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TMI Blog2022 (3) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... lty of Rs. 1,41,75,076/- (Rupees. One Crore Forty One Lakhs Seventy Five Thousand Seventy Six Only) under Section 11AC of the Central Excise Act, 1944." 1.2 Appeal No E/85885/2013 filed by Revenue is directed against order in appeal No 124/BPS/LTU/MUM/2012 dated 14.11.2012 of Commissioner (Appeals), Central Excise & Service Tax, LTU, Mumbai. By the impugned order, the Commissioner (Appeals) has held as follows: "20. In view of the forgoing, I set aside the impugned order as same is not sustainable in law and I allow the subject appeal with all its consequential relief to the Appellant , as per law." 1.3 Since the issues involved in both the appeals are identical both are taken up together. 1.4 Appellant/Assessee have filed a miscellaneous application for the change of cause title. We allow the same in view of the decision of Hon'ble Bombay High Court. 2.1 Appellant/Assessee are engaged in manufacture of Organic Chemicals classifiable under Chapter 29 of First Schedule to Central Excise Tariff Act, 1985. The organic chemicals manufactured by the appellant/assessee are also known as "Active Pharmaceutical Ingredients (API)"and are used in manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bulk drug". * No adjustment of duty has been made in the impugned order by taking note of the fact that appellant/assessee had at time clearance paid 5% or 8% or 10% of value of Product cleared without payment of duty. Therefore, duty even if was demanded, should have been adjusted with such reversal of amount which was Rs. 1, 05,60,561/-. * Invocation of larger period of demand is not tenable as all the facts were in the knowledge of the department, there records were audited up to September, 2009, wherein the excise invoices made for the clearances of the Product for home consumption as well as for exportation were also inspected. From this inspection of records as well as examination of monthly ER * 1 Returns, a conclusion could have been derived by the auditors as regard to exemption claimed by the appellant/assessee for the Product manufactured and cleared by them. * No Penalty and interest is payable. 2.5 Following the order in original of Commissioner, the show cause notices for the subsequent period were confirmed by the Additional Commissioner vide his order in original No 26/LTU/MUM/ADDL/MK/11 dated 29.11.2011. The order of the Additional Commissioner, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Since appellant/assessee have failed to follow the procedure as prescribed for availing the benefit of exemption as per entry at Sl No 47 (B), exemption under notification No 47 (B) should not be admissible to them. Accordingly the appeal filed by the appellant/assessee should be dismissed and that by the revenue be allowed. 4.1 We have considered the impugned orders along with the submissions made in appeals and during the course of arguments. 4.2 We are required to adjudicate upon the following issues in these appeals: a. Whether the benefit of exemption at Sl No 47 (A) of the notification no 04/2006-CE dated 01.03.2006 has been correctly availed by the appellant/assessee. b. If the answer to 'a' is negative can the duty be demanded from them by invoking extended period of limitation. c. Whether the amount paid by them @ 5% or 8% or 10% of value of goods cleared claiming exemption from payment of duty should not have been adjusted against the demand made, by denying the exemption claimed. d. Whether the penalty could have been imposed on them under Section 11AC of the Central Excise Act, 1962. 4.3 In case of Hetero Dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appellant revenue has taken the following grounds. It is submitted that "Lopinavir" is "bulk drug" and cannot be treated as "drug or medicines". The expression drug at Sl. No. 47(A) referred to finished pharmaceutical products or formulations whereas 'bulk drugs' at Sl. No. 47(B) referred to bulk drugs which were used in the manufacture of drugs or medicines. The assessee had classified the item under Chapter 29 of the Central Excise Tariff which covered organic chemicals; and drugs were classifiable under Chapter 30 of the tariff. It is submitted that the impugned goods were bulk drugs as per the definition of the term in the notification and as per common parlance. Drugs falling under Sl. No. 47(A) were exempted unconditionally whereas bulk drugs at Sl. No. 47(B) were exempted subject to fulfilment of the condition No. 2 specified in the Notification. As per this condition if the bulk drugs were used elsewhere than in the factory of production, the procedure laid down in the rules had to be followed. In the instant case, the assessee had not followed the procedure prescribed in the rules. In allowing the appeal of the assessee, Commissioner (Appeals) had wrongly placed reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghs Wellcome (I) Ltd. v. CCE [2007 (216) E.L.T. 522 (Tri.-Mum.)] (c) M/s. Cipla Ltd. v. CCE, Chennai [2007 (218) E.L.T. 547 (Tri. Chennai)] 9. We observe that in the Final Order Nos. 979-980/2008, Bangalore Bench of the Tribunal, had decided a similar dispute involving interpretation of the Notification No. 4/2006-C.E. and its entries Sl. Nos. 47(A) and 47(B). The appellants therein had manufactured and cleared Nevirapine and Stavudine figuring at Sl. Nos. 117 and 118 respectively of List 3 appended to Notification No. 21/2002-Cus dated 1-3-2002. As the impugned goods had been bulk drugs, the appellants were required to follow certain conditions. As they had not followed the prescribed conditions, benefit in terms of Sl. No. 47(B) was denied. The Tribunal held that the items Nevirapine and Stavudine figured in List 3 appended to Notification No. 21/2002-Cus. The term 'drug' had to be considered to include bulk drug and formulation, as per the Drugs (Price Control) Rules, both items being bulk drugs were entitled to the benefit of the Notification. 