Hico
Products Ltd. Vs. C.C.E [1994] INSC 256 (22 April 1994)
Punchhi,
M.M. Punchhi, M.M. Ahmadi, A.M. (J)
CITATION:
1995 AIR 400 1994 SCC (4) 578 JT 1994 (3) 309 1994 SCALE (2)644
ACT:
HEAD NOTE:
The
Judgment of the Court was delivered by PUNCHHI, J.- This is an appeal under
Section 35-L of the Central Excises and Salt Act, 1944 against the judgment and
order of the Customs, Excise and Gold (Control) Appellate Tribunal, Special
Bench, New Delhi, dated 29-5-1990 whereby the appeal of the Revenue stands allowed
and the appellate order of the Collector (Appeals), Bombay, in favour of the
appellant-company set aside.
580
2.The
case of the appellant is that under a licence to manufacture drugs obtained on 27-7-1982 from the Food and Drugs Administration, Maharashtra, it manufactured thenceforth
medicinal Silicone products named Dimethicone of the description Dimethicone -
20, Dimethicone - 350, Dimethicone - 2000, Dimethicone - 1000 and Dimethicone -
100, and Simethicone. These products were stated to be manufactured strictly in
accordance with pharmaceutical standards, requirements and specifications. Between
August 1982 to January 1983, the appellant filed classification lists in
respect of Dimethicone and Simethicone, terming them as drugs and pharmaceutical
preparations classifiable under the residuary Tariff Item 68 of the Central
Excise tariff but exempt otherwise from levy under some Government
notifications starting from 22-2-1982
onwards reference to which would be made later. On 24-9-1983, the Superintendent
of Central Excise informed the appellant that the drugs on the contrary were
classifiable under Tariff Item 15-A and not under Tariff Item 68 and that the
benefit of exemption under the last of notifications being No. 234 of 1982
dated 1- 1 1- 1 982 was not available to the appellant in respect of the said
products. As directed by the Superintendent of Central Excise, the appellant
filed the revised classification, but under protest, in respect of those
products under Tariff Item 15-A. The appellant thereafter successfully
persuaded the Assistant Collector of Central Excise to obtain a report of the
Deputy Chief Chemist Bombay as to whether or not the products conformed to
pharmaceutical standards. The report received stated that Dimethicone of the
varieties were poly siloxane compounds (silicone oils) stated to have defoaming
properties and Simethicone a form of jelly like mass composing of silicone oil
and silicone. Beforehand on 22-11-1983, a
notice had been issued by the Department to the appellant to show cause why the
products be not classified under Tariff Item 15-A.
The
appellant in reply pointed out that the products were "bulk drugs" as
defined in the up-to-dated notification No. 234 of 1982, dated 1- 1 1- 1982.
The Department did not relent and on receipt of the report of the Deputy Chief
Chemist Bombay, issued a second showcause notice to the appellant. Finally on
contest, the Assistant Collector passed an order on 4-1-1985 rejecting the
contention of the appellant holding that the products were classifiable under
Tariff Item 15-A. The Collector of Central Excise, Bombay, on appeal by the appellant set
aside the order of the Assistant Collector. He took the view that both the
products were drugs and pharmaceutical preparations and conforming to pharmacopoeial
standards, classifiable under Tariff Item 68 and exempt from excise duty.
Further appeal of the Revenue before the Tribunal was allowed and the order of
the Assistant Collector was restored. The Tribunal's view was that both the
products were silicone and it was immaterial whether they were conforming as
drugs, hence the classification under Tariff Item 15-A. Therefore, this appeal.
