2004 (5) TMI 74 - SC - Central Excise

Whether the appellant had wrongly availed of the benefit of the Notification No. 31/88 dated 1-3-1988? Held that - In the present cases we will have to consider the expression bulk drug as specified under First Schedule to the Drugs (Prices Control) Order 1987. In Explanation after the Table in the Notification No. 31/88-C.E. dated 1-3-1988 it is clearly set out that the expression bulk drugs shall have the same meaning assigned to it in the Drugs (Prices Control) Order 1987. It is clear that substance has to be used as such or as an ingredient in any formulation in terms of the Drugs (Prices Control) Order 1987. Hence expression formulation is only with reference to a medicine processed out of bulk drug. Therefore when the ingredient used by the appellant namely Menthol IP in the manufacture of tooth paste powder and shaving cream is not in the use of any formulation which is a medicine processed out of or containing one or more bulk drugs the view taken by the Tribunal that assessee are not entitled for the benefit of Notification cannot be assailed. However so far as the application of Section 11 for the purpose of levy of penalty is concerned it is not clear as to whether the law is absolutely clear on the matter or not and the authorities also had to issue clarifications from time to time. In the circumstances we think invoking of Section 11A is not called for and levy of penalty in the present case would not be appropriate and the application of extended period of limitation is not justified. The order of the Tribunal is modified to this extent. The appeal is partly allowed.

Issues:
Interpretation of Notification No. 31/88-C.E. dated 1-3-1988 regarding excise duty exemption for bulk drugs, Definition of "bulk drugs" under Drugs (Prices Control) Order, 1987, Applicability of the exemption to Menthol IP, Tribunal's decision on the eligibility of the appellant for the exemption, Precedents on similar notifications, Application of Section 11 for penalty levy, Clarifications on penalty imposition and limitation period.

Interpretation of Notification No. 31/88-C.E. dated 1-3-1988:
The appellant, a company manufacturing Menthol and Mentha Oil, operated under a license granted by drug control authorities. A notification exempting certain goods from excise duty was issued, specifying rates for different categories including bulk drugs. The notification defined "bulk drugs" as substances conforming to pharmacopoeial standards used as such or in formulations under the Drugs (Prices Control) Order, 1987.

Definition of "bulk drugs" under Drugs (Prices Control) Order, 1987:
The Drugs (Prices Control) Order, 1987 defines "bulk drug" as substances meeting pharmacopoeial standards used as such or in formulations. The appellant claimed Menthol as a bulk drug under the notification, availing the exemption until a show cause notice was issued challenging this classification.

Applicability of the exemption to Menthol IP:
The Collector imposed a differential excise duty demand and penalty on the appellant for allegedly wrongly availing the exemption. The Tribunal dismissed the appeal, ruling that Menthol cleared by the appellant did not qualify as a bulk drug under the Drugs and Cosmetics Act, thus not eligible for the exemption.

Tribunal's decision on the eligibility of the appellant for the exemption:
The Tribunal held that Menthol was not used as such or in formulations as required by the Act, leading to the denial of the exemption. The appellant argued citing precedents where end-use certification was deemed irrelevant for similar notifications, emphasizing the product's therapeutic properties.

Precedents on similar notifications:
The appellant referenced past judgments highlighting that end-use certification was not mandatory for exemption eligibility under certain notifications. However, the Court emphasized the specific language of the present notification and the need for substances to be used in formulations to qualify as bulk drugs.

Application of Section 11 for penalty levy:
Regarding penalty imposition under Section 11, differing views existed among authorities and courts. The Court found ambiguity in the law and issued clarifications, deciding that the penalty imposition was not justified in this case. The Tribunal's decision was modified to exclude penalty levy and extended limitation period application.

In conclusion, the Court partially allowed the appeal, modifying the Tribunal's decision on penalty imposition while maintaining other aspects of the order.

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