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TMI Blog2000 (9) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... marketed and were actually marketed by other manufacturer of similar vegetable extracts, in different forms - liquid, semi-solid and dry forms. The appellants were getting such vegetable extracts also from outside and some of the vegetable extracts manufactured by them were sent to outside manufacturers for manufacturing Ayurvedic Medicaments on job work basis, where they were used after a time, without noticing any deterioration during storage and transit. It was alleged in that show cause notice dated 30-8-1995 that M/s Dabur had suppressed the fact of manufacturing vegetable extracts falling under sub-heading no. 1301.90 of the Central Excise Tariff, in their factory, and did not knowingly and wilfully declare these excisable and dutiable products in any of the classification lists filed with the Central Excise Department during the period from 1-8-1990 to 28-2-1994. As a part of 1994 Budget, exemption from excise duty on all patent or proprietary medicines of Homoeopathic, Unani, Siddha, Ayurvedic and Biochemic was withdrawn; however, unbranded products continued to be exempted vide Notification No. 8/94-C.E., dated 1-3-1994. Contraventions of the various provisions of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of vegetable extracts under sub-heading no. 1301.90 of the Central Excise Tariff, and confirmed the demand of Rs 2,98,56,449.73. A penalty of Rs 2,98,56,450/- was imposed under Rules 9(2), 52(A), 173(Q) and 210 of the Rules. 2. The matter was heard on 5-9-2000, when Shri V. Lakshmikumaran, Advocate, appeared for M/s Dabur, and submitted that prior to 1-3-1994 no duty was leviable on Ayurvedic Medicaments including patent or proprietary Ayurvedic Medicaments. The appellants were engaged in the manufacture of patent or proprietary Ayurvedic Medicaments, and at intermediate stage vegetable extracts were manufactured by them. He explained that there were two types of vegetable extracts (i) Simple Vegetable Extracts obtained from single ingredients; and (ii) Compound Vegetable Extracts obtained from two or more ingredients. The duty liability with regard to simple vegetable extracts was admitted. With regard to compound vegetable extracts, however, it was argued that they were not marketable. According to the learned Advocate, they had limited shelf-life and were not stable. He submitted that as there was no process of manufacture, no excise duty could be levied. He referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ayurvedic, Unani, Siddha, Homeopathic or Biochemic systems classifiable under sub-heading no. 3003.30 of the Central Excise Tariff. For manufacturing medicaments used in Ayurvedic Systems, they were procuring different herbs from outside. The herbs were in dry or semi-dried form. These herbs in dried or semi-dried form were further dried, grounded and crushed. Different herbs, so dried, grounded and crushed were mixed depending upon the medicaments to be prepared, in different proportions, and such herbs mixed in given proportions were subjected to the further process of grinding in the grounding mill. This grinded mixed material was then processed to obtain vegetable extracts. Depending upon the requirement, the vegetable extracts obtained after processing of herbs, either taken as a single herb or after mixing different herbs, were also dried. The vegetable extracts whether liquid, semi-solid or dried were used for preparing different medicaments after adding certain other necessary ingredients to the vegetable extracts, as per manufacturing formula for the medicaments to be prepared. The vegetable extracts were not usable as medicaments as such. Shri Bhuvanesh Kumar Dwivedi, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracts was for outside sale. They were supplying mixed/ compounded vegetable extracts to M/s Dabur also. Shri R.K. Agarwal was cross-examined by the counsel for M/s Dabur on 4-6-1996 when he confirmed that the extracts were not taken as medicaments as such. He also clarified that the extracts arising at the final stage having gone through the multi stage evaporation stage when the concentration had been increased to about 70% could be stored without deterioration even upto six months. 