3.Before
we go on to deal with the diverse contentions raised by Mr S. Ganesh, learned
counsel for the appellant, we deem it prudent to give a broad outline of the
interplaying of the charging Section 3 of the aforesaid Act and 581 its
Schedule 1 embodying the tariff items. Section 3 mandates that there shall be
levied and collected, in such manner as may be prescribed, duties of excise on
all excisable goods other than salt produced or manufactured in India, and a
duty on salt manufactured in, or imported by land into, any part of India as,
and at the rates set forth in the First Schedule. Sub-section (2) allows the
Central Government, by means of a notification to fix for the purpose of
levying the said duties, tariff values of any articles enumerated either
specifically or under general headings, in the First Schedule, as chargeable
with duty ad valorem and to alter any tariff values for the time being in
force. Schedule 1 has three columns, first containing item numbers, the second
containing description of goods and the third containing rate of duty. A quick
glance through Items 1 to 67 shows that under each item certain goods are
specified for levy of duty and to the goods which have not been so specified or
have been left out Item 68 is attracted, the latter known as the residuary
item. Rule 8 of the Central Excise Rules, 1944, as it then stood, empowered the
Central Government from time to time, by notification in the Official Gazette,
to exempt, subject to such conditions as specified in the notification, any
excisable goods from the whole or any part of the duty leviable on such goods.
Such exemption by means of notification issued under Rule 8 does not take away
the levy or have the effect of erasing levy of duty. The object of the
exemption notification is to forgo due duty and confer certain benefits upon
the manufacturer or the buyer, or tile consumer through the manufacturer, as
the case may be. We must also bear in mind that the period with which we are
concerned relates to the period prior to the introduction of the Central Excise
and Tariff Act, 1985, which came into force on 1-3-1986.
4.
Leaving aside the case of salt, with which we are presently not concerned,
Section 3 of the Act authorises levy and collection of excise duty on all goods
produced or manufactured in India. If the
goods are specified in one or the other item contained in Items 1 to 67, the
duty payable is referable to the item concerned. Should any goods be not
specified in any of those Items 1 to 67, excise duty would be leviable on those
remaining goods under the residuary Item 68. When by an exemption notification
under Rule 8 of the aforereferred to rules, any excisable goods get exempted
from payment of duty under a particular item it only implies that the levy and
collection of excise duty on those goods would have been there under the said
item but for the exemption. The case of the appellant is that its products
aforementioned being "bulk drugs" have been exempted by notifications
reference to which shall presently be made.
The
argument presupposes that but for the exemption excise duty was leviable.
5.Now
the dispute between the Revenue and the appellant has diametrically opposite
dimensions. Mr S. Ganesh, learned counsel for the appellant, in the first
instance urged that though Silicone was a product specified in Tariff Item
15-A, the product meant to be covered therein was industrial Silicone, and
since the products in question were in contrast medicinal Silicone bearing the
names Dimethicone and Simethicone, those were not covered under Tariff Item
15-A. Pursuant thereto it was urged that 582 medicinal Silicone fell in the
residuary Item 68 attracting a lesser ad valorem duty and having found its
place there stood exempted from payment of excise duty under the notifications.
The case of the Revenue on the other hand is that Silicone, be it termed
medicinal or industrial, in all forms was covered in Tariff Item 15-A and it
having been specified there got stuck up in that item and thus in no event
could it slide down to the residuary Item 68.
Sequelly
it was urged that when the products in question could never come to the residuary
Item 68, the question of exemption notifications applying to the products did
not arise. Thus the question which primarily falls for consideration is how do
we interpret the exemption notifications. But before we do that we take note of
Tariff Items 15-A and 68, reproduced one after the other:
---------------------------------------------------------
Item No. Tariff description Rate of duty
--------------------------------------------------------- (1) (2) (3)
--------------------------------------------------------- 15-A. 50%ad valorem
Artificial or Synthetic resins and plastic materials; and other materials and
articles specified below:
(1)Condensation,
polycondensation and polyaddition products, whether or not modified or polymerised,
and whether or not linear (for example, pheno-plasts, amino-plasts, alkyds, polyallyl
esters and other unsaturated polyesters, silicones); polymerisation and copolymerisation
products (for example, polyethylene polytetrahaloethylenes, polyisobutylene,
poly-styrene, polyvinyl chloride, polyvinyl acetate, polyvinyl chloroacetate
and other polyvinyl derivatives, polyacrylic and polymethacrylic derivatives, coumaroneindene
resins); regenerated cellulose; cellulosenitrate, cellulose acetate and other
cellulose esters, cellulose ethers; and other chemical derivatives of
cellulose, plasticised or not (for example, collodions, celluloid);
vulcanised
fibre; hardened proteins (for example, hardened casein and hardened gelatin);
natural resins modified by fusion (run gums); artificial resins obtained by esterification
of natural resins or of resinic acids (ester gums);
chemical
derivatives of natural rubber (for example, chlorinated rubber, rubber
hydrochloride, oxidised rubber, cyclised rubber); other high polymers,
artificial resins and artificial plastic materials, including alginic acid, its
salts and esters, linoxyn.
