TMI Blog2003 (6) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... re and sale of drugs is controlled in India by the Act known as the Drugs and Cosmetics Act, 1940 and the Rules framed thereunder. In terms of Rules 71(7), 74(o), 76(2) and 78(p) of the Drugs and Cosmetics Rules, 1945, the Appellants have to draw samples of the products manufactured by them, mention particulars of such samples like two ingredients of the samples along with raw materials out of which such samples have been produced etc. in terms of the Rules mentioned therein. It is also the duty of the manufacturer of such drugs to safely keep the test report. In terms of Schedules M U of the Rules as contained in the above batch of the goods manufactured by the assessees and also maintenance of the records of the same. The show cause notice dated 3rd April, 2000 was issued to the assessee proposing to reverse the Modvat credit to the tune of Rs. 10,37,930/- utilised by the Appellants in respect of inputs utilised for the production of the goods which went through the quality control test and notice also proposed recovery of duty of Rs. 19,33,473/- in respect of the samples of the final product. The period in dispute is April, 1995 to December, 1999. The notice also proposed to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be authorised and recorded. An investigation should be carried out into the causes necessitating reprocessing and appropriate corrective measures should be taken for prevention of recurrence. 16. The Quality Control System. - Quality Control Department - Every manufacturing establishment shall have a quality control department supervised by approved expert staff directly responsible to the management but independent of other departments. The quality control department shall control all raw materials, monitor all in-process quality checks and control the quality and stability of finished products. The quality control department shall have the following principal duties :- (i) to prepare detailed instructions, a writing for carrying out each test and analysis : (ii) to release or reject each batch of raw materials : (iii) . (iv) . (v) To release or reject each batch of finished product that is ready for distribution; SCHEDULE U [See Rules 74, 74A, 74B, 78 and 78A] I. Particulars to be shown in Manufacturing Records. A. Substances other than parenteral in preparations in general - 21. Counter signature of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proprietary medicines unless they are in accordance with Drugs Act. Indeed, Section 18 of the Drugs Act prohibits manufacture and sale of drugs unless certain things are contained in the labels of such drugs. Therefore, it appears to me that the definition of the Drugs Act is relevant even prior to the introduction of sub-clause (iii) of Section 2(f) of the Central Excises and Salt Act, 1944. In the case of Mayor of Portsmouth v. Smith (1885) 10 AC 364 (HL) at p. 371 Lord Blackburn had observed : "Where a single section of an Act is introduced into another subsequent Act, it must be read in the sense which it bore in the original Act from which it was taken, and consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section meant, though those other sections are not incorporated into the new Act. I do not mean that if there was in the original Act a section not incorporated, which came by way of a proviso or exception on that which was incorporated that should be referred to; but all others, including the interpretation clauses, if there be one, may be referred to." Therefore, in my opinion it is not possible to rule out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and also provides for report by the Government Analyst. Section 27 of the said Act specifically provides for penalty for manufacture and sale of drugs in contravention of this Chapter. Rule 85 of the Rules provides for cancellation of the licence in case the licensee failed to comply with the provisions of the Act or Rules made thereunder. The relevant provision is set out below : "Rule 74 - Conditions of licence in [Forms 25 and 25F]. - A licence in [Forms 25 and 25-F] shall be subject to the conditions stated therein and to the following further conditions, namely :- (a) . (b) . (c) The licensee shall either in his own laboratory or in any other laboratory approved by the licensing authority [under Part XV(A) of these Rules] test each batch or lot of the raw material used by him for the manufacture of his products and also each batch of the final product and shall maintain records or registers showing the particulars in respect of such tests as specified in Schedule U. The records or registers shall be retained for a period of 5 years from the date of manufacture. (d) . (e) . (f) . (g) . (h) . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. Ex. duty of Rs. 19,33,473/- evaded by the assessee on the samples of final products cleared by them during the period from April, 95 to Dec., 99 is required to be recovered from them under the provisions of proviso to Section 11A(1) of C. Ex. and Salt Act, 1944 read with Rule 9(2) of C. Ex. Rules, 1944. Similarly, the proportionate Modvat credit of Rs. 10,37,930/- not reversed by the assessee on the inputs utilised for the quality control purposes needs to be recovered from them under Rule 57-I read with proviso to Section 11A(1) of the C. Ex. Act, 1944." The findings of the adjudicating authority at Paras 8 and 9 are as follows : "8. I find that the input used for testing the quality of the input for either accepting the input or rejecting it, is not a process in or in relation to manufacture of the final product. It is a process wherein the quality of inputs is tested and the quantity used for such purpose is not going for manufacturing the final product. The inputs, if found not suitable, they are rejecting the same, therefore it is definite that quantity taken therefrom for quality test is not used in the factory. Similarly the inputs which are, accepted on the grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d products fall within the provisions of Rule 57D of the Central Excise Rules which provides for non-denial of Modvat credit in respect of waste and by-products. As far as the imposition of duty is concerned, the argument of the learned Counsel for the Appellants is that such product can never be sold in the market and he relies on the observations of the Tribunal in the above decision of Bayer Diagnostics India Ltd. case (supra). The maintenance of records as envisaged under Schedules M and U are reflected in clause (7) and sub-clauses (iv), (v), (vi), (vii), (viii), (ix), (x) of Clause 16 in Schedule M and Clauses (21), (22) (26) of Part I and Part III to Schedule U. Particulars are to be recorded in the analytical records mentioned in Part III. The combined reading thereof we come to a conclusion that where the manufacturer undertakes test of inputs before the actual use and is destroyed, the credit cannot be denied. The Order of the Calcutta Bench of the Tribunal in the case of Commissioner of Customs Central Excise, Bhubaneshwar v. Birla Tyres [2001 (138) E.L.T. 168 (Tri.-Kolkata)] has been cited with which we agree. 9. The Appellants also relied on the judgment of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sticks of cigarettes which are sent to the laboratory for quality control test. Sticks of cigarettes can be consumed and manufacture of the end-product, i.e. cigarette, which is commercially known in the market as such, is completed before its removal for test and after testing only packing of the same, which is the requirement of Rule 93 of the Rules, is done. Thus, we hold that sticks of cigarette which are removed for the purpose of test in the quality control laboratory located within the factory premises of the appellant-Company are liable to excise duty. 18. Coming now to the second question, it may be stated that learned Counsel appearing on behalf of the Revenue could not dispute the proposition that the quantity of cigarette sticks that is destroyed in the course of quality control test is not liable to excise duty. He, however, submitted that no evidence whatsoever was adduced on behalf of the appellant-Company either before the assessing authorities or the Tribunal to show that any cigarette stick was destroyed in the process of quality control test, much less cigarette sticks of any particular quantity inasmuch as, undisputedly, for major period no account at all was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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