2004 (7) TMI 648 - AT - Central Excise

Issues Involved:
1. Eligibility for exemption under Notification No. 8/96-C.E. dated 23-7-1996 and Notification No. 4/97-C.E. dated 1-3-1997 for defibrillators manufactured by the appellants.
2. Interpretation of "DC Defibrillators for internal use and pace-makers" in the context of the exemption notifications.
3. Applicability of extended period of limitation for demanding duty.
4. Imposition of penalties under Section 11AC of the Central Excise Act and Rule 173Q of Central Excise Rules, 1944.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 8/96-C.E. and Notification No. 4/97-C.E.:

The appellants, M/s. BPL Limited, manufactured two models of defibrillators (DF 2389 without Recorder and DF 2389R with Recorder) and claimed exemption under the mentioned notifications. The primary issue was whether these defibrillators, which could be used both externally and internally, qualified for the exemption meant for "DC Defibrillators for internal use and pace-makers."

The appellants argued that since their defibrillators could be used internally with small paddles during open-heart surgery, they met the criteria for the exemption. However, the Commissioner, relying on various write-ups and the product manual, concluded that the defibrillators were primarily for external use and thus did not qualify for the exemption. This view was upheld by the majority order, which emphasized that the defibrillators were designed for external use and could only be used internally in rare circumstances during heart surgery.

2. Interpretation of "DC Defibrillators for internal use and pace-makers":

The majority order highlighted the need to interpret the entry "DC Defibrillators for internal use and pace-makers" in the exemption notifications. It was noted that earlier notifications (Notification No. 339/86) included both internal and external defibrillators, but the subsequent notifications (8/96 and 4/97) limited the exemption to internal defibrillators. The majority concluded that the term "internal use" implied defibrillators that are used internally with pace-makers, potentially as implantable devices, and not those that could be used both externally and internally.

The dissenting opinion by Member (J) argued that since the defibrillators could be used internally, they should qualify for the exemption. The dissent noted that the notifications did not restrict the exemption to implantable devices and that the internal use capability, even if optional, should suffice for the exemption.

3. Applicability of Extended Period of Limitation:

The appellants argued against the applicability of the extended period of limitation, stating that there was no suppression or misstatement of facts, and that the issue was one of interpretation of the notifications. They cited various judgments to support their claim that the extended period should not apply in cases of interpretative disputes.

However, the majority found that the appellants had not fully disclosed the nature of the defibrillators in their classification declarations, which amounted to suppression of facts. The majority noted that the appellants were aware that the defibrillators were primarily for external use and did not disclose this crucial detail, thereby justifying the extended period for demanding duty.

4. Imposition of Penalties:

The Commissioner had imposed penalties under Section 11AC of the Central Excise Act and Rule 173Q of Central Excise Rules, 1944, along with interest under Section 11AB. The majority upheld these penalties, citing the appellants' failure to fully disclose the nature of the defibrillators and their primary use for external purposes. The majority concluded that the appellants' actions constituted suppression of facts with an intent to evade duty.

Separate Judgments:

The case involved a difference of opinion between the two members of the bench. Member (T) upheld the Commissioner's order, denying the exemption and upholding the penalties. Member (J) disagreed, arguing that the defibrillators should qualify for the exemption and proposed to allow the appeal. The matter was referred to a third member, Justice K.K. Usha, who agreed with Member (T), leading to the majority order.

Conclusion:

The appeal was ultimately dismissed, with the majority concluding that the defibrillators did not qualify for the exemption under the relevant notifications, the extended period for demanding duty was applicable, and the penalties imposed were justified. The case was remanded to the regular bench to address the issue of limitation, which had not been conclusively decided.

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