M/s Mentha & Allied Products Ltd. Vs. Commissioner of Central Excise, Meerut
Email(From the Judgment and Order dated 04.11.97 of the Central Excise, Customs and Gold (Control) Appellate Tribunal, New Delhi in F. O. No. 560/97-C in A. No. E/4748 of 1992-C)
(From the Judgment and Order dated 04.11.97 of the Central Excise, Customs and Gold (Control) Appellate Tribunal, New Delhi in F. O. No. 560/97-C in A. No. E/4748 of 1992-C)
Mr. Sanjiv Sen and Mr. B. Krishna Prasad, Advocates for the Respondent.
Central Excise Tariff Act, 1985
Chapter Headings 28, 29 and 30 – Drugs and Cosmetics Act, 1940 – Drugs (Prices Control) Order 1987 – Central Excise – Duty exemption in respect of bulk drugs in terms of Notification No. 31/88-CE dated 01.03.1988 – Meaning of ‘bulk drugs’ and ‘formulations’ – Appellant manufacturing tooth paste, tooth powder and shaving cream from out of Menthol IP – Claim for exemption rejected on the ground that the term ‘formulation’ is only with reference to a medicine processed out of a bulk drug – Validity. Held since the use of Menthol IP by the appellant assessee is not with reference to any formulation which is a medicine processed out of or containing one or more bulk drugs, it is not entitled to the exemption. (Paras 7, 8 and 9)
Central Excise Act, 1944
Section 11A – Extended period of limitation for recovery of excise duty and penalty – When Department would be justified in invoking Section 11A. Held where the law relating to the issue under consideration is not absolutely clear and divergent views have been expressed by the Tribunal, High Court and the Supreme Court, invoking of Section 11A not called for. (Para 10)
2. Calibre Chemicals v. Commissioner of Central Excise, Surat (1998 (98) ELT 755) (Para 5)
3. Citric India Ltd. v. Union of India (1993 (66) ELT 566 (Bom.)) (Para 10)
1. The appellant before us is a company engaged in the manufacture of Menthol IP, Menthol BP, Menthol U.S.P. and Mentha Oil IP. The appellant was carrying on its activities under a licence granted by the drug control authorities constituted under the Drugs and Cosmetic Act, 1940. The licence enabled the appellant to manufacture Menthol IP, Menthol BP, Menthol U.S.P. and Mentha Oil IP.
2. On 1.3.1988 a notification no. 31/88-CE was issued by the Department which reads as under :-
“In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central government hereby exempts goods of the description specified in column (2) of the table thereto annexed and falling under Chapter 28, 29 or 30 as the case may be, of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1985), from so much of the duty of excise leviable thereon under the said Schedule as is in excess of the amount calculated at the rate specified in the corresponding entry in column (3) of the said table.
THE TABLE
S Description of the Goods Rate
N of Duty
1 Bulk drugs (including salts, Nil
easters and derivatives, if
any) specified under the First
Schedule to the Drugs (Price
Control) Order, 1987, as
amended from time to time
2 Other bulk drugs 5% ad
valorem
3 Medicinal grade oxygen NIL
4 Medicinal grade Hydrogen NIL
Peroxide
5 Anaesthetics NIL
Explanation – In this notification, the expression “bulk drugs” shall have the same meaning assigned to it in the Drugs (Prices Control) Order, 1987.
The notification provides that the expression “Bulk drugs” shall have the same meaning assigned to it in the Drugs (Prices Control) Order, 1987. The Drugs (Prices Control) Order, 1987 defines ‘bulk drug’ as under :-
“Bulk Drug” means any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacopoeial or other standards accepted under the Drugs and Cosmetics Act, 1940 (23 of 1940), which is used as such, or as an ingredient in any formulation.”
