1985 (11) TMI 55 - SC - Central Excise

Whether the medicinal preparation is capable of being consumed as ordinary alcoholic beverage or not and not whether it is in semi-solid or liquid form? Whether in determining the value of the medicinal preparations for the purpose of levying excise duty thereon the authorities erred in taking the wholesale price of the said preparations and not the price at which these preparations were supplied by the said firm to their chief distributor Messrs M.B. Bhavsar & Sons? Held that - These preparations were patent or proprietary medicines which contained alcohol and it was undisputed that such preparations were not capable of being consumed as ordinary alcoholic beverages. The High Court was, therefore, right in holding that these medicinal preparations were dutiable under Item 1. Both these firms had their offices in the same premises and under the partnership agreement the sons of the original First Appellant and the other two Appellants were to share only in the profits of Messrs M.B. Bhavsar & Sons but not to be liable for any losses. These two firms, therefore, cannot be said to be at arm s length or independent parties and the prices at which the medicinal preparations were supplied by Bhavsar Chemical Works to Messrs M.B. Bhavsar & Sons cannot be taken to be the real value of the said preparations. The High Court was, therefore, right in rejecting this contention also. Appeal dismissed.

Summary

Issues:
1. Interpretation of excise duty on medicinal preparations under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
2. Determining the value of medicinal preparations for levying excise duty.

Analysis:

Issue 1: Interpretation of excise duty on medicinal preparations:
The case involved partners running a business manufacturing medicinal preparations, questioning the liability of their ointments and liniments to excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. The dispute centered around whether the alcohol in the medicinal preparations needed to be in liquid form to fall under the relevant excise duty category. The Supreme Court held that for a medicinal preparation to be classified under the specific excise duty item, it must meet three conditions: being a patent or proprietary medicine, containing alcohol, and not being consumable as an ordinary alcoholic beverage. The Court emphasized that the form of the medicinal preparation, whether liquid or semi-solid, was irrelevant. The crucial factor was whether the preparation could be consumed as an alcoholic beverage. The Court rejected the argument that the semi-solid form of the preparations excluded them from the excise duty category, affirming the High Court's decision that the preparations were dutiable under the Act.

Issue 2: Determining the value of medicinal preparations for excise duty:
Another contention raised by the appellants was regarding the valuation of the medicinal preparations for levying excise duty. They argued that the authorities erred by considering the wholesale price instead of the price at which the preparations were supplied to their chief distributor. The Court noted that the distributor firm shared partners with the manufacturing firm, indicating a lack of arm's length transaction and independence between the two entities. As a result, the Court upheld the High Court's decision to reject this contention, emphasizing that the price at which the preparations were supplied internally could not be considered the actual value for excise duty purposes.

In conclusion, the Supreme Court dismissed the appeal, affirming the High Court's decision on both issues and awarding costs to the respondents.