1985 (2) TMI 289 - AT - Central Excise

Issues Involved:
1. Classification of citric acid as a pharmaceutical.
2. Predominant use of citric acid.
3. Interpretation of exemption notification.
4. Relevance of end use in classification.
5. Legal precedents and their applicability.
6. Conditions for granting exemption.

Detailed Analysis:

1. Classification of Citric Acid as a Pharmaceutical
The primary issue was whether citric acid could be classified as a pharmaceutical. The appellant argued that the Collector was mistaken in not classifying citric acid as a pharmaceutical due to its predominant use in non-pharmaceutical applications. The Tribunal agreed with the appellant, citing that all pharmaceutical drugs are chemicals with varied uses, and no substance is used solely as a pharmaceutical. The Tribunal referenced the Kirk-Othmer Encyclopaedia of Chemical Technology, which detailed the extensive use of citric acid in pharmaceuticals, including its role in effervescence for oral medications and as an anticoagulant in blood preparations.

2. Predominant Use of Citric Acid
The Collector had held that citric acid's predominant use in beverages, confectionery, and other non-pharmaceutical applications disqualified it from being classified as a pharmaceutical. The Tribunal rejected this argument, stating that the predominant use does not determine the classification of a substance. They cited the Supreme Court's ruling in Porrits & Spencer (Asia) Ltd. v. State of Haryana, which held that a product's diverse uses do not affect its classification if it otherwise satisfies the description.

3. Interpretation of Exemption Notification
The appellant argued that under Notification No. 55/75-CE, as amended by Notification No. 62/78-CE, citric acid should be classified as a pharmaceutical. The Tribunal noted that the Collector had arbitrarily modified the exemption notification by considering predominant use, which was not a criterion in the notification. The Tribunal emphasized that the notification's language was clear and unambiguous, and the principle of predominant use should not be imported into it.

4. Relevance of End Use in Classification
The Tribunal discussed the relevance of end use in classification, referencing the Supreme Court's ruling in M/s. Dunlop India v. Union of India, which stated that end use is irrelevant unless explicitly mentioned in the notification. They concluded that the exemption notification did not require consideration of end use, and therefore, citric acid should be classified based on its description as a pharmaceutical.

5. Legal Precedents and Their Applicability
The Tribunal referred to several legal precedents, including the Supreme Court's decisions in Porrits & Spencer and Dunlop India, to support their conclusion that the predominant use and end use are irrelevant for classification under the exemption notification. They also referenced the case of Hansraj Gordhandas v. H.N. Dave, which emphasized that in a taxing statute, the clear meaning of the words should govern the interpretation.

6. Conditions for Granting Exemption
The Tribunal ultimately concluded that citric acid should be granted exemption when used in the manufacture of pharmaceuticals, as it meets the pharmacopoeial standards and is used as a drug or drug-intermediate. However, they rejected the appellant's demand for unconditional exemption, stating that the exemption should only apply to citric acid used in pharmaceutical applications. The central excise department was instructed to verify the end use of citric acid to ensure that the exemption is granted only for deserving clearances.

Conclusion
The Tribunal ruled that citric acid is a pharmaceutical and should be classified as such under the exemption notification. They rejected the department's argument based on predominant use and end use, emphasizing the clear language of the notification and relevant legal precedents. However, the exemption was limited to citric acid used in pharmaceutical applications, and the central excise department was tasked with verifying the end use to grant the exemption accordingly.

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