The appellant claimed that he had been manufacturing and supplying Menthol as falling under the expression “bulk drugs” as set out in the notification referred to above and filed classification list. Returns also were filed in appropriate forms and goods were also cleared. The appellant was availing of the exemption till 27.6.1990. On 27.6.1990 the Assistant Collector, Central Excise, Rampur proposed that the appellant should pay the excise duty without availing of the benefit of the exemption referred to earlier and issued a show cause notice proposing imposition of penalty. Objections were raised by the appellant that the Assistant Collector was not competent to issue a show cause notice claiming excise duty for the past period exceeding six months. Thereafter, the Collector, Central Excise, Meerut, issued a show cause notice alleging that the appellant had wrongly availed of the benefit of the notification no. 31/88 dated 1.3.1988 during the period from April 1988 to December 1988 and January 1990 to 5 April 1990. After hearing the appellant and examining the replies filed by the appellant to the show cause notice, the Collector ultimately decided that the appellant was liable to pay differential demand of excise duty and also imposed penalty of Rs. 2 lacs.
3. The matter was carried in appeal to the Custom, Excise & Gold (Control) Appellate Tribunal (hereinafter referred to as the tribunal) which dismissed the appeal on the basis that Menthol cleared by the appellant is not used as such, or as an ingredient in any formulation as provided under the Drugs and Cosmetics Act, 1940 and, therefore, the appellant was not entitled for the benefit of notification no. 31/88-CE dated 1.3.1988
4. The basis upon which the Tribunal proceeded is that as per the definition of “bulk drug”, the substance mentioned in the definition must be used as such, or as an ingredient in any formulation and the expression “formulation” means a medicine processed out of, or containing one or more bulk drugs. The tribunal, therefore, took the view that Menthol IP cleared by the appellant is not being used as such, or as an ingredient in any of the formulation mentioned under the Drugs (Prices Control) Order, 1987 and thus the appellant was not entitled for the benefit of notification no. 31/88-CE dated 1.3.1988.
5. It is urged on behalf of the appellants before us that this Court in Union of India v. Citric India Ltd.1, held that for the purpose of similar notification the question of ascertaining end use of the product is irrelevant. This Court in an appeal arising out of an order of the tribunal in Calibre Chemicals v. Commissioner of Central Excise, Surat2, held in civil appeal no. 4790 disposed of on 8.12.1997 that for the purpose of exemption notification no. 8/95-CE an end use certificate is not necessary for potassium iodate so as to exempt it from duty as bulk drug in terms of the notification and that potassium iodate had been used in the manufacture of iodized salt and there was no dispute that potassium iodate possessed therapeutic properties.
6. All these decisions turn only on the basis of the notification which was put forth before the courts. It is not very clear from the judgments in any of these cases as to whether any expressions are used or the attention of the Court was drawn to the same as is set out in the notification no. 31/88-CE dated 1.3.1988 or not.
7. In the present cases, we will have to consider the expression “bulk drug” as specified under First Schedule to the Drugs (Prices Control) Order, 1987. In Explanation after the table in the notification no. 31/88-CE dated 1.3.1988 it is clearly set out that the expression “bulk drugs” shall have the same meaning assigned to it in the Drugs (Prices Control) Order, 1987. It is clear that substance has to be used as such, or as an ingredient in any formulation in terms of the Drugs (Prices Control) Order, 1987. Further, the expression “formulation” has also been defined in the following terms “-
“a medicine processed out of, or containing one or more bulk drugs or drugs with or without the use of any pharmaceutical aids, or internal or external use for ……..”
8. Hence, expression “formulation” is only with reference to a medicine processed out of bulk drug.
9. Therefore, when the ingredient used by the appellant, namely, Menthol IP, in the manufacture of tooth paste, powder and shaving cream is not in the use of any formulation which is a medicine processed out of, or containing one or more bulk drugs, the view taken by the tribunal cannot be assailed.
10. However, so far as the application of section 11 for the purpose of levy of penalty is concerned, we must take note of the fact that different views have been expressed at different stages both by the tribunal and the High Court of Bombay in Citric India Ltd. v. Union of India1, and by this Court also in one of the decisions cited above, it is not clear as to whether the law is absolutely clear on the matter or not and the authorities also had to issue clarifications from time to time. In the circumstances, we think, invoking of section 11-A is not called for and levy of penalty in the present case would not be appropriate and the application of extended period of limitation is not justified. The order of the tribunal is modified to this extent. In other respects the order of the tribunal stands maintained.
11. Accordingly, the appeal is partly allowed.
