1980 (9) TMI 86 - HC - Central Excise

Medicines - Statute - Exemption Notification - Canons for interpretation - Criteria for permissible Classification - Constitution - Foreign Company - Appeal to Supreme Court

Issues Involved:
1. Definition of "manufacturer" under the exemption notification.
2. Interpretation of the term "foreign company."
3. Reasonableness and rationality of the conditions under Rule 8 and Article 14.
4. Vagueness of the exemption notification.
5. Applicability of the exemption to wholly foreign companies.

Issue-Wise Detailed Analysis:

1. Definition of "manufacturer" under the exemption notification:
The petitioner, a company registered under the Companies Act, 1956, was denied the benefit of an exemption notification issued under Rule 8(1) of the Central Excise Rules, 1944. The core issue was whether the petitioner qualified as a "manufacturer" as defined in the Explanation of the notification. The Explanation classified manufacturers into three categories: companies, firms, and individuals. The petitioner, being a company, was scrutinized under clause (a) of the Explanation, which required that the company should not hold shares in any foreign company and no part of its capital should be held by a foreigner or a foreign company. The court concluded that the two sub-clauses of clause (a) are conjunctive, meaning both conditions must be satisfied. Since the petitioner-company did not hold any share in the capital of any foreign company, it was deemed a "manufacturer" despite a part of its capital being held by a foreign company.

2. Interpretation of the term "foreign company":
The term "foreign company" was not defined in the Central Excises and Salt Act, 1944, the Central Excise Rules, 1944, or the exemption notification. The court referred to Section 591 of the Companies Act, 1956, which defines a "foreign company" as one incorporated outside India and having a place of business within India. The petitioner argued that Ciba Geigy Limited, a company incorporated in Switzerland, did not have a place of business in India, but this was not pleaded in the petition. Therefore, the court assumed that Ciba Geigy Limited had a place of business in India, making it a "foreign company."

3. Reasonableness and rationality of the conditions under Rule 8 and Article 14:
The petitioner contended that the conditions specified in the exemption notification were unreasonable and violated Article 14 of the Constitution. The court examined whether the classification of companies into those with and without foreign elements had any rational nexus with the object of the exemption notification, which was to encourage the marketability of new patent or proprietary medicines. It concluded that the primary object of the notification was to serve patients by enabling manufacturers to supply clinical samples to medical practitioners free of charge. The court found no rational nexus between the classification and this primary object, deeming the classification unreasonable and violative of Article 14.

4. Vagueness of the exemption notification:
The petitioner argued that the exemption notification was vague as it did not specify the extent of the share that an Indian-incorporated company could hold in a foreign company or vice versa. The court held that the foreign element associated with an Indian-incorporated company distinguished it from other companies, regardless of the extent of such foreign element. The court cited the Supreme Court's decision in Municipal Committee, Amritsar v. State of Punjab, which stated that a law could not be declared invalid merely on the ground of vagueness.

5. Applicability of the exemption to wholly foreign companies:
The petitioner argued that the exemption notification could allow wholly foreign companies to benefit from the exemption while denying it to Indian-incorporated companies with foreign elements. The court clarified that wholly foreign companies did not fall within the ambit of the term "manufacturer" as defined in clause (a) of the Explanation to the exemption notification. Therefore, the contention was rejected.

Conclusion:
The court declared clause (a) in the Explanation to the exemption notification ultra vires Article 14 of the Constitution and Rule 8 of the Central Excise Rules, 1944. A writ of mandamus was issued, directing the respondents to desist from implementing it. The respondents were granted a certificate of fitness under Article 133(1) of the Constitution to appeal to the Supreme Court, and the implementation of the writ was stayed for a fortnight pending interim orders from the Supreme Court.

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