2023 (10) TMI 877 - AT - Central Excise

Exemption when the goods are used elsewhere other than the factory of production - product Danazol which is a bulk drug or medicine - appellant had cleared the product Danazol to other manufacturers like M/s. Arvind Remedies - Sl. No. 47A of the Notification No. 4/2006-CE dated 1.3.2006 - Rule 6(3) of CENVAT Credit Rules, 2004. Whether the product Danazol which is a bulk drug would fall under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 or it has to be considered as drug or medicine which falls under Sl. No. 47B of the said Notification? - HELD THAT - In case the goods fall under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 and are unconditionally exempted, whether the common input credit used in the exempted product would be reversible / duty payable to the percentage of value of the exempted goods as per Rule 6(3) of CENVAT Credit Rules, 2004? - HELD THAT - The judgments in AUROBINDO PHARMA LTD. VERSUS COMMISSIONER OF C. EX., HYDERABAD-I 2009 (3) TMI 810 - CESTAT, BANGALORE and DR. REDDY S LABORATORIES LTD. VERSUS COMMISSIONER OF C. EX., HYDERABAD 2009 (8) TMI 580 - CESTAT, BANGALORE have held that since the term bulk drugs and drug and medicines have not been defined in the Notification, the definition as per Drugs (Price Control) Order, 1995 is relevant. As per Drugs (Price Control) Order, 1995, the term drug have been defined to include bulk drug and formulations. Thus, the said judgments put in mathematical terms could be understood as meaning that while drug is a superset, bulk drugs is the subset, whereby bulk drugs are covered by the term drugs . Hence, it is for the appellant to choose which ever Sl no of the exemption is more favourable to him. Judicial discipline requires to follow the ratio of the above judgments - the appellant is entitled to the benefit of unconditional exemption from tax as per Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006. In case the goods fall under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 and are unconditionally exempted, whether the common input credit used in the exempted product would be reversible / duty payable to the percentage of value of the exempted goods as per Rule 6(3) of CENVAT Credit Rules, 2004? - HELD THAT - It is seen that the department had followed a two-pronged strategy. Initially Show Cause Notices were issued to the appellant denying unconditional exemption for Danazol under Sl. No. 47A of Notification No.4/2006-CE. Subsequently, they took the stand that the appellant is entitled for the benefit of Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006, however, the appellant is required to reverse the credit/ pay the amount demanded as a percentage of sale value of the exempted goods Danazol , as per law during the relevant period, under Rule 6(3) of CENVAT Credit Rules, 2004 - it is found that there has been some confusion in the minds of the department and they have blown hot and cold on the same issue at different points of time. The exemption has been correctly availed by them. The department is permitted to verify the mathematical accuracy of the claims of reversal made by the appellant and demand the excess credit taken or refund the excess reversal of credit made by the appellant if any. Needless to say that in case of a demand, the appellant may be given an opportunity to explain the reversal of credit made by them. The benefit of Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 for the product 'Danazol is allowed - Credit reversed by the appellant under Rule 6(3) of CENVAT Credit Rules, 2004 is subject to verification by the department - appeal disposed off.

Summary

Issues involved:
The issues involved in the judgment are whether the product 'Danazol' falls under Sl. No. 47A or Sl. No. 47B of Notification No. 4/2006-CE dated 1.3.2006, and whether the common input credit used in the exempted product is reversible or duty payable as per Rule 6(3) of CENVAT Credit Rules, 2004.

Issue 1 - Product Classification under Notification:
The appellant had been clearing the goods 'Danazol' without duty payment under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006. However, the department contended that 'Danazol' falls under Sl. No. 47B, requiring compliance with specific procedures. Two Show Cause Notices were issued, denying the exemption. The Commissioner (Appeals) upheld the duty demand but set aside the penalties. The appellant argued that 'Danazol' qualifies for the exemption under Sl. No. 47A, citing relevant Tribunal judgments. The respondent argued that 'bulk drugs' fall under Sl. No. 47B, necessitating compliance. The Tribunal referred to previous judgments and ruled in favor of the appellant, granting them unconditional exemption under Sl. No. 47A.

Issue 2 - Reversibility of Input Credit:
Initially, the department denied unconditional exemption to the appellant for 'Danazol' but later conceded eligibility under Sl. No. 47A. However, they required the appellant to reverse the credit or pay a percentage of the sale value of the exempted goods under Rule 6(3) of CENVAT Credit Rules, 2004. The Tribunal noted the department's conflicting positions and ruled in favor of the appellant, allowing the exemption under Sl. No. 47A. The appellant had already reversed the CENVAT credit, and the Tribunal directed the department to verify the accuracy of the reversal claims. The appellant was granted the benefit of Sl. No. 47A, subject to the department's verification of credit reversals.

This judgment clarifies the classification of the product 'Danazol' under Notification No. 4/2006-CE and addresses the issue of reversibility of input credit. The Tribunal's decision provides insights into the interpretation of relevant legal provisions and emphasizes the importance of consistency and accuracy in tax assessments.