2015 (6) TMI 13 - AT - Customs

Denial of benefit of exemption on the ground of not using the goods as per intended purpose - Import of raw materials for manufacturing of life saving medicines, namely, insulin injection - Revenue contends that assessee are using 5 gms from each consignment for quality control test as samples and for testing purposes are not used in the manufacture of final products, hence the quantity is not used for the intended purposes as per Notification No. 21/2002-Cus dated 01/03/2002 - Held that - manufacturing of the final product as per Drugs and Cosmetics Act and Rules made thereunder cannot be undertaken unless the raw materials are tested for which sampling is undertaken in form of drawal of about 5 gms of raw material at starting stage of manufacturing activity. The purpose of the imported goods is for manufacturing of medicines which cannot take place unless the samples are drawn and tested - both the lower authorities are totally incorrect in passing the impugned orders and holding that the appellant is liable to pay differential Customs duty and not eligible for the exemption notification No. 21/2002-Cus. - Decided in favour of assessee.

Summary

Issues:
1. Demand of Customs duty on imported raw materials for manufacturing life-saving medicines.
2. Interpretation of Notification No. 21/2002-Cus regarding the use of raw materials for intended purposes.
3. Whether quality control testing of raw materials is an integral part of the manufacturing process.

Analysis:
1. The judgment addresses the issue of a Customs duty demand on raw materials imported for manufacturing life-saving medicines between 09/05/2002 to 19/03/2003. The Revenue contended that the appellant used a portion of the imported raw materials for quality control testing, which they argued did not align with the intended purpose under Notification No. 21/2002-Cus dated 01/03/2002.

2. Upon review, the Tribunal found the lower authorities' decisions incorrect. The imported goods were raw materials for manufacturing "insulin injection," a life-saving medicine. The Tribunal emphasized that the Drugs & Cosmetic Act mandates manufacturers to test raw material samples to ensure compliance with pharmacopoeial standards. Failure to conduct these tests would violate the Act, jeopardizing the manufacturing license.

3. The Tribunal highlighted that according to the Supreme Court's ruling in BPL Display Devices Ltd. vs. CCE, the term "for use" in exemption notifications implies being "intended for use." They emphasized that the raw material testing process is an integral part of the final manufacturing process. Several legal precedents, such as Ferro Alloys Corp Ltd. vs. CCE and Ceat Tyres Ltd. vs. UOI, supported the view that quality control testing is a crucial aspect of the manufacturing process.

4. Consequently, the Tribunal concluded that the impugned orders were legally unsustainable. They set aside the orders and allowed the appeals, granting consequential relief. The judgment underscores the importance of quality control testing in the manufacturing of life-saving medicines and aligning with legal provisions and judicial interpretations to determine the eligibility for Customs duty exemptions.