2015 (11) TMI 775 - AT - Central Excise

Claim of exemption under notification no. 6/02-CE (serial No. 57) of a formulation made from two bulk drugs - Diphenoxylate Hydrochloride with Atropine Sulphate. Serial No. 57 of the notification no. 6/02-CE covers formulation manufactured from bulk drugs specified in list-2 - Held that - The Commissioner (Appeals) has held that since both Diphenoxylate Hydrochloride and Atropine Sulphate are active ingredients and since Atropine Sulphate is mentioned in list-2, the formulation would be eligible for exemption as for this purpose the ratio of the two constituent bulk drugs is not relevant. Since, in the present case both the constituents bulk drugs - Diphenoxylate Hydrochloride and Atropine Sulphate are the active ingredients, in our view the Commissioner (Appeals) s order that their ratio in the formulation is not material is correct. In terms of the Apex Court judgment in the case of CCE Varodara vs Allembic Chemical Works (2015 (11) TMI 810 - SUPREME COURT) if a formulation consist of more than one bulk drug, and out of those bulk drugs only one bulk drug is specified in notification the duty exemption to the formulation cannot be denied. On going through this judgment of the Apex Court, we are of the view that the judgment of the Apex Court is squarely applicable to the facts of this case. We, therefore, do not find any infirmity in the impugned order. - Decided against Revenue.

Summary

Issues:
Interpretation of duty exemption under notification no. 6/2002-CE for a pharmaceutical formulation containing Diphenoxylate Hydrochloride with Atropine Sulphate.

Analysis:
The case involved a dispute regarding the duty exemption eligibility for a pharmaceutical product comprising Diphenoxylate Hydrochloride with Atropine Sulphate under notification no. 6/2002-CE. The key contention was whether this formulation qualified for full duty exemption as per serial no. 57 of the notification, which covers formulations made from bulk drugs specified in list-2. The Department argued that since Diphenoxylate Hydrochloride, the major constituent, was not listed in list-2, the formulation did not meet the exemption criteria. On the other hand, the Commissioner (Appeals) ruled in favor of the respondent, stating that the presence of both active ingredients, Diphenoxylate Hydrochloride, and Atropine Sulphate, made the formulation eligible for exemption despite the absence of Diphenoxylate Hydrochloride in list-2.

During the hearing, the Department reiterated that the formulation's primary component being Diphenoxylate Hydrochloride, not listed in list-2, rendered it ineligible for duty exemption under the notification. They emphasized that the proportion of the bulk drugs and their therapeutic activity were crucial, and since Diphenoxylate Hydrochloride constituted 99% by weight, the formulation should not be considered as made from the specified bulk drugs. Conversely, the respondent's counsel cited a Supreme Court judgment, CCE Varodara vs. Allembic Chemical Works, to support their argument that the ratio of constituent bulk drugs was irrelevant for exemption eligibility. They contended that if any one of the bulk drugs in a formulation was listed in the notification, the formulation would qualify for exemption.

Upon evaluating the arguments and records, the Tribunal found that the formulation in question contained Diphenoxylate Hydrochloride and Atropine Sulphate as active ingredients. Considering the Apex Court's precedent, the Tribunal concluded that if a formulation comprised multiple bulk drugs and at least one was listed in the notification, the duty exemption could not be denied. Drawing parallels with the Supreme Court's ruling, the Tribunal upheld the Commissioner (Appeals)'s decision, stating that the ratio of constituent bulk drugs was immaterial when both were active ingredients. Consequently, the Tribunal dismissed the Revenue's appeals, affirming the eligibility of the respondent for duty exemption under notification no. 6/2002-CE for the formulation containing Diphenoxylate Hydrochloride with Atropine Sulphate.