583
(2) Articles of materials described in sub-item (1), the following, namely:
Boards,
sheeting sheets and films,whether lacquered or metallised or laminated or not;
Jay flat tubing not containing any textile materials.
50% ad
valorem (3) Polyurethane foam. 75% ad valorem (4) Articles made of polyurethane
75% ad valorem foam.
Explanation
1- Sub-item (1) does not include- (i) polyurethane foam;
(ii) artificial
waxes;
(iii)starches
(including dextrin and other forms of modified starches).
Explanation
II.- In sub-item (1), "condensation, polycondensation, polyaddition, polymerisation
and copolymerisation products" are to be taken to apply only to goods of a
kind produced by chemical synthesis answering to one of the following
descriptions:
(a)
Artificial plastics, including artificial resins;
(b) silicones;
(c) resols,
liquid polyisobutylene, and similar artificial polycondensation or polymerisation
products.
Explanation
III.- Sub-item (1) is to be taken to apply to materials in the following forms
only- (a) liquid or pasty (including emulsions, dispersions and solutions);
(b) blocks,
lumps, powders (including moulding powders), granules, flankes and similar bulk
forms;
(c) waste
and scrap.
ITEM
NO. 68 - ALL OTHER GOODS, N.E.S.
----------------------------------------------------------
Item No. Tariff description Rate of duty
-------------------------------------------------------
68. 8%
ad valorem All other goods, not elsewhere specified but excluding- (a)
alcohols, all sorts, including alcoholic liquors for human consumption;
(b)
opium, Indian hemp and other narcotic drugs and narcotics; and (c) dutiable
goods as defined in Section 2(c) of the Medicinal and Toilet Preparations
(Excise Duties) Act, 1955 (16 of 1955).
Explanation.-
For the purposes of this item, goods which are referred to in any preceding
item in this schedule for the purpose of excluding such 584 goods from the
description of goods in that item (whether such exclusion is by means of an
Explanation to such item or by words of exclusion in the description itself or
in any other manner) shall be deemed to be goods not specified in that item.
6. The
explanation occurring in Item 68 is significant.
It is
the key to understand the nature of the exclusion of goods from the description
of goods in any particular item within Items 1 to 67. The Explanation clarifies
that such exclusions could be demonstrated either by clear exclusion, or by explanation,
or in any other manner. Once such exclusion of goods is manifest from the
description of goods, then the goods excluded shall be deemed to be goods not
specified in that item. By this deeming provision the excluded goods are taken
for the purposes as if not specified in that item and have, for the purposes of
Item 68 to be treated to be goods not specified elsewhere falling under Item
68. So such of those specified goods which get excluded from the description of
goods in a particular tariff item in whatever manner, those goods shall be
deemed to be goods not specified in that item and thus becoming goods not
specified elsewhere for the purposes of Item 68.
7. Now
in order to proceed further, let us take note of the exemptions by means of the
notifications pressed into service by the appellant. The first is the
notification No. 104/82-C.E., dated 28-2-1982, which reads as follows:
"Exemption
to certain specified goods.- In exercise of the powers conferred by sub-rule
(1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the
notification of the Government of India in the Ministry of Finance, (Department
of Revenue and Insurance), No. 55/75Central Excises, dated the 1-3-1975, the
Central Government hereby exempts goods of the description specified in the
schedule annexed 6 hereto, and falling under Item No. 68 of the First Schedule
to the Central Excises and Salt Act, 1944 (1 of 1944), from the whole of the
duty of excise leviable thereon." The schedule annexed thereto contains
Serial Nos. 1 to 34, giving description of goods.
