2025 (2) TMI 255 - AT - Central Excise

Rejection of refund claim - rejection on the ground that the items Gemcitabine Hydrochloride and Doxorubicin Hydrochloride are not the drugs specified in the list - 3 4 of the N/N. 21/2002-Cus dated 01.03.2002 which forms the base for claiming the exemption under N/N. 04/2006-CE dated 1/3/2006 - appellant has passed the duty component claimed as refund to the customers or not - principles of unjust enrichment - HELD THAT - Notification No. 4/2006-CE dated 01.03.2006 at S.No. 47 grants exemption to various drugs or medicines including their salt and esters specified in List 3 or 4 appended to the Notification 21/02-Cus dated 01.03.2002. It is also found that in the appellant s own case the Ld. Commissioner during the relevant period has held that the appellant is entitled to the exemption provided under the Notification as the same is extendable to the hydrochlorides of the drugs or medicines prescribed under list 3 and 4 of the Customs Notification vide Order in Original No. V(30)15/CE/ADJ/81/2007/296 dated 14.01.2016. The pharmaceutical substances are prepared as hydrochlorides so that they may be quickly released in the gastrointestinal tract which body usually absorbs within 15-30 minutes; therefore exemption granted to various formulations under the notifications also includes their salts esters and not including of Hydrochlorides under Notification will make the Notification redundant and this aspect has also been indicated in the various Pharmacoepia - the denial of exemption to the appellant amount to discrimination because the other manufacturer who are manufacturing the identical goods are availing the exemption which has been sought to be denied to the appellant which is not permitted in law. Principles of unjust enrichment - HELD THAT - The appellant has procured the bulk drug on payment of duty which was borne by them and has not been passed on to any customer and in order to establish this fact the appellant has produced the copies of balance sheet wherein it has been recorded that the amount of duty paid on bulk drug as Receivable under Current Asset and not included the same in the cost of the injections manufactured by the appellant. Conclusion - i) The exemption under Notification No. 04/2006-CE extends to hydrochlorides of specified drugs consistent with legislative intent. ii) The appellant successfully demonstrated that the duty was not passed on to customers satisfying the test of unjust enrichment. Appeal allowed.

Summary

The appeal challenges the order dated 06.12.2012 by the Commissioner (Appeals), which upheld the rejection of a refund claim by the adjudicating authority. The appellant, a manufacturer of PP medicaments, sought a refund of Rs. 91,78,787/- under Section 11B of the Central Excise Act for duty paid on inputs used in manufacturing life-saving drugs. The claim was based on the exemption provided under Notification No. 21/2002-Cus dated 01.03.2002. The adjudicating authority rejected the claim, stating that the inputs, Gemcitabine Hydrochloride and Doxorubicin Hydrochloride, were not specified in the exemption lists and that the appellant failed the test of unjust enrichment.

The core legal issues considered were:

• Whether the exemption under Notification No. 04/2006-CE dated 1/3/2006 applies to hydrochlorides of drugs specified in Notification No. 21/2002-Cus.
• Whether the appellant passed the test of unjust enrichment.

The legal framework involved the interpretation of exemptions under Notifications No. 21/2002-Cus and No. 04/2006-CE. The appellant argued that the exemption should extend to hydrochlorides, as they are salts of the specified drugs. This argument was supported by a prior favorable decision in the appellant's own case and various judicial precedents. The appellant also contended that the duty was not passed on to customers, as evidenced by their accounting records and Chartered Accountant certifications.

The Court's interpretation focused on the legislative intent behind the notifications. It was noted that hydrochlorides are salts resulting from the reaction of hydrochloric acid with an organic base, and their inclusion in the exemption aligns with the legislative purpose. The Court also emphasized the principle that the Department cannot take contradictory positions in similar proceedings for the same assessee.

Regarding unjust enrichment, the Court found that the appellant had sufficiently demonstrated that the duty was not passed on to customers. The evidence included balance sheets showing the duty as a "Receivable" under Current Assets and unchanged MRPs despite duty payments. The Court noted that the Department failed to provide contrary evidence.

Significant holdings included:

• The exemption under Notification No. 04/2006-CE extends to hydrochlorides of specified drugs, consistent with legislative intent.
• The appellant successfully demonstrated that the duty was not passed on to customers, satisfying the test of unjust enrichment.
• The Department's failure to provide evidence against the appellant's claims further supported the decision to allow the refund.

The Court concluded that the impugned order was not sustainable in law, set it aside, and allowed the appeal with consequential relief as per law.