2011 (8) TMI 688 - HC - Central Excise

Intravenous fluids - Under the previous notification, all intravenous fluids were exempted from excise duty but by way of notification dated 1.3.2001, a condition was imposed and it specifically speaks of intravenous fluids, which is used for sugar, electrolyte or fluid replenishment. - held that - The medicaments of intravenous fluid will certainly make the use thereof for a particular disease, for eradication of which any of the said items is to be administered. The spirit of the notification appears to be that only those intravenous fluids are exempted from excise duty which are exclusively used for sugar, electrolyte or fluid replenishment and not in respect of intravenous fluids, which, besides sugar, electrolyte or fluid replenishment, are also being used for the purpose of medicines. The dominant purpose loses its significance once the intravenous fluids can be put to use for other purpose also. Additions of dicaments will make it a schedule H Drug. The medicaments of intravenous fluid will certainly make the use thereof for a particular disease and it cannot be used for the common purpose of sugar, electrolyte or fluid replenishment and thus defeating the intention of legislature. Exemption denied.

Issues Involved:
1. Interpretation of exemption notification regarding intravenous fluids containing medicaments.
2. Tribunal's approach towards the classification of intravenous fluids as Schedule 'H' drugs.
3. Admissibility of additional evidence by the appellant.
4. Consideration of previous Tribunal judgments.
5. Effect of budget explanatory notes on the exemption notification.

Detailed Analysis:

Issue 1: Interpretation of exemption notification regarding intravenous fluids containing medicaments
The appellant, engaged in the production of pharmaceutical products, claimed exemption from excise duty under Notification No. 3/2001-CE dated 1.3.2001, which limited the exemption to intravenous fluids used for sugar, electrolyte, or fluid replenishment. The Department issued a show cause notice demanding duty on the grounds that the appellant's products, containing medicaments, did not qualify for the exemption. The Tribunal initially sided with the appellant, but the Supreme Court remanded the matter, directing the Tribunal to consider the effect of the 2001-2002 budget, which restricted the definition of 'IV Fluids' to those used for sugar, electrolyte, or fluid replenishment.

Issue 2: Tribunal's approach towards the classification of intravenous fluids as Schedule 'H' drugs
The Tribunal concluded that intravenous fluids containing antibiotics and other medicaments, labeled as Schedule 'H' drugs, did not qualify for the exemption. The appellant argued that the primary use of their products was for sugar, electrolyte, or fluid replenishment, and the Schedule 'H' classification was merely a regulatory requirement. However, the Tribunal determined that the therapeutic properties and labeling as Schedule 'H' drugs were relevant factors, indicating that such products had a dominant therapeutic value and thus did not fall within the exemption's scope.

Issue 3: Admissibility of additional evidence by the appellant
The appellant's application to introduce additional evidence to demonstrate that the addition of medicaments did not alter the use of intravenous fluids was denied by the Tribunal. The Tribunal reasoned that the evidence sought did not pertain to the issue under consideration and decided the matter based on existing evidence. The Court upheld this decision, finding no infirmity or illegality in the Tribunal's reasoning.

Issue 4: Consideration of previous Tribunal judgments
The appellant contended that the Tribunal failed to consider a previous judgment by its Mumbai Bench, which allowed similar evidence and remanded the case for further examination. The Court noted that different benches of the Tribunal might reach different conclusions, but this did not bind the current bench. The Court emphasized that it must adjudicate the correctness and legality of the order challenged in the appeal, independent of other Tribunal findings.

Issue 5: Effect of budget explanatory notes on the exemption notification
The Supreme Court had directed the Tribunal to consider the effect of the 2001-2002 budget explanatory note, which clarified that only IV fluids used for sugar, electrolyte, or fluid replenishment were exempt from duty. The Tribunal interpreted the notification and relevant provisions of the 1945 Act, concluding that the addition of medicaments changed the nature of the fluids, making them Schedule 'H' drugs and thus ineligible for exemption. The Court agreed with the Tribunal's interpretation, stating that the dominant purpose of the fluids changed with the addition of medicaments, aligning with the legislative intent to restrict the exemption to non-medicated fluids.

Conclusion:
The Court dismissed the appeal, upholding the Tribunal's order. The Tribunal's decision was based on sound reasoning, considering the budget explanatory note, the notification's language, and the relevant provisions of the 1945 Act. The addition of medicaments to intravenous fluids altered their use, disqualifying them from the exemption. The appellant's arguments regarding additional evidence and previous Tribunal judgments were found unpersuasive.

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