2013 (5) TMI 736 - HC - Central Excise

Manufacture of cough syrups of different brand names such as Xenocof-D, Instacodin, Codistar Cough Syrup, Wilecod Syrup. - Levy of duty as narcotic or narcotic drugs - Medicinal and Toilet Preparations (Excise Duties) Act, 1955 - held that - There is a specific contention of the petitioner that the quantity of codeine phosphate used by the petitioner is much below the prescribed limit a fact which has not been controverted by the State Government in its counter affidavit. In order to substantiate his argument, the learned counsel for the petitioner Mr. P.R. Mullick has placed two judgments before this Court. One by the Division Bench of Bombay High Court in M/S USV Limited and another v. State of Maharashtra and others (2006 (8) TMI 217 - HIGH COURT OF BOMBAY) where the issue before the Bombay High Court was whether the Dexovon Capsules which contain 70 mg of Dextropropoxyphene-HCl (for short DXC) per dosages per unit and is less than the prescribed limit of 135 mg of per dosage can be classified as narcotic or narcotic drug and hence would be liable to pay State Excise Duty under the Act. The Division Bench came to the conclusion that Excise Duty cannot be charged on the said product because the dosages of narcotic in the products are much less the prescribed limit. Another judgment relied upon by the petitioner is Amrik Singh v. The State of Punjab (1996 (4) TMI 447 - PUNJAB & HARYANA HIGH COURT), where also the Codeine Phosphate was being used for preparation of cough syrups in the proportion of 9.5 mg per 5 ml, i.e. per dosage unit and the Court held that the preparation in question falls within the ambit of the exception as contained in the item at Serial No. 35 of the Notification issued by the Central Government. Revenue directed not to charge excise duty on the cough syrups being prepared and sold by the petitioner under the brand names of Xenocof-D, Instacodin, Codistar Cough Syrup, Wilecod Syrup if it contains Codeine Phosphate less than the prescribed limits. - Decided in favor of assessee.

Issues Involved:
1. Whether the cough syrups containing Codeine Phosphate manufactured by the petitioner are subject to excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
2. Interpretation of the term "narcotic drug" or "narcotic" under the Act.
3. Applicability of Central Government notification regarding permissible limits of Codeine Phosphate in medicinal preparations.
4. Validity of the petitioner's claim for exemption from excise duty based on the concentration of Codeine Phosphate being within permissible limits.

Detailed Analysis:

Issue 1: Whether the cough syrups containing Codeine Phosphate manufactured by the petitioner are subject to excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
The petitioner, a public limited company, manufactures and markets pharmaceutical products, including cough syrups containing Codeine Phosphate. The State authorities in Uttarakhand charged excise duties on these products, asserting that they contain a narcotic drug. The petitioner contended that the excise duty was being paid under protest and sought a writ of mandamus to prevent the collection of this duty, arguing that the products do not qualify as "narcotic" or "narcotic drugs" under the Act due to the permissible limits of Codeine Phosphate.

Issue 2: Interpretation of the term "narcotic drug" or "narcotic" under the Act.
Under Section 2(h) of the Act, "narcotic drug" or "narcotic" includes substances derived from opium, such as Codeine Phosphate. However, the definition also allows for exceptions based on certain thresholds established by the Central Government. The Act specifies that a substance must be capable of causing dependence, tolerance, and withdrawal syndromes to be classified as a narcotic drug.

Issue 3: Applicability of Central Government notification regarding permissible limits of Codeine Phosphate in medicinal preparations.
A Central Government notification (No. G.S.R. 762, dated 7.8.1981) declared Codeine Phosphate as a narcotic product but provided exceptions for preparations containing not more than 100 milligrams per dosage unit and a concentration not exceeding 2.5%. The petitioner's products contained only 10 milligrams per dosage unit and a concentration of 0.2%, which are below the prescribed limits. The petitioner argued that these products should not be classified as narcotic drugs and thus should be exempt from excise duty.

Issue 4: Validity of the petitioner's claim for exemption from excise duty based on the concentration of Codeine Phosphate being within permissible limits.
The court examined the petitioner's argument and the State's counter-argument. The petitioner's counsel cited two judgments to support their claim: one from the Bombay High Court (M/S USV Limited and another v. State of Maharashtra and others) and another from the Punjab High Court (Amrik Singh v. The State of Punjab). Both cases involved medicinal preparations with narcotic substances within permissible limits and concluded that such preparations should not be classified as narcotic drugs subject to excise duty.

The court found the petitioner's argument persuasive, noting that the State did not contest the petitioner's claim regarding the concentration of Codeine Phosphate. The court held that the cough syrups manufactured by the petitioner, containing Codeine Phosphate below the prescribed limits, do not qualify as narcotic drugs under the Act and are thus exempt from excise duty.

Conclusion:
The writ petition was allowed, and a mandamus was issued to the Commissioner (State Excise), State of Uttarakhand, not to charge excise duty on the petitioner's cough syrups if they contain Codeine Phosphate within the permissible limits. However, the excise duty already paid by the petitioner would not be refunded, and the order would operate prospectively to avoid unjust enrichment. No order as to costs was made.

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