4. From the facts on record, it is seen that the vegetable extracts in question have definite name, character and use. They were prepared as per manufacturing formula described in authoritative Ayurvedic Publications. Depending upon the requirement, they were obtained in different forms - liquid, semi-solid or dry. Even when in liquid form, they were stored for subsequent use. In certain extracts preservatives were also used. In the show cause notice, there is reference to a manufacturer who was manufacturing such and like vegetable extracts for outright sale (refer para 7.1 of the show cause notice). The extracts in question were stored for a time before sale and despatch by such manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... East India Pharmaceutical Works Ltd. v. Asstt. Collector of Central Excise, 1994 (71) E.L.T. 358 (Cal.). Only when particular medicaments were made with the use of such vegetable extracts, such finished medicaments were usable for therapeutic or prophylactic purposes. In para 4.3 of the show cause notice what was stated was that the vegetable extract as such was not usable as medicament. This fact has not been challenged. The issue has been countered with the argument that each of the plant from which the extract was taken has therapeutic or prophylactic value (refer para B.10 of the reply at page 59 of the paper book). Shri Bhuvanesh Kumar Dwivedi, Senior Officer Production, Ayurvedic Medicine Department, in M/s. Dabur, in his statement dated 26-7-1995 recorded under Section 14 of the Act had stated before the Superintendent of Central Excise, Ghaziabad, as under - Q.1 Please clarify whether the vegetable extract manufactured by you in M/s Dabur at intermediate stage by decoction method is usable as medicine as such or not? A.1 No. xxxxxxxxxx Q.3 Please explain whether the vegetable extract has therapeutic or prophylactic use as such or the veg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h medicament used in the various systems of treatments e.g. Ayurvedic, Unani and Siddha has to be examined on merits. 3. Broadly, a preparation would merit classification as an Ayurvedic medicine, if in the common parlance, it is known as an Ayurvedic medicine and all its ingredients are mentioned in the authoritative book(s) on Ayurvedic medicines. Thus, the aforesaid two tests for determining the classification of the products claimed to be an Ayurvedic medicine (excluding herbal or ayurvedic cosmetic) would be kept in view while dealing with such cases. [Vadodara Collectorate Trade Notice No. 140/91, dated 23-10-1991] In this connection, para 29 of the judgment of the Madhya Pradesh High Court, Indore Bench, in the case of Panama Chemical Works v. U.O.I. 1992 (62) E.L.T. 241 (M.P.), is extracted below - 29. Now, in the light of the aforesaid authorities it has to be seen as to how the medicine in question i.e. SWAD is known in the common parlance or in commercial use. There is not an iota of evidence to show that this product is sold as a confectionery and is commonly used as a confectionery by the consumers. In Tariff Entry 3003.30 the medicaments including those in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sale or distributed. This also indicates that trade in respect of drugs is lawfully possible only when there is a compliance with the provisions of the said Act, both by the manufacturers and dealers. In Ashok Leyland s case (above), the Division Bench of this Court held that the relationship between the manufacturer and the dealer is not that of a principal and agent but that of a seller and a buyer. Applying the ratio of this decision to the case at hand, it seems to us obvious that the relationship that is established between the manufacturer and the dealer as regards the sale of the products manufactured by the petitioners is of a seller and a buyer and thus, the observation of the Supreme Court in Hindustan Sugar Mills case (above) became most relevant. Their Lordships of the Supreme Court, dealing with the provisions of the Central Act regulating the sale and the price of cement vis-a-vis the clauses of the agreement entered into by the parties, indeed observed that the provisions of the Central Act regulating the sale and the price ot cement had an overriding effect and thus, if the said Control Order was stipulating that the freight was to be paid by the purchaser, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts which have been mixed or compounded with the addition of other substances/products for therapeutic or prophylactic purposes also travel beyond the scope of vegetable extracts. Such mixtures and similar medicinal compound extracts made by treating mixture of plants become medicaments. Simple vegetable extracts when put up in measured doses for therapeutic or prophylactic purposes or in forms or packings for retail sale for such therapeutic or prophylactic purposes were also to be treated as medicaments. As is seen from the product description, the vegetable extracts in question did not have due character of medicaments. They were the raw materials for the production of medicaments, but in themselves they were not usable for therapeutic or prophylactic purposes. The appellants have also not treated them as medicaments. Admittedly, the vegetable extracts were obtained for specific medicines. They were not medicines as such. In para B.1 of their reply dated 4-3-1996 to the show cause notice at page 56 of the paper book, the appellants had stated as under - B.1 In the case of the extracts, which are compound extracts, i.e. the extraction is done by treating mixtures of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Laboratories (Shri Agarwal had earlier worked with M/s Dabur in their packing section) was also cross-examined on 4-6-1996. Further, written submissions were made on 14-6-1996. It was during the course of such proceedings against them, when the matter was under adjudication by the Commissioner of Central Excise, Meerut, that M/s Dabur under their communication dated 15-9-1996 addressed the Central Board of Excise and Customs for suitable clarifications and directions with regard to the classification of the liquid vegetable extracts obtained in the manufacture of Ayurvedic medicines. On 16-9-1997, the Central Board of Excise Customs issued the following circular - Liquid vegetable extracts obtained in the manufacture of Ayurvedic Medicines Clarification [Chapter 30] I am directed to say that a doubt has been raised as to whether liquid vegetable extracts obtained in the course of manufacture of Ayurvedic medicines are excisable under the Central Excise Tariff Act, 1985 and if so whether they merit classification under Chapter 13 or under Chapter 30 of the Central Excise Tariff Act, 1985. 2. A general study of the process for obtaining these extracts reveals that in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assifiable under Chapter 13 of the CET. However, single ingredient extracts when put up in measured doses for therapeutic or prophylactic purposes or in forms or packings for retail sale for such purposes are covered under Chapter Heading 30.04. 5. In view of the above it is clarified that liquid vegetable extracts unless subjected to fermentation or other preservative processes are not liable to be considered as goods attracting the scope of excise levy. Mixed or compounded vegetable extracts which have therapeutic or prophylactic value are appropriately classifiable under Heading 30.03 of the Central Excise Tariff. Single ingredient extracts are classifiable under Chapter 13 of the Central Excise Tariff. However, single ingredient extracts when put up in measured doses for therapeutic or prophylactic purposes or in forms of packings for retail sale for such purposes are appropriately classifiable under Heading 30.03 of the Central Excise Tariff. 6. All pending disputes/assessments on the issue may be settled in the light of these guidelines. [C.B.E. C. Circular No. 334/50/97-CX issued under F. No. 102/11/94-CX. 3, dated 16-9-1997] It was clarified therein that the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as necessarily to be established for sustaining the charge of suppression, my finding is that the theory that the assessee was operating under a bona fide belief regarding the non-dutiable nature of vegetable extracts is not credible particularly when he was himself purchasing extracts regularly from other manufacturers on payment of duty. The vegetable extracts were also being sent to other manufacturers of Ayurvedic Medicines for formulation. In his statement dated 21-7-1995 recorded under Section 14 of the Act before the Superintendent of Central Excise, Shri R.K. Agarwal, Asstt. Manager of M/s Lucky Laboratories Ltd., Sikandrabad, had this to say - As required, I am submitting the photocopies of Drug Licence of vegetable extracts issued to M/s Lucky Laboratories Ltd. by licensing authority and Director, Ayurvedic/Unani Services U.P. (Lucknow) as per letter no. 3993/D-2318/86 dated 8.6.1995 for 86 additional products as per authoritative books of Ayurveda. The list is duly signatured by me. The application was made by us in 1994. The vegetable extracts as per the approved list are manufactured by us in our factory in dry powder form, semi-solid (paste form) and liquid form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, it is seen that the appellants had not disclosed the facts with regard to the vegetable extracts and the allegation of suppression of facts is well established against them. In case of suppression of facts, extended period of limitation was applicable. In the case of Marco Textiles v. U.O.I., 1996 (83) E.L.T. 17 (S.C.) = 1997 (69) ECR 28 (S.C.), when there was no material on record to show that the assessee genuinely believed that the tufted fabric manufactured by it was embroidered fabric and was eligible to exemption, the Supreme Court held that the demand was not time-barred. Extended time limit was invokable when full facts were not disclosed to the Department (refer Mangala Textiles v. CCE, Pune, 2001 (130) E.L.T. 705 (Tri.) = 2000 (39) RLT 288 (CEGAT). Extended period of limitation was invokable when clearance of soft cotton used was not disclosed to the Department (refer C.T. Cotton Yarn Ltd. v. CCE, Indore, 2001 (135) E.L.T. 491 (Tri.) = 2000 (39) RLT 943 (CEGAT). Extended period of five years was applicable for failure to file classification lists. Mere vague and uncertain letter will not be able to disprove the suppression of facts (refer V.S.T. Tillers T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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