8 of
the Central Excise Rules, 1944, the Central
Government hereby exempts bulk drugs,
falling under Chapter 28 or Chapter 29 of
the Schedule to the Central Excise Tariff
Act, 1985 (5 of 1986), from the whole of the
duty of excise leviable thereon under section
3 of the Central Excises and Salt Act, 1944:
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Provided that the manufacturer
furnishes to the proper officer, a certificate
from the Drugs Controller to the
Government of India, within such period as
the said officer may allow, to the effect that
the drugs or chemicals which are claimed
for exemption under this notification are the
bulk drugs within the meaning of the bulk
drugs given in the Explanation to this
notification, and are normally used for the
diagnosis, treatment, mitigation or
prevention of diseases in human beings or
animals, and used as such or as an ingredient
in any formulation.
Explanation:\027 In this notification,
"bulk drugs" means any chemical or
biological or plant product, conforming to
pharmacopoeial standards, normally used
for the diagnosis, treatment, mitigation or
prevention of diseases in human beings or
animals, and used as such or as ingredient
in any formulation."
(Emphasis supplied by us)
To understand the controversy, we also quote
hereinbelow the certificate dated 17.4.1986 issued by the
Drugs Controller:
"This is to certify that the undermentioned
Bulk Drugs manufactured by M/s Sarabhai
M. Chemicals, a Divn. of Ambalal Sarabhai
Enterprises Ltd., Baroda, under the Drug
Licence number as shown against each are
the bulk drugs which can be used in the
manufacturer of formulation i.e. drugs
which are used for the diagnosis, treatment,
mitigation or prevention of diseases in
human beings or animals, and used as such
or as an ingredient in formulations.
Sr. No. Name of Bulk Drugs Licence No.
1. Ascorbic acid I.P. Form 28 No.G/22
(Vitamin C) dated 17.3.1981
2. Vitamin C ’coated’ - do -
(Ascorbic acid ’coated’)
3. Sodium ascorbate U.S.P. - do -
4. Sorbitol Solution U.S.P. Form 25 No.G-55
on 17.3.1981"
A bare reading of the notification no.234/86
indicates that the exemption in favour of bulk drugs
falling under chapter 28 or chapter 29 of the schedule
annexed to the Central Excise Tariff Act, 1985 is not an
unconditional exemption. The said notification had a
proviso. Under the proviso, the manufacturer was
required to furnish to the Competent Authority a
certificate from the Drugs Controller to the effect that the
drug for which exemption was claimed was a "bulk drug"
within the meaning of the expression "bulk drug" given
in the explanation to the notification and, which was
normally used for diagnosis, treatment etc. in human
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beings or animals and used as such or as an ingredient in
any formulation. The explanation to the notification
defines "bulk drugs" to mean any chemical, biological or
plant product, normally used for diagnosis, treatment etc.
in human beings or animals and used as such or as an
ingredient in any formulation. The question is \026 whether
in the said exemption notification, end use of the bulk
drug was made imperative. According to the appellant,
mere production of the certificate from the Drugs
Controller was sufficient to attract the benefit of the
exemption notification. We do not find any merit in this
argument. The bulk drug is defined under section 2(a) of
the Drugs (Prices Control) Order, 1979 to mean any
substance including pharmaceutical, chemical, biological
or plant product which is used as such or as an ingredient
in any formulation. A substance may have several uses
other than in drugs/pharmaceuticals. The eligibility for
exemption under notification no.234/86-CE dated
3.4.1986 requires the substance (sorbitol solution) to be
actually used in manufacture of drugs / medicines /
pharmaceuticals. In other words, sorbitol solution may
have different uses. However, sorbitol solution got the
benefit of exemption only when it was used actually in
manufacture of drugs/medicines/pharmaceuticals. The
exemption was given to a drug. It was not given to a
sorbitol solution, which has uses other than in
pharmaceuticals. A sorbitol solution could be called a
drug for the purposes of exemption only when it was
actually used as drug or as an ingredient in any
formulation. The notification no.234/86 gave exemption
to only those substances, which are, in reality, drugs and
not to the substances, which are not drugs even though
they are capable of acting as drugs. Therefore, the
exemption was extendable to sorbitol solution, cleared by
the appellant, when used in the manufacture of drugs,
medicines, pharmaceuticals. By diverting a specified
quantity of sorbitol solution etc. to liquor units, cigarettes
units, soap units etc., the appellant lost the benefit of
exemption and in the circumstances, the department was
right in raising the aforestated demand.
