1967 (1) TMI 91 - HC - Central Excise

Summary

Issues Involved:

1. Whether the preparations manufactured by the petitioners contain alcohol as defined in the Act.
2. Whether the levy of excise duty involves double taxation.
3. Whether the levy is discriminatory.
4. Whether the levy is barred by time.
5. Whether the preparations should be assessed under item 2 instead of item 1 of the Schedule.

Issue-Wise Detailed Analysis:

1. Containing Alcohol:
The petitioners argued that their preparations do not contain alcohol as defined in the Act because they used "spirits," "chloroform," or other tinctures containing alcohol only as preservatives. The court examined the definition of alcohol in Section 2(a) of the Act, which states: "Alcohol means ethyl alcohol of any strength and purity having the chemical composition of C-2, H-5 OH." It was admitted by the petitioners that their products contained spirits or tinctures, which are solutions of other substances in alcohol. The court concluded that the preparations contain alcohol as an ingredient in a state of solution, thus retaining all properties of alcohol. Therefore, the preparations are liable to excise duty.

2. Double Taxation:
The petitioners contended that excise duty on their medicines involves double taxation since tinctures have already suffered excise duty on their alcoholic component. The court held that the tax on the alcoholic content of tinctures or spirits was paid by the manufacturers of these tinctures or spirits, not by the petitioners. Therefore, there is no double taxation for the petitioners. Additionally, if the manufacturer used alcohol for manufacture on which duty has been paid, he can claim a rebate under Section 4 of the Act.

3. Discrimination:
The petitioners argued that the levy is discriminatory as the distinction between items 1 and 2 in the Schedule is based on "potability as a beverage," which is capricious. The court observed that the distinction is rational. Item 1 imposes a 10% ad valorem duty on preparations containing alcohol but not suitable for consumption as ordinary alcoholic beverages, while item 2 imposes duty based on alcoholic content for preparations suitable for consumption as alcoholic beverages. The court reasoned that this distinction addresses the misuse of medicinal preparations as alcoholic beverages and is not discriminatory.

4. Limitation:
The petitioners argued that the levy is barred by time. The court referred to Rules 6, 9, 11, and 12 of the Rules framed under the Act. The court found that the petitioners failed to comply with the requirement of taking a license under Section 6(1) of the Act, resulting in the manufactured goods not being assessed to duty as they should have been. The court held that Rule 12, a residuary power, applies in this case, and there is no period of limitation for its application. Therefore, the levy is not barred by time.

5. Assessment under Item 2:
The petitioners relied on Rule 60 (3) of the Rules, which presumes that medicinal preparations manufactured after 1st April 1957 are restricted preparations unless declared otherwise by the Central Government. The court acknowledged this presumption and the petitioners' right to claim that their preparations fall under item 2 of the Schedule. However, the court noted that the department should be given an opportunity to rebut this presumption with evidence. The court directed the authorities to consider the petitioners' representations and make the proper levy after hearing their arguments.

Conclusion:
The court allowed the writ petitions, quashing the orders demanding payment of duty, and directed the authorities to reconsider the levy after hearing the petitioners' representations. The court dismissed the writ petitions against the demand for taking out L-2 licenses, as the preparations were found to contain alcohol. No order as to costs was made.