2012 (6) TMI 785 - HC - Central Excise

Excisability of the intermediate chemical - clandestine removal - D2 Aminobutanol Tartrate falling under Chapter S.H. 2942.00 of the Central Excise Tariff Act, 1985 - it is alleged that the product is illicitly manufactured and removed for captive consumption for manufacture of Ethambutol HCL of Chapter S.H. 2942.00 during the period from 23-7-1996 to 31-3-2001 - Held that - for the Department to levy excise duty on the product in question, it would have to establish that the product itself is marketable. It is equally settled that while doing so, the chemical being stable would not be conclusive, but only one of the aspects. In case of Cadila Laboratories Pvt. Ltd. 2003 (2) TMI 65 - SUPREME COURT OF INDIA , the Supreme Court while accepting that this new product may be stable, refused to uphold the Department s stand that it is marketable without any other evidence on record. Insofar as the opinion of the chemical examiner that the product is stable, that by itself as held by the Apex Court in the case of Cadila Laboratories Pvt. Ltd., would not be conclusive. What is required to be ascertained was whether such product is marketable. In other words, the product was known in the market and that it was possible to be bought and sold in the market. Mere hypothetical possibility of some availability in the market by itself would not be sufficient. The Department s stand, therefore, that merely because chemically the product is found to be stable, in our view, cannot be stated to be new or sufficient material to enable the Department to hold the view that such product is marketable. Petition allowed - decided in favor of petitioner.

Issues involved:
1. Legality and validity of the show cause notice dated 1-8-2001.
2. Excisability and marketability of the intermediate chemical D2 Aminobutanol Tartrate.
3. Invocation of extended period of limitation.
4. Jurisdiction and maintainability of the petition.

Detailed Analysis:

1. Legality and Validity of the Show Cause Notice:
The petitioners challenged the legality and validity of the show cause notice dated 1-8-2001 issued by the Commissioner of Central Excise, Surat, demanding excise duty and interest on D2 Aminobutanol Tartrate, an intermediate chemical used in the manufacture of Ethambutol HCL. The petitioners argued that this notice was issued without any new or additional material, following a previous round of litigation where the issue was decided in their favor by the Tribunal, which held that the intermediate chemical was not marketable and thus not exigible to excise duty.

2. Excisability and Marketability of the Intermediate Chemical:
The core issue revolved around the excisability of the intermediate chemical. The Excise Department initially issued a show cause notice in 1999, claiming that the intermediate chemical was exigible to excise duty. The Commissioner and the Tribunal, however, found that the chemical was unstable, not marketable, and thus not subject to excise duty. The Tribunal's decision was not appealed further by the Department. The Department later issued a fresh show cause notice in 2001, claiming new facts such as the stability of the product and its recognition in the market. However, the court found that the new facts were either not new or not relevant to the marketability of the intermediate chemical. The court reiterated that for a product to be exigible to excise duty, it must be marketable, and mere stability was insufficient to prove marketability.

3. Invocation of Extended Period of Limitation:
The petitioners argued that invoking the extended period of limitation was not permissible as there was no fraud, collusion, or willful suppression of facts on their part. The court agreed, noting that the Department had full knowledge of the petitioners' manufacturing process for years and that the issue of marketability was a debatable point. The court found that the Department's premise for the second show cause notice was based on further investigations following the Tribunal's decision, which did not justify invoking the extended period of limitation.

4. Jurisdiction and Maintainability of the Petition:
The court addressed the maintainability of the petition, noting that while the High Court typically does not interfere at the show cause notice stage, it can do so in cases of inherent lack of jurisdiction or failure of natural justice. The court found that the second show cause notice was issued on the same set of facts as the first, without any new material to establish marketability, making the notice without jurisdiction. The court held that permitting the Department to proceed with the show cause notice would be futile, prejudicial to the petitioners, and an abuse of the process of law.

Conclusion:
The court allowed the petition, quashing and setting aside the impugned show cause notice dated 1-8-2001. The court found that the notice was based on no new material, with no change in law or facts, and that the Department's actions amounted to an abuse of the process of law. The court also held that invoking the extended period of limitation was unjustified.

← Previous Next →