Relevant
entry in the schedule being 21, reads as follows:
"
21. All drugs, medicines, pharmaceuticals and drugintermediates not elsewhere
specified."
8.
Then by notification No. 197/82-C.E., dated 22-6-1982, the Central Government
exercising the same powers made an amendment to the earlier notification of
28-2-1982 in this manner:
"In
this notification:
(a) in
the schedule for Serial Number 21 and entries relating thereto, the following
serial number and entries shall be substituted, namely:
21.
All bulk drugs, medicines and drug- intermediates not elsewhere specified;' 585
(b) after the proviso, the following Explanation shall be inserted namely:
Explanation.-
In Serial Number 21, "bulk drugs" mean any chemical or biological or
plant product, conforming to pharmacopoeial standards, used for the diagnosis,
treatment mitigation or prevention of diseases in human beings or animals and
used as such or as an ingredient in any formation."' Lastly by Notification
No. 234/82-C.E., dated 1-11-1982, the Central Government again in supersession
of the notification dated 28-2-198 provided as follows:
"In
exercise of the powers conferred by sub- rule (1) of Rule 8 of the Central
Excise Rules, 1944, and in supersession of the notification of the Government
of India in the Ministry of Finance (Department of Revenue) No. 104/82-Central
Excises, dated 28-2-1982, the Central Government hereby exempts goods of the
description specified in the schedule hereto annexed and falling under Item No.
68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944),
from the whole of the duty of excise leviable thereon under Section 3 of the
said Act, Relevant entry in the annexed schedule containing Entries 1 to 41 is No.
21:
'21 All
bulk drugs medicines and drug- intermediates not elsewhere specified.
Explanation.-
In this notification, "bulk drugs" means any chemical, biological or
plant product, conforming to pharmacopoeial standards, used for the diagnosis,
treatment, mitigation or prevention of diseases in human beings or animals, and
used as such or as an ingredient in any formulation."'
9. In
the first notification of 28-2-1982, specific reference of Section 3 of the Act
was not made, though it was innately there. In the last notification dated 1-
11- 1982 there is such a reference. Thus what was implicit has been made
explicit. The levy of excise duty as a whole has been foregone insofar as goods
of the description as mentioned in the annexed schedule to each notification
are concerned if failing under Item 68. This is the thrust of the language of
the notifications exempting goods of the description specified in the annexed
schedule. The word "and" employed in connecting those scheduled goods
to Item 68 of the First Schedule to the Act makes it explicit The principle
governing is that if the case does not fall under any of those specific items
mentioned in the tariff either expressly or by means of exemptions,
explanations, or otherwise, then place can be found in the residuary Item 68.
Now
here the Revenue insists that Silicone as such specifically is covered under
Tariff Item 15-A and since the products of the appellant have a Silicone
element in it the products get stuck up in Item 15-A and cannot be permitted to
slide down to the residuary item.
586
10.
The argument of the Revenue was further buttressed with the aid of Tariff Item
14-E which is to the following effect:
ITEM
NO. 14-E - PATENT OR PROPRIETARY MEDICINES Item No. Tariff description Rate of
duty (1) (2) (3) 14-E. Patent or proprietary medicines not 12.5% ad containing
alcohol, opium, Indian hemp or valorem other narcotic drugs or other narcotics
other than those medicines Which are exclusively Ayurvedic, Unani, Siddha or
Homoeopathic Explanation 1.- 'Patent or Proprietary Medicines' means any drug
medicinal preparation, in whatever form, for use in the internal or external
treatment of, or for the prevention of ailments in human beings or an] which
bears either on itself or on its container or both, a name which is specified
in a monograph in a Pharmacopoeia, formulary or other publications notified in
this behalf by the Central Government in the Official Gazette, or which is a
brand name, that is, a name or a registered trade mark under the Trade and
Merchandise Marks Act, 1958 (43 of 1958), or any other mark such as a symbol,
monogram, label, signature or invented words or any writing which is used in
relation to that medicine for the purpose of indicating or so as to indicate a
connection in the course of trade between the medicine and some person, having
the right either as proprietor or otherwise to use the name or mark with or
without any indication of the identity of that person.