Our interpretation is supported by the language of
the notification. Under the proviso read with the
explanation to the said notification, there were three
conditions required to be satisfied by way of certification
by the Drugs Controller. Firstly, that the bulk drugs
should have the same meaning as mentioned in the
explanation to the notification. Secondly, that such bulk
drugs should be normally used for the specified purposes;
and, thirdly, that the "bulk drugs" are used as such or as
an ingredient in any formulation. Plainly read, the third
condition has to mean that the goods, for which
exemption was sought, were actually used as such or as
an ingredient in any formulation. If the arguments
advanced on behalf of the appellant is accepted then the
second and third condition would have the same meaning
and there would be no point in specifying them as
separate conditions. In the explanation to the
notification, we have two expressions, namely,
"normally used" and "used as such". We have to read
both these expressions in juxta position. If so read, it
becomes clear that the expression "used as such" in the
proviso qualifies the actual use and not the capability of
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use. These words are by way of emphasis. They are a
condition to be actually satisfied before the exemption
can be availed and granted. Consequently, every
manufacturer of a bulk drug cannot seek the benefit of
exemption under the said notification merely by reason
of "normal use" of the drug. The words "normal use"
indicate the possible use whereas the expression "used as
such" indicates the actual use. The certificates issued by
the Drugs Controller, quoted above, shows that they did
not deal with uses other than "normal uses" of such bulk
drugs. In the circumstances, the Tribunal was right in
holding that the benefit of the exemption was available
only to those drugs which went into the stream of
diagnosis, treatment etc. and not to the use of any other
profit making activity. In the circumstances, on the
question of applicability of the notification, we do not
find any infirmity in the impugned decision of the
Tribunal.
Now coming to the question of limitation, at the
outset, we wish to clarify that there are two concepts
which are required to be kept in mind for the purposes of
deciding this case. Reopening of approvals/assessments
is different from raising of demand in relation to the
extended period of limitation. Under section 11A(1) of
the Central Excise Act, 1944, a proper officer can reopen
the approvals/assessments in cases of escapement of duty
on account of non-levy, non-payment, short-levy, short-
payment or erroneous refund, subject to it being done
within one year from the relevant date. On the other
hand, the demand for duty in relation to extended period
is mentioned in the proviso to section 11A(1). Under that
proviso, in cases where excise duty has not been levied or
paid or has been short-levied or short-paid or erroneously
refunded on account of fraud, collusion or wilful mis-
statement or suppression of facts, or in contravention of
any provision of the Act or Rules with intent to evade
payment of duty, demand can be made within five years
from the relevant date. In the present case, we are
concerned with the proviso to section 11A(1).
In the case of Cosmic Dye Chemical v. Collector
of Central Excise, Bombay reported in [1995 (75) ELT
721], this Court held that intention to evade duty must be
proved for invoking the proviso to section 11A(1) for
extended period of limitation. It has been further held
that intent to evade duty is built into the expression
"fraud and collusion" but mis-statement and suppression
is qualified by the preceding word "wilful". Therefore, it
is not correct to say that there can be suppression or
misstatement of fact, which is not wilful and yet
constitutes a permissible ground for invoking the proviso
to section 11A.
In case of Pushpam Pharmaceuticals Company v.
Collector of Central Excise, Bombay reported in [1995
(78) ELT 401], this Court has held that the extended
period of five years under the proviso to section 11A(1)
is not applicable just for any omission on the part of the
assessee, unless it is a deliberate attempt to escape from
payment of duty. Where facts are known to both the
parties, the omission by one to do what he might have
done and not that he must have done does not constitute
suppression of fact.
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Applying the tests in the aforestated judgments to
the facts of the present case, we find that the demands
raised by the department in the impugned three show-
cause notices were time-barred. The first show-cause
notice was dated 30.12.1987. It was in respect of period
1.4.1986 to 30.11.1986. The second show cause notice
was dated 6.4.1988. Under the said notice, the
department has demanded duty for the period 1.3.1984 to
28.2.1986. The last show-cause notice was dated
20.6.1988, for the period 1.4.1986 to 30.4.1987.
