TMI Blog2022 (3) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. We are not impressed by the arguments advanced by the appellant/assessee that they have correctly availed the exemption under Sl 47 (A), by referring to definition as per Drug Price Control Order, defining drug includes bulk drug and its formulation. If this interpretation is agreed to entry at Sl No 47 (B) will become redundant and it is settled position in law any interpretation which renders some 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 - 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. Since the controversy in respect of interpretation of the exemption notification has now been settled by the Hon ble Apex Court in COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. [ 2018 (7) TMI 1826 - SUPREME COURT] , relying on this decision there is no scope left for holding a view which is contrary to the principle laid down that notification needs to be construed st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Objection No. 91108 of 2013 - A/85203-85204/2022 - Dated:- 17-3-2022 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND MR. P. DINESHA, MEMBER (JUDICIAL) Shri Rajiv Patkar, Consultant, for the Assessee Ms. Anuradha Parab, Assistant Commissioner, Authorised Representative for the Revenue ORDER Appeal No E/999/2012 is directed against order in original No 27/COMMR (KAP)/ LTU/ MUM/Cs/2011 dated 30.03.2012 of Commissioner (Central Excise Service Tax) LTU, Mumbai. By the impugned order, the Commissioner has held as follows: ORDER | confirm the duty demand of ₹ 1,41,75,076/- (Rupees. One Crore Forty Lacs Seventy Five Thousand Seventy Six Only) and order it's recovery under proviso: Section 11A (1) of the Central Excise Act, 1944. I order payment of interest at the appropriate rates under Section 11AB of the Central Excise Act, 1944. I impose a penalty of ₹ 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 Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Excise Act, 1944 2.3 Certain periodic show cause notices for the subsequent period were issued to the appellant/assessee on the same issue. 2.4 The show cause notice dated 06.07.2010 was adjudicated as per the impugned order referred in para 1, above. Aggrieved appellant/assessee have filed this appeal stating following in their grounds of appeal: Issue is squarely covered by the decisions of this tribunal in case of Burroughs Wellcome (I) Ltd. [2007 (216) ELT 522 (T-Mum)]; CIPLA Ltd [2007 (218) ELT 347 (T-Chennai)] Astrix Laboratories Ltd. [2009 (233) ELT 372 (T- Bang)]; Hetero Drugs Ltd [2010 (262) ELT 490 (T-Bang)]; The impugned order totally ignored the above cases relied by the appellant/assessee. Commissioner has erred grossly while interpreting definition of Drug as contained in the Drug Price Control Order stating that drug includes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drug includes bulk drug and formulations. In view of this the exemption at Sl No 47 (A) that is for the drugs should be admissible to bulk drugs also; This view has been held by the tribunal in series of cases referred in their appeal, specifically in case of Hetero Drugs Ltd [2010 (262) ELT 490 (T-Bang)]; Commissioner (Appeals) has also relied upon the said decision of tribunal while allowing their appeal. Since the issue is squarely covered in their favour by the above referred decisions their appeal should be allowed and the appeal filed by revenue be dismissed. 3.3 Arguing for the Revenue, learned authorized representative submits that admittedly appellant/assessee have manufactured and cleared the bulk drugs , which are specifically covered by the entry at Sl No 47 (B). This fact is also borne out by the test reports of the samples and letters of the purchaser. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in List 3 appended to Notification No. 21/2002-Customs dated 1-3-2002 and was therefore entitled to exemption provided under Sl. No. 47(A) of table to Notification No. 4/2006-C.E. In respect of drugs falling under Sl. No. 47(A), there was no requirement to follow the Central Excise Rules, 2001. He found that the appellants were prevented from following the procedure since the Asst. Commissioner having jurisdiction over the buyer of the consignments was denied the required certificate to procure the goods on the ground that such certificate was not required. In holding the view that bulk drugs figured under Sl. No. 47(A) could be allowed the benefit of the Notification unconditionally, he relied on the decisions of the Tribunal in the case of M/s. Burroughs Wellcome (I) Ltd. v. CCE [2007 (216) E.L.T. 522 (Tri. Mum.)] and M/s. Cipla Ltd. v. CCE, Chennai [2007 (218) E.L.T. 547 (Tri. Chennai)]. 4. In the appeal before the Tribunal, 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 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdictional Asstt. Commissioner of the buyer firm had not granted the said certificate and had informed them that such certificate was not necessary. In the circumstances, the reliance of the assessee on the decision in the case of M/s. Sundaram Fasteners Ltd. v. CCE [1987 (29) E.L.T. 275 (Tri.-Delhi)] in respect of the claim for the benefit carries considerable force. In the said decision, it was held that the condition which was impossible to comply with because of the action of the revenue should be taken to have been dispensed with. We also note that there is substantial compliance with the requirement of the rules by the assessee. 