1980 (7) TMI 256 - HC - Central Excise

Summary

Issues Involved:
1. Validity of excise duty demands on 13 medicinal preparations.
2. Applicability of Item 14E exemption under the Central Excises and Salt Act, 1944.
3. Liability under Section 3 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
4. Applicability of Article 14 of the Constitution.
5. Doctrine of promissory estoppel.
6. Validity of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956.

Issue-wise Detailed Analysis:

1. Validity of Excise Duty Demands on 13 Medicinal Preparations:
The petitioner, a pharmaceutical company, was served with notices demanding excise duty on 13 medicinal preparations under Rule 9 of the Medicinal and Toilet Preparation (Excise Duty) Rules, 1956. The petitioner challenged these demands on multiple grounds, arguing that the preparations were exempt from excise duty.

2. Applicability of Item 14E Exemption under the Central Excises and Salt Act, 1944:
The petitioner argued that items 1 to 10 were exempt from excise duty under Item 14E of the First Schedule to the Central Excises and Salt Act, 1944, as they were anesthetics. The court noted that the Central Government had issued a notification exempting anesthetics from excise duty under Rule 8(1) of the Central Excise Rules, 1944. The court found that items 1 to 10, being local anesthetics, were indeed exempt from excise duty under Item 14E.

3. Liability under Section 3 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955:
The court examined whether the 13 medicinal preparations contained "narcotic drugs" or "narcotics" as defined by Section 2(h) of the Act. The definition included substances that induce drowsiness, sleep, stupefaction, or insensibility. The court concluded that local anesthetics (items 1 to 10) do not affect the central nervous system and thus do not fall under the definition of "narcotic drugs" or "narcotics." Consequently, these items were not liable for excise duty under the Act.

4. Applicability of Article 14 of the Constitution:
The petitioner argued that excise duties were not uniformly levied across different states, constituting discrimination under Article 14 of the Constitution. The court upheld this argument, stating that the Central Act imposed an all-India levy that must be uniformly collected. The action of the central excise authorities in levying and collecting excise duty only in Gujarat was deemed discriminatory and thus unconstitutional.

5. Doctrine of Promissory Estoppel:
The petitioner argued that the Central Government's exemption notification under Rule 8(1) of the Central Excise Rules, 1944, assured that local anesthetics do not contain "narcotic drugs" or "narcotics." The court rejected this argument, stating that the notification did not amount to a promise regarding the dutiability of items under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. Moreover, the promise was not made specifically to the petitioner.

6. Validity of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956:
The petitioner challenged Rule 12, which allows the government to recover duty without a time limit, as arbitrary and capricious, thus violating Article 14. However, the court noted that the impugned demands were issued under Rule 9(2) and not Rule 12. Since Rule 12 was not invoked against the petitioner, the challenge was considered academic and was not decided.

Conclusion:
The court quashed the two impugned notices of demand and issued a writ of mandamus directing the respondents to desist from enforcing the notices and collecting the demanded excise duty. The petition was successful, and the rule was made absolute with costs.