10. In the M/s. Burroughs Wellcome (I) Ltd. case, the Tribunal interpreted the following entries at Sl. No. 43 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. No. 80(A). It was beyond doubt that "bulk drugs" were also 'drugs'. They were so defined under the Drugs (Prices Control) Order, 1995 also. The imported goods which were specified in List 3 must fall within the coverage of the 'drugs' specified in List 3 and consequently the benefit of Sl. No. 80(A) would be admissible to them." 4.4 We also note that in case of Hetero Drugs [2006 (205) ELT 932 (T-Chennai)] the benefit claimed in similar situation in terms of Notification No 21/2002-Cus, tribunal stated as follows: "2. The original authority confirmed demand of total amount of duty of over Rs. 55 lakhs against the appellants under Section 28(1) of the Customs Act in respect of a medicinal item, viz. "Zidovudine" imported by them and cleared under two Bills of Entry, one of these Bills dated 6-7-04 and the other dated 30-7-04. Aggrieved by the order of that authority, the assessee preferred an appeal to the Commissioner (Appeals) and also filed therein an application for waiver of pre-deposit and stay of recovery in respect of the duty amount. The said application was disposed of on 12-1-06 without hearing the party. The appellate Commissioner's interim order dated 12-1-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Goods) Rules, 1996 should be followed by the importer. Admittedly, in this case, the appellants did not follow such procedure. However, it is the submission of ld. Counsel that the benefit of exemption which was otherwise available to bulk drugs in terms of Sl. No. 80(B) of the table annexed to the above Notification should not have been denied to the assessee on a procedural ground. In this connection, reliance is placed on Thermax Private Limited v. CC [1992 (61) E.L.T. 352 (S.C.)], wherein a default of the assessee in the matter of compliance with Chapter X Procedure was condoned and the benefit of Rule 192 of the Central Excise Rules, 1944 was allowed. Alternatively, it is submitted by the Counsel that, as 'bulk drugs' are also 'drugs' in terms of Clause 2(f) of the Drugs (Prices Control) Order, 1995, at least the benefit of entry at Sl. No. 80(A) should have been allowed to the appellants in respect of the imported item. In this connection, it is pointed out that it is not in dispute that the item imported specifically figured in list 3 and therefore was covered by Sl. No. 80(A) of the table annexed to the above Notification. We have heard ld. SDR also, on merits. It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification 04/2006-C.E, dated 01.03.2006 at Sr. No.47 (A) & (B) drugs or medicines including their salts & esters, diagnostic test kits (falling under Chapters. 28, 29, 30 or 38) and specified in List 3 or 4 appended to Notification 21/2002- Customs dated 01.03.2002 are unconditionally exempted from payment of central excise duty. Also bulk drugs used in the manufacture of such drugs/medicines are exempted from payment of duty if manufactured and used in the factory of production provided conditions are followed. In the instant case, they have cleared the impugned product outside their factory premises as bulk drug. 13. Further Bulk drugs and drugs, as per Drug Price Control Order 1995, are defined as under: Section 2. Definitions in this Order, unless the context otherwise requires, - "bulk drug" means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, conforming to pharmacopoeia or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 (23 of 1940), and which is used as such or as an ingredient in any formulation; "drug" Includes - i. all medicines for internal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of formulations. Thus the product in question is nothing but a bulk drug. 16. In the subject Notification at Sr.No.47(B) it is stated that Bulk drugs used in the manufacture of the drugs or medicines at Sr. No.47(A) are exempted provided procedure laid down in the Central Excise (Removal of Goods at Concessional rate of Duty for Manufacture of excisable Goods) Rules 2001 is followed where the use of such bulk drugs is elsewhere than in the factory of production. In the instant case, the assessee do not use the subject product themselves but clear the same to their clients. So they should have followed procedure laid down in the Central Excise (Removal of Goods at Concessional rate of Duty for Manufacture of excisable Goods) Rules 2001. However while clearing the subject product to their clients they have not followed the applicable procedure as prescribed above. Thus they have failed to fulfill the condition No.2 laid down in the referred Notification 17. The assessee is clearing the aforesaid product under the guise of drug which in case would have been classified under Chapter 30 of CETA 1985 whereas they are clearing under CSH 29310090 which implies that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry in the fiscal/ taxing statue cannot be correct interpretation. Generalis Specialibus non Derogant means erstwhile special law is given superiority over later general law. This has been followed while making interpretations, in India and across the world. As per this Latin Maxim the intention of legislature for providing the specific entries, should be ascertained and honoured. Hence the specific entry in the notification will have to be given precedence over the general entry, not defined but by referring to the definition of general entry from some other statue. Further in case of Dileep Kumar & Co [2018 (361) E.L.T. 577 (S.C.)], a five judges bench Hon'ble Supreme Court has observed as follows: "27. Now coming to the other aspect, as we presently discuss, even with regard to exemption clauses or exemption notifications issued under a taxing statute, this Court in some cases has taken the view that the ambiguity in an exemption notification should be construed in favour of the subject. In subsequent cases, this Court diluted the principle saying that mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such exemption no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, thought at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non- compliance of which would not affect the essence or substance of the notification granting exemption." 