8. The respondents have relied on the following case law :- (a) Final Order Nos. 979 and 980/2008 dated 21-8-2008 - 2009 (233) E.L.T. 372 (Tri.) of the Bangalore Bench of the Tribunal in the case of M/s. Astrix Laboratories Ltd. others v. CCE, Hyderabad. (b) M/s. Burroughs 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As such life saving drugs can also include bulk drugs . Accordingly, we are of the view that even though the appellants had earlier claimed exemption for the impugned goods stating these to be bulk drugs, they cannot be precluded from claiming the exemption for life saving drugs in respect of the very same impugned goods 11. In M/s. Cipla Ltd. case (supra), the Tribunal was concerned with the scope of the exemption extended to goods figuring at Sl. No. 80 of the table to Notification No. 21/02-Cus, which was as follows :- Sl. No. Chapter or Heading No. or sub- heading No. Description of goods Standard rate Additional duty rate Condition No. 1 2 3 4 5 6 80 28, 29 or 30 The following goods, namely (A) Drugs, medicines, diagnostic kits or equipment specified in List 3 5% - - (B) Bulk dru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the appellants a reasonable opportunity of being heard. It is also submitted that, upon receipt of the interim order dated 12-1-2006, the assessee had filed an application with the Commissioner (Appeals) seeking modification of the said order, claiming strong prima facie case on merits. Ld. Counsel submits that the contentions raised in the modification application were not duly considered by the appellate authority. We have heard ld. SDR with reference to the submissions made by ld. Counsel. After considering the submissions, we find that the short question to be considered by us at present is whether, before the lower appellate authority, the assessee had prima facie case. The demand of duty is on account of denial of the benefit of Customs Notification No. 21/02 to the assessee in respect of the item imported by them. This Notification, as it stood prior to 9-7- 04 (the date on which the relevant entry in the Notification was amended) provided effective rate of duty as 5% for (A) Drugs or medicines specified in List 3 and (B) Bulk drugs used in the manufacture of the drugs or medicines at (A) above vide Sl. No. 80 in the table annexed to the Notification. Prior to 9-7-2004, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (A) . For the goods so understood, there was a specific condition to be followed by the importer vide condition No. 5 mentioned in the Notification. This was a condition relating to the manufacturing process to be undertaken by the importer and has to be taken as analogous to the end-use condition considered by the Apex Court in Sarabhai case (supra). In this view of the matter and having regard to the need to interpret strictly the above entry in the exemption Notification, we take the view that the appellants were not eligible for the benefit of the Notification and they cannot claim prima facie case against the demand of basic Customs duty. 4.5 With above we take note of the findings recorded by the Commissioner in his order: 11. l find that the assessee is availing the benefit of cenvat credit under Rule 3 of Cenvat Credit Rules 2002, have manufactured and cleared their product viz. Amiodarone Hydrochloride (CSH. 29310090) for home consumption without payment of duty by claiming the benefit of Notification 04/2006 did 01.03.2006 (Sr.No.47(A)] (Unconditional Exemption). I also find that the assessee has claimed that they are paying amount equivalent to amount of 5%, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to be used for, or in the diagnosis treatment, mitigation, or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes. Thus drug is a medicine or substance or formulation or bulk drug capable of being used as such. In the instant case the aforesaid product, manufactured and cleared by the assessee is required to be processed further before it can be used in the form of drug or medicine by human beings. Thus the product is not a drug or medicine but only a bulk drug which is not capable of being used as such as medicine or substance or formulation. This fact has been confirmed by the sample drawn as per procedure laid down and after being tested by Chemical Examiner-Gr.1, C.Ex Customs Laboratory Vadodara. The said officer, vide his office letter F.No.RCL/9/T.0/10 11 dtd 11.05.2010, has given his report as under: Amioadrone is bulk drug is mentioned in Customs Notfn 21/2002 dtd 01.03.2002 at S.No.80 of List No.3. The sample is in the form of powder. This cannot be consumed by human as such; it has to go through manufacture before human consumption. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is used to make the drug Amiodarone . Hence the assessee should have cleared the aforesaid product under Sr. No,47(B) of the referred Notification and by following procedure laid down in the Central Excise (Removal of Goods at Concessional rate of Duty for Manufacture of excisable Goods) Rules 2001. By not following the prescribed procedure they have rendered themselves liable for payment of Central Excise duty at appropriate rates recoverable under Section 11A(1) of Central Excise Act 1944. 4.6 In view of the findings recorded in the impugned order which are not disputed by the appellant/assessee, there can be no denial of the fact that the goods cleared by the appellant/assessee are nothing but bulk drugs , specifically exempted at Sl No 47 (B) of the Notification No 4/2006-CE subjected to following the procedure as specified by the condition No 2 appended to said notification. Admittedly procedure as per said condition no. 2 has not been followed by the appellant/assessee. When such procedure as specified by the notification has not been followed the benefit of the exemption at Sl No 47 (B) is not admissible to the appellant. 4.7 We are not impressed by the arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion before the Constitutional Bench. K.S. Radhakrishnan, J., who wrote the unanimous opinion for the Constitution Bench, framed the question, viz., whether manufacturer of a specified final product falling under Schedule to the Central Excise Tariff Act, 1985 is eligible to get the benefit of exemption of remission of Excise duty on specified intermediate goods as per the Central Government Notification dated 11-8