2003 (2) TMI 64 - SC - Central Excise

Whether Dextrose in the formulation is pharmaceutical necessity? Whether it is therapeutically inert? Whether the CEGAT erred in confirming the order of the Collector, Central Excise invoking the proviso to sub-section (1) of Section 11-A of the Central Excise Act? Held that - When the case was taken up on 23-1-2003, records were received in part from the Additional Commissioner (Legal), Chennai III, Commissionerate which did contain the documents called for. It was brought to our notice that the other records were sent to CEGAT and they had to be received from the CEGAT. The case was again adjourned. When the matter is taken up today, some records are received but the classification lists and the audit report, which were specifically called for, were not sent. In a matter like the one under consideration, it was the duty of the concerned authorities, particularly, the Commissioner/Collector, Central Excise, Madras to have pursued the matter diligently and placed the record before us to support the allegation in the show cause notice that there has been suppression of the fact and that dextrose was not mentioned in the classification list 7/82. In the absence of production of such record, the burden cast on the Revenue to establish suppression of fact is not discharged. Consequently, it will not only be unfair and unsafe but also illegal to infer that there was suppression of fact. For these reasons, we are unable to approve the view taken by the Collector as well as the CEGAT that there has been such a suppression of material fact. Unable to uphold the finding that proviso to Section 11-A (1) of the Central Excise Act is attracted. The order under challenge is set aside. The demand, insofar as it relates to the extended period, is also set aside. However, the authorities will be at liberty to raise a fresh demand of excise duty falling within the period of limitation under Section 11-A of the Act. Appeal allowed.

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 116/69.
2. Alleged suppression of facts by the assessee.
3. Invocation of the proviso to Section 11-A(1) of the Central Excise Act for an extended period of demand.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 116/69:
The assessee manufactures Darzamol Injection I.V., containing Metronidazole and Dextrose. For the assessment years 1982-1983 to 1984-1985, the assessee claimed exemption under Notification No. 116/69, which was initially approved. However, the exemption was later questioned on the ground that Dextrose was not a pharmaceutical necessity and not therapeutically inert, as required by the notification. The notification exempts medicines containing specified ingredients from excise duty, provided any additional ingredients are pharmaceutical necessities and therapeutically inert. The technical report from the Drugs Controller of India confirmed that Dextrose did not meet these criteria. Consequently, the withdrawal of exemption by the Collector, as confirmed by the CEGAT, was upheld.

2. Alleged Suppression of Facts by the Assessee:
The assessee was accused of suppressing the fact that Darzamol Injection contained Dextrose, with the intent to evade duty. The assessee denied this, stating that Dextrose was used to make the solution isotonic and did not have therapeutic properties. The burden was on the Revenue to prove suppression. Despite repeated orders, the Revenue failed to produce the original classification list (7/82) to substantiate the claim of suppression. Without this evidence, the allegation of suppression could not be upheld. The court found that the burden of proof was not discharged by the Revenue, making it unfair and illegal to infer suppression of facts.

3. Invocation of Proviso to Section 11-A(1) of the Central Excise Act:
The proviso to Section 11-A(1) extends the period for demanding duty from one year to five years in cases of fraud, collusion, wilful mis-statement, or suppression of facts. For this proviso to apply, three cumulative conditions must be met: non-payment or short-payment of duty, such non-payment due to fraud or suppression, and intent to evade duty. The court found that while the first condition was met (duty was not paid), the second condition (suppression of facts) was not proven due to the lack of evidence from the Revenue. Therefore, the extended period for demand under the proviso could not be justified. The demand for the extended period was set aside, but the authorities were allowed to raise a fresh demand within the standard limitation period.

Conclusion:
The appeals were allowed, setting aside the order under challenge and the demand for the extended period. The authorities were permitted to raise a fresh demand within the statutory limitation period. There was no order as to costs.