39. The Constitution Bench then considered the doctrine of substantial compliance and "intended use". The relevant portions of the observations in paras 31 to 34 are in the following terms - "31. Of course, some of the provisions of an exemption notification may be directory in nature and some are mandatory in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. 34. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the "substance" or "essence" of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance with those factors which are considered as essential." 40. After considering the various authorities, some of which are advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualizing different situations. For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the revenue has established conditions before raising and justifying a demand. Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax. That is why it is often said that subject is not to be taxed, unless the words of the statute unambiguously impose a tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Weaving Mills (P) Ltd. v. Union of India, 1962 Supp 3 SCR 481 = AIR 1963 SC 98. See also Kailash Nath v. State of U.P., AIR 1957 SC 790. The principle is well-settled that when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment. But in this connection, it is well to remember the observations of the Judicial Committee in Coroline M. Armytage v. Frederick Wilkinson, (1878) 3 AC 355, that it is only, however, in the event of there being a real difficulty in ascertaining the meaning of a particular enactment that the question of strictness or of liberality of construction arises. The Judicial Committee reiterated in the said decision at page 369 of the report that in a taxing Act provisions enacting an exception to the general rule of taxation are to be construed strictly against those who invoke its benefit. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided." In the above passage, no doubt this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to differ, taking a contra view, from this. We respectfully record our concurrence to this view which has been subsequently, elaborated by the Constitution Bench in Hari Chand case (supra). 48. The next authority, which needs to be referred is the case in Mangalore Chemicals (supra). As we have already made reference to the same earlier, repetition of the same is not necessary. From the above decisions, the following position of law would, therefore, clear. Exemptions from taxation have tendency to increase the burden on the other unexempted class of taxpayers. A person claiming exemption, therefore, has to establish that his case squarely falls within the exemption notification, and while doing so, a notification should be construed against the subject in case of ambiguity. 49. The ratio in Mangalore Chemicals case (supra) was approved by a three-Judge Bench in Novopan India Ltd. v. Collector of Central Excise and Customs, 1994 Supp (3) SCC 606 = 1994 (73) E.L.T. 769 (S.C.). In this case, probably for the first time, the question was posed as to whether the benefit of an exemption notification should go to the subject/assessee when there is ambiguity. The three-Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject/assessee by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must receive a construction favouring the assessee. Both the situations are different and while considering an exemption notification, the distinction cannot be ignored. 52. To sum up, we answer the reference holding as under - (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export case (supra) stands overruled." Since the controversy in respect of interpretation of the exemption notification has now been settled by the Hon'ble Apex Court in this decision, relying on this decision there is no scope left for holding a view which is contrary to the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases as referred by the appellant/assessee. Just because the interpretation of the notification adopted by the appellant/assessee is not acceptable, it cannot be ground for invoking extended period of limitation. 4.8 Now we take up question at "c" in para 4.2. Appellant/Assessee have paid certain amounts while clearing the goods claiming exemption from duty, @ 5%, 8% or 10% of the value of goods as applicable. This amount which paid by the appellant/assessee was required to be paid by them in terms of Rule 6 of CENVAT Credit Rules, 2004 as they were not maintaining separate account for the goods cleared under exemption and on payment of duty. The fact that appellant/assessee has paid the said amount cannot be disputed, Commissioner has in his order only observed that the appellant/assessee was not able to provide any proof of such payment. In our view the observation made by the Commissioner are totally erroneous as all the amounts so paid or reversed from the CENVAT account are definitely reflected in the monthly returns filed by the appellant/assessee. We are of the view for the periods when the claim to complete exemption from payment of duty is denied the amounts s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides." Since we hold that conditions for invocation of extended period as per Section 11 A do not exist in the present case the penalty imposed in terms of the Section 11 AC thus cannot be sustained. 4.10 Thus in view of the discussions above we would summarize our findings in respect of these appeals as follows: A. Appeal No E/999/2012:- a. Demand is maintainable on merits of the issue. b. Extended period of limitation cannot be invoked in facts and circumstances of this case, hence demand needs to be worked out for the normal limitation. c. Adjustment should be allowed for the amounts paid @ 5%, 8% or 10% of the value of goods cleared under exemption, for the period for which the benefit of exemption is denied and duty demand confirmed. d. Penalty under Section 11 AC i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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