Therefore, section 11A(1) was not applicable.
The question is, whether in the present case, there
was any wilful suppression of facts. On facts, as stated
above, we find that the appellant had filed a classification
list indicating notification no.234/86 dated 3.4.1986 as
well as the chapter under which the goods fell. We have
gone through the classification list. It indicates the claim
for exemption. The classification list was duly approved
by the department. So also monthly returns were filed by
the appellant in the form of RT-12, in which there was a
complete disclosure regarding the nature of the goods.
These returns were regularly assessed by the department.
The material placed on record shows filing of gate
passes, invoices, classification list. They indicated the
names of the consignees. A mere reading of these names
would indicate that sorbitol solution was sold to non-
pharmaceutical companies like, M/s Golden Tobacco
Co. Ltd. Despite such disclosure, the department
approved the classification list as well as RT-12 returns.
There was no reopening of the approvals and assessments
within the stipulated period. In the circumstances, the
Judicial Member of the Tribunal was right in holding that
no case was made out for invoking the extended period
of limitation. As stated above, the end use was built in
the exemption notification. Therefore, the department
could have demanded duty within one year from the
relevant date under section 11A(1). However, this was
not done. In the absence of evidence of suppression of
facts, the J.M. was right in setting aside the show-cause
notices.
In the case of Jayant Vitamins Limited v. Union
of India reported in [1991 (53) ELT 278], show-cause
notice-cum-demand was issued by the department
alleging non-user of bulk drugs for specified purpose. In
that matter, goods were cleared without payment of duty,
as in the present case, on the basis of certificate from
Drugs Controller. In that case, same notification
no.234/86 was relied upon by the assessee. However, on
facts, the High Court found that the assessee had
disclosed the relevant facts in the gate passes and,
therefore, it was held that the department was not entitled
to invoke the proviso to section 11A(1). In our view, the
judgment of the Madhya Pradesh High Court in Jayant
Vitamins Ltd. (supra), is not on the applicability of the
notification no.234/86, as it is sought to be urged on
behalf of the appellant. The said judgment is only on the
point of limitation. It only states that the department was
not entitled to invoke the proviso to section 11A(1) as the
assessee had indicated in the gate passes the material
facts. On this point, before concluding, we may mention
that in the present case, we have come to the conclusion
that there was no wilful suppression of facts on the part
of the appellant as the appellant had filed the gate passes,
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invoices and monthly returns, which were all duly
approved by the department from time to time. The
invoices, gate passes and the monthly returns indicated
the names of the consignees from which it was possible
for the department to infer sale of sorbitol solution to
non-pharmaceutical companies and yet no steps were
taken by the department to raise the demand in time and,
therefore, we hold that there was no wilful suppression of
material facts for invoking the proviso to section 11A(1).
The facts of the present case are not confined only to gate
passes clearances. In such cases, it would not be proper
to Courts to rely on the evidence furnished only by gate
passes.
In the circumstances, although on merits the
department succeeds, these appeals need to be allowed as
the impugned show-cause notices-cum-demands were
time barred and as no case is made out by the department
for invocation of the proviso to section 11A(1) of the said
Act.
Before concluding, we may point out that
numerous judgments were cited on behalf of the
appellant under the Food Adulteration Act, the Essential
Commodities Act and the matters concerning
classification dispute. It is not necessary for us to burden
this judgment with those cases, particularly, in view of
the fact that in the present case, we are concerned with
interpretation of an exemption notification.
Subject to above, these civil appeals stand allowed.
The majority decision dated 11.1.1999 passed in Appeal
Nos.E-736/91-C, E-738/91-C and E/747/91-C by the
Customs, Excise and Gold (Control) Appellate Tribunal,
New Delhi is hereby set aside. Consequently, the three
show-cause-cum-demand notices dated 30.12.1987,
6.4.1988 and 20.6.1988 are hereby set aside as time
barred. In the facts and circumstances of the case, there
will be no order as to costs.