Explanation
11.- 'Alcohol', 'Opium', 'Indian Hemp', 'Narcotic Drugs' and 'Narcotics' have
the meanings respectively assigned to them in Section 2 of the Medicinal and
Toilet Preparations (Excise Duties) Act, 1955.
Notification
No. 47163-CE, dated 1-3-1963 In pursuance of the Explanation to Item No. 14-E
of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and
of the Explanation to Item No. 28-A of the First Schedule to the Indian Tariff
Act, 1934 (32 of 1934), the Central Government hereby notifies all editions of
the following Pharmacopoeia, formularies and other publications for purpose of
the said Explanation, namely:
1. The
Indian Pharmacopoeia,
2. The
International Phamacopoeia
3. The
National Formulary of India,
4. The
British Pharmacopoeia,
5 The
British Pharmaceutical Codex,
6. The
British Veterinary Codex,
7 The United States Pharmacopoeia,
8. The
National Formulary of the U.S.A.,
9. The
Dental Formulary of the U.S.A., and
10.
The State Pharmacopoeia of the U.S.S.R.
11.
According to the Revenue, if the exempted goods are bulk drugs medicines and
drug-intermediates not elsewhere specified then those, would justly have to
fall under the residuary Item 68 so as to alter that duty to 8% 587 ad valorem
and be exempt from payment by the thrust of the notification, only if those
goods did not have Silicone element in them. Besides, it was urged that the
products in question were neither patent nor proprietary medicines so as to
attract Item 14-E in which, in certain events Pharmacopoeia, formularies and
other publications are put to use for the purpose of the explanation thereunder.
It was also added that Item 14-E was never invoked by the appellant in the
Tribunals below and that the debate cannot be enlarged. On this objection of
the Revenue, even though Mr Ganesh made an attempt in that direction, we think
that it would be appropriate to leave out the involvement of Item 14-E
altogether and keep confined the controversy as it was before the Tribunal,
between Item 15-A on the one side and Item 68 and the notifications on the
other.
12.
The explanation in the schedule annexed to the last notification provides that
'bulk drugs' meant any chemical or biological or plant product conforming to
pharmacopoeia] standards used for the diagnosis, treatment, mitigation or
prevention of any diseases in human beings or animals, and used as such or as
an ingredient in any formulation. It is thus clear from the explanation that
drugs which may be called "bulk drugs" needed only to conform to pharmacopoeial
standards and used as such or as an ingredient in any formulation in order to
get exempted from payment of excise duty. The appellant's case before the
department was that its products were bulk drugs and were of pharmacopoeial
standards as evidenced by their names finding way in Pharmacopoeia of major
drug-producing countries of the world. Reference was made to British Pharmacopoeial
Codex of the year 1973 and in particular to the following extract:
"Dimethicones
are used in industrial barrier creams for protecting the skin against irritant
substances. Creams, lotions, and ointments containing 10 to 30 per cent of a dimethicone
are employed for the prevention of bedsores and to protect the skin against
trauma from urine or faecal discharge.
Dimethicones
are also used in conjunction with antacids to assist the expulsion of flatus
prior to radiographic examination of the gastrointestinal tract."
13.
Our attention was also invited to the United States Pharmacopoeial of 1-1-1985
and in particular to the following paragraph:
The
preface of the Pharmacopoeial of 1820 reads in part:
"it
is the object of a Pharmacopoeial to select from among substances which possess
medicinal power, those, the utility of which is most fully established and best
understood; and to form from them preparations and compositions, in which their
powers may be exerted in the greatest advantage. It should likewise distinguish
those articles by convenient and definite names, such as may prevent trouble or
uncertainty in the intercourse of physicians and apothecaries.
The
value of a Pharmacopoeial depends upon the fidelity with which it conforms to
the best state of medical knowledge of the day.
588
Its usefulness depends upon the sanction it receives from the medical community
and the public and the extent to which it governs; the language and practice of
those for whose use it is intended."
14.
Our attention was also invited to Martindale, "The Extra
Pharmacopoeia" wherein Simethicone tablet and Dimethicone emulsion are
mentioned as drugs of human and veterinary preparations. Pharmacopoeia
references to Dimethicone and Simethicone may be urged as satisfying the
explanation letting fall the products within the expression "bulk drugs
medicines and drug intermediates". Still the point remains whether these
bulk drugs, medicines and drug intermediates are anywhere exempt so as not to
fall in Item 15-A of the Tariff, where silicone is mentioned as covered by it.
It cannot be denied that the medicinal products as described in Item 21 of the
annexed schedule to the notification are comprehensive enough to cover products
having silicone as its content as well as those having no such content. Here
the intention of the Central Government will have to be discerned as to what it
intended to derive when exempting all bulk drugs etc. when covered under Item
68.
The object is not far to seek. It was thought that such of those chemicals,
biological or plant products which had gains recognition by Pharmacopoeial
standards and were capable of use for diagnosis, treatment, mitigation or
prevention of diseases in human beings and animals and used as such as an
ingredient in any formulation should be exempt from the payment of excise duty,
because of its beneficent use to human and animal life, but only if duty
thereon was leviable under residury Item 68. Support though was sought by Mr Ganesh
from a decision of a learned Single Judge of the Bombay High Court in Rakesh
Enterprises v. Union of India', wherein was put to use Pharmacopoeia of various
countries to determine that phenol was a drug, or in any event a drug
intermediate, so as to fall in the residuary Item 68 attracting the exemption
notification concerned of an identical value. It appears to us that the
conclusion of the learned Single Judge in the given situation might have been
possible in the facts and circumstances but not as a general rule that whatever
is put to medicinal use automatically takes it out from industrial use. The
products on the appellants as specifically classified in the lists and
described as such separately are not noticed and classified as such in the
Pharmacopoeia as drugs by themselves or drugs intermediate. Rather the products
of the appellant are found by expert opinion to be Silicones in the primary
form, of the grades specified. There is thus no basis herein to distinguish
Silicone as industrially used or medicinally used.
15. It
has already been taken note of that the manufacture and production of all goods
in India attract excise duty.
Those
may be goods specified or goods not specified elsewhere. When specific goods
are made exempt from payment of excise duty by a notification under Rule 8 and
falling under a particular item, it presupposes that they are exempt from
payment of excise duty under that item. Those goods may be failing under any of
the Items 1 to 67, or instead in the residuary Item 68 attracting ad valorem
duty as due 1 1986 25 ELT 906 Bom 589 thereon. Those goods are exempt from
payment of excise duty because of the language of the notification binding it
to a particular item and not universally. It is the clarity of the language
which governs the issue, not involving any purposive approach. Interpreted in
this manner, the benefit of the notifications, in our view, was rightly denied
to the appellant.
16.
For the view above taken, we do not consider it necessary to go into the
question as to whether Silicone as a product would fall under Item 15-A only if
it is resinous in character or containing elasticity on the supposed similarity
of Item 15-A of the excise tariff with entry in heading No. 39.01/06 in the
Customs Tariff or to go into the supposed identity of the two tariffs on this
aspect. We also do not feel obliged to comment upon a string of decisions of
the Tribunal cited at the bar relating to silicone oil or products thereof in
the context of its industrial use merely because present is a case to contrast
medicinal use of Silicone. We do not further feel obliged to discuss the
illustrative case law cited at the bar regarding competing entries in the
excise tariff relating to a specific item and the residuary item. We are
equally not obliged to go into the question of discrimination as raised by
learned counsel for the appellant raising the plea that within the department
some Regional Collectorates had taken the view as propounded by the appellant.
All these aspects have been rendered academic because of the manner in which we
have interpreted the scope and importance of the notifications and their
applications.
17.
For the aforegoing reasons, we dismiss this appeal, affirming the judgment and
order of the tribunal. No costs.
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