& Allied Products Ltd. Vs. Collector of Central Excise, Meerut  Insc 354 (5 May 2004)
& G.P. Mathur. Rajendra Babu, Cji. :
appellant before us is a company engaged in the manufacture of Menthol IP,
Menthol BP, Menthol U.S.P. and Mentha Oil IP. The appellant was carrying on its
activities under a licence granted by the drug control authorities constituted
under the Drugs and Cosmetic Act, 1940. The licence enabled the appellant to
manufacture Menthol IP, Menthol BP, Menthol U.S.P. and Mentha Oil IP.
1.3.1988 a notification No. 31/88-CE was issued by the Department which reads
as under :- "In exercise of the powers conferred by sub- rule (1) of rule
8 of the Central Excise Rules, 1944, the Central Government hereby exempts
goods of the description specified in column (2) of the Table thereto annexed
and falling under Chapter 28, 29 or 30 as the case may be, of the Schedule to
the Central Excise Tariff Act, 1985 (5 of 1985), from so much of the duty of
excise leviable thereon under the said Schedule as is in excess of the amount
calculated at the rate specified in the corresponding entry in column (3) of
the said Table.
TABLE S N Description of the Goods Rate of Duty 1 Bulk drugs (including salts, easters
and derivatives, if any) specified under the First Schedule to the Drugs (Price
Control) Order, 1987, as amended from time to time NIL 2 Other bulk drugs 5% ad
valorem 3 Medicinal grade oxygen NIL 4 Medicinal grade Hydroxgen Peroxide NIL 5
Anaesthetics NIL Explanation - In this notification, the expression "bulk
drugs" shall have the same meaning assigned to it in the Drugs (Prices
Control) Order, 1987.
Notification provides that the expression "Bulk drugs" shall have the
same meaning assigned to it in the Drugs (Prices Control) Order, 1987. The
Drugs (Prices Control) Order, 1987 defines 'bulk drug' as under :- "Bulk
Drug" means any substance including pharmaceutical, chemical, biological
or plant product or medicinal gas conforming to pharmacopoeial or other
standards accepted under the Drugs and Cosmetics Act, 1940 (23 of 1940), which
is used as such, or as an ingredient in any formulation." The appellant
claimed that he had been manufacturing and supplying Menthol as falling under
the expression "bulk drugs" as set out in the Notification referred
to above and filed classification list. Returns also were filed in appropriate
forms and goods were also cleared.
appellant was availing of the exemption till 27.6.1990. On 27.6.1990 the
Assistant Collector, Central Excise, Rampur proposed that the appellant should pay the excise duty without availing
of the benefit of the exemption referred to earlier and issued a show cause
notice proposing imposition of penalty.
were raised by the appellant that the Assistant Collector was not competent to
issue a show cause notice claiming excise duty for the past period exceeding
six months. Thereafter, the Collector, Central Excise, Meerut, issued a show cause notice
alleging that the appellant had wrongly availed of the benefit of the
Notification No. 31/88 dated 1.3.1988 during the period from April 1988 to
December 1988 and January 1990 to 5 April 1990. After hearing the appellant and examining the replies
filed by the appellant to the show cause notice, the Collector ultimately
decided that the appellant was liable to pay differential demand of excise duty
and also imposed penalty of Rs. 2 lakhs.
matter was carried in appeal to the Custom, Excise & Gold (Control)
Appellate Tribunal (hereinafter referred to as the Tribunal) which dismissed
the appeal on the basis that Menthol cleared by the appellant is not used as
such, or as an ingredient in any formulation as provided under the Drugs and
Cosmetics Act, 1940 and, therefore, the appellant was not entitled for the
benefit of Notification No. 31/88-CE dated 1.3.1988 The basis upon which the
Tribunal proceeded is that as per the definition of "bulk drug", the
substance mentioned in the definition must be used as such, or as an ingredient
in any formulation and the expression "formulation" means a medicine
processed out of, or containing one or more bulk drugs. The Tribunal,
therefore, took the view that Menthol IP cleared by the appellant is not being
used as such, or as an ingredient in any of the formulation mentioned under the
Drugs (Prices Control) Order, 1987 and thus the appellant was not entitled for
the benefit of Notification No. 31/88-CE dated 1.3.1988.
urged on behalf of the appellants before us that this Court in Union of India
vs. Citric India Ltd., 2002 (146) ELT 259 (SC), held that for the purpose of
similar notification the question of ascertaining end use of the product is
irrelevant. This Court in an appeal arising out of an order of the Tribunal in Calibre
Chemicals vs. Commissioner of Central Excise, Surat, 1998 (98) ELT 755, held in
Civil Appeal No. 4790 disposed of on 8.12.1997 that for the purpose of
exemption Notification No. 8/95-CE an end use certificate is not necessary for
potassium iodate so as to exempt it from duty as bulk drug in terms of the
notification and that potassium iodate had been used in the manufacture of
iodized salt and there was no dispute that potassium iodate possessed
these decisions turn only on the basis of the notification which was put forth before
the Courts. It is not very clear from the judgments in any of these cases as to
whether any expressions are used or the attention of the Court was drawn to the
same as is set out in the notification No. 31/88-CE dated 1.3.1988 or not.
present cases, we will have to consider the expression "bulk drug" as
specified under First Schedule to the Drugs (Prices Control) Order, 1987.
Explanation after the Table in the Notification No. 31/88-CE dated 1.3.1988 it
is clearly set out that the expression "bulk drugs" shall have the
same meaning assigned to it in the Drugs (Prices Control) Order, 1987. It is
clear that substance has to be used as such, or as an ingredient in any
formulation in terms of the Drugs (Prices Control) Order, 1987. Further, the
expression "formulation" has also been defined in the following terms
"- "a medicine processed out of, or containing one or more bulk drugs
or drugs with or without the use of any pharmaceutical aids, or internal or
external use for ." Hence, expression "formulation" is only with
reference to a medicine processed out of bulk drug.
when the ingredient used by the appellant, namely, Menthol IP, in the
manufacture of tooth paste, powder and shaving cream is not in the use of any
formulation which is a medicine processed out of, or containing one or more
bulk drugs, the view taken by the Tribunal cannot be assailed.
so far as the application of Section 11 for the purpose of levy of penalty is
concerned, we must take note of the fact that different views have been
expressed at different stages both by the Tribunal and the High Court of Bombay
in Citric India Ltd. vs. Union of India, 1993 (66) ELT 566 (Bom.), and by this
Court also in one of the decisions cited above, it is not clear as to whether
the law is absolutely clear on the matter or not and the authorities also had
to issue clarifications from time to time. In the circumstances, we think,
invoking of Section 11-A is not called for and levy of penalty in the present
case would not be appropriate and the application of extended period of
limitation is not justified. The order of the Tribunal is modified to this
extent. In other respects the order of the Tribunal stands maintained.
the appeal is partly allowed.