1989 (9) TMI 212 - SC - Central Excise

Whether the appellant s product being an Ayurvedic preparation could be a drug for being included in the definition of medicinal preparation for the purpose of the Act? Held that - The High Court accepted the submission that it provided a self-contained definition of patent and proprietary medicines for the purpose of the main Act and severed the connection between the provisions of the Drugs Act as was contemplated in earlier Explanation I, and consequently one need not look to the Drugs Act at all for its interpretation and the Schedule was thence to be interpreted as it existed along with that self-containing definition in Explanation I. In doing so, the position that Patent and Proprietary medicines means any medicinal preparation which very Medicinal preparation includes all drugs which are a remedy or prescription etc. as defined in Section 2(g) of the Act. So a reference to the Drugs Act was still necessary. No doubt this is an inclusive definition. To enlarge its denotation a specific provision to include Ayurvedic preparations containing self-generated alcohol which are not capable of being consumed as ordinary alcoholic beverages was necessary. That having not been done by the Explanation itself, it was not permissible to include it by the Circular. The Explanation I could not have been in conflict with the provisions of the Act and the Circular could not have been in conflict with the Explanation, the Schedule, the Rules and the Act. Appeal allowed. Set aside the judgment and decree of the High Court and restore those of the Civil Judge decreeing the suit.

Issues Involved:
1. Classification of Ayurvedic preparations for excise duty.
2. Interpretation of legislative amendments and their impact on excise duty exemption.
3. Validity and effect of the Director's Circular dated May 31, 1962.
4. Legal interpretation of "patent and proprietary medicines" under the Act and the Drugs Act, 1940.

Issue-wise Detailed Analysis:

1. Classification of Ayurvedic Preparations for Excise Duty:
The appellant, a Limited Company, manufactured an Ayurvedic product called "Ashvagandhaarist" containing self-generated alcohol, not capable of being consumed as an ordinary alcoholic beverage. Initially, under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, such preparations were exempt from excise duty under Item 2(i) of the Schedule, which was later renumbered as Item 3(i) by the Amendment Act of 1961. The Finance Act of 1962 introduced an Explanation redefining "patent and proprietary medicine," leading to a circular that classified such Ayurvedic preparations under Item 1, making them dutiable. The appellant paid the excise duty under protest and filed a suit to recover the amount.

2. Interpretation of Legislative Amendments and Their Impact on Excise Duty Exemption:
The Act was amended several times, introducing the concept of "patent and proprietary medicine" and redefining the Schedule. The appellant argued that the product "Ashvagandhaarist" continued to fall under Item 3(i) and should remain exempt from excise duty. The High Court's interpretation of the amendments led to the imposition of excise duty, which the appellant contended was incorrect, as the amendments did not intend to change the classification of Ayurvedic preparations containing self-generated alcohol.

3. Validity and Effect of the Director's Circular Dated May 31, 1962:
The Director of Prohibition and Excise issued a circular directing that Ayurvedic preparations containing self-generated alcohol be classified under Item 1, making them dutiable. The appellant challenged this circular, arguing that it was inconsistent with the legislative intent and the provisions of the Act, Schedule, and Rules. The Supreme Court found that the circular was not in harmony with Item 3(i) and the classification of Ayurvedic preparations, which continued to be exempt from duty.

4. Legal Interpretation of "Patent and Proprietary Medicines" Under the Act and the Drugs Act, 1940:
The term "patent and proprietary medicines" was defined in the Act by adopting the definition from the Drugs Act, 1940. The High Court interpreted this definition to include Ayurvedic preparations under Item 1, making them dutiable. However, the Supreme Court held that Ayurvedic preparations were not considered drugs under the Drugs Act until its amendment in 1964. Therefore, the Explanation introduced by the Finance Act, 1962, did not alter the classification of Ayurvedic preparations under Item 3(i), which remained exempt from duty.

Conclusion:
The Supreme Court set aside the judgment and decree of the High Court and restored the judgment and decree of the Civil Judge, which decreed the suit in favor of the appellant. The Court held that the legislative intent was to keep Ayurvedic preparations containing self-generated alcohol, not capable of being consumed as ordinary alcoholic beverages, exempt from excise duty under Item 3(i). The Director's Circular was found to be inconsistent with the Act, Schedule, and Rules. The appeal was allowed, and the parties were directed to bear their own costs.

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