2025 (6) TMI 680 - AT - Central Excise

Classification of Danazol which is a bulk drug - to be classified under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 or it has to be considered as drug or medicine which falls under Sl. No. 47B of the said Notification? - common input credit used in the exempted product would be reversible as per Rule 6(3) of CENVAT Credit Rules 2004 or not. HELD THAT - The issue is no longer res integra as has been decided by a host of judgments of this Tribunal cited by the appellant. The judgments have held that since the term bulk drugs and drug and medicines have not been defined in the Notification the definition as per Drugs (Price Control) Order 1995 is relevant. As per Drugs (Price Control) Order 1995 the term drug have been defined to include bulk drug and formulations. An identical matter was decided by a Division Bench of this Tribunal in the appellant s own case 2023 (10) TMI 877 - CESTAT CHENNAI where it was held that the benefit of Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 for the product Danazol is allowed and the Credit reversed by the appellant under Rule 6(3) of CENVAT Credit Rules 2004 is subject to verification by the department. Conclusion - i) The benefit of Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 for the product Danazol is allowed. ii) Credit reversed by the appellant under Rule 6(3) of CENVAT Credit Rules 2004 is subject to verification by the department on the issues as mentioned. The impugned order is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered two core legal questions:

(i) Whether the product 'Danazol', classified as a 'bulk drug', falls under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006, thereby entitling it to unconditional exemption from duty, or whether it should be treated as 'drug or medicine' under Sl. No. 47B of the same Notification, which provides conditional exemption subject to compliance with procedural rules.

(ii) In the event that 'Danazol' qualifies for exemption under Sl. No. 47A, whether the appellant is required to reverse the common input credit attributable to the exempted goods in accordance with Rule 6(3) of the CENVAT Credit Rules, 2004.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Classification of 'Danazol' under Notification No. 4/2006-CE

Relevant Legal Framework and Precedents: The Notification No. 4/2006-CE dated 1.3.2006 provides exemption from excise duty under two relevant entries: Sl. No. 47A, which grants unconditional exemption to 'bulk drugs', and Sl. No. 47B, which grants conditional exemption to 'drugs or medicines' subject to adherence to the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. Neither 'bulk drug' nor 'drug or medicine' is explicitly defined in the Notification. The Drugs (Price Control) Order, 1995, however, defines 'drug' to include both 'bulk drugs' and formulations.

Several Tribunal decisions, including those cited by the appellant-Aurobindo Pharma Ltd., Astrix Laboratories Ltd., Dr. Reddy's Laboratories Ltd., and CCE, Hyderabad Vs. Hetero Drugs Ltd.-have held that 'bulk drugs' fall within the broader definition of 'drug'. A recent Division Bench Final Order of the Tribunal in the appellant's own case (Final Order Nos. 40939 & 40940/2023) reaffirmed this position, holding that 'drug' is a superset encompassing 'bulk drugs' as a subset. Consequently, the appellant is entitled to choose the exemption most favorable to it, and judicial discipline requires adherence to such precedents.

Court's Interpretation and Reasoning: The Tribunal found the issue no longer res integra and followed the binding precedents. It interpreted the term 'drug' in the Notification in light of the Drugs (Price Control) Order, 1995, and prior Tribunal rulings, concluding that 'Danazol' as a bulk drug is covered under Sl. No. 47A. The Tribunal emphasized that the appellant is entitled to the unconditional exemption under Sl. No. 47A rather than the conditional exemption under Sl. No. 47B.

Key Evidence and Findings: The appellant's product 'Danazol' is a bulk drug cleared to other manufacturers without following the procedural conditions under Sl. No. 47B. The department's initial denial of exemption was based on this non-compliance. However, the Tribunal noted that the appellant's own prior case rulings and other authoritative decisions support classification under Sl. No. 47A.

Application of Law to Facts: Applying the established legal principle that 'bulk drugs' fall within the definition of 'drug', and considering the appellant's entitlement to the most favorable exemption, the Tribunal held that 'Danazol' qualifies for unconditional exemption under Sl. No. 47A.

Treatment of Competing Arguments: The department argued that 'Danazol' should be treated under Sl. No. 47B due to its use outside the factory, requiring compliance with procedural rules. The Tribunal rejected this, relying on binding precedents and the broader definition of 'drug' to include 'bulk drugs', thereby overruling the department's contention.

Conclusion: The product 'Danazol' is eligible for unconditional exemption under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006.

Issue (ii): Reversal of Input Credit under Rule 6(3) of CENVAT Credit Rules, 2004

Relevant Legal Framework: Rule 6(3) of the CENVAT Credit Rules, 2004 mandates reversal of input credit attributable to exempted goods to the extent specified by law.

Court's Interpretation and Reasoning: The Tribunal observed that the department adopted a contradictory stance-initially denying exemption under Sl. No. 47A, then conceding the exemption but demanding reversal of input credit under Rule 6(3). The Tribunal noted this inconsistency and clarified that since the exemption is unconditional under Sl. No. 47A, the appellant's reversal of credit is a procedural compliance issue subject to verification.

Key Evidence and Findings: The appellant stated before the Commissioner (Appeals) that it had already reversed the CENVAT credit related to 'Danazol'. The Tribunal recorded this admission and allowed the department to verify the correctness of such reversal.

Application of Law to Facts: The unconditional exemption under Sl. No. 47A means the appellant is not liable to duty but must reverse input credit as per Rule 6(3). The appellant's compliance in reversing credit, if mathematically accurate, validates the exemption claim.

Treatment of Competing Arguments: The department's demand for reversal was accepted in principle but subject to confirmation of accuracy. The Tribunal granted the appellant an opportunity to explain any discrepancies.

Conclusion: The appellant is entitled to exemption under Sl. No. 47A, subject to verification of the reversal of input credit under Rule 6(3). The department may demand excess credit or refund excess reversal accordingly.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Judicial discipline requires us to follow the ratio of the above judgments. We hence find that the appellant is entitled to the benefit of unconditional exemption from tax as per Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006."

"Now that we have held that the appellant is eligible for the exemption under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006, the goods are unconditionally exempt from payment of duty. We find that the appellant has also stated in the reply to the Commissioner (Appeals) as recorded at para 18 of the impugned order that they have already reversed the CENVAT credit involved on 'Danazol'. That being so, we find that the exemption has been correctly availed by them. We however permit the department to verify the mathematical accuracy of the claims of reversal made by the appellant and demand the excess credit taken or refund the excess reversal of credit made by the appellant if any. Needless to say that in case of a demand, the appellant may be given an opportunity to explain the reversal of credit made by them."

Accordingly, the Tribunal set aside the impugned order confirming the duty demand and allowed the appellant the benefit of Sl. No. 47A for the product 'Danazol'. The appellant's reversal of input credit under Rule 6(3) is subject to departmental verification, with consequential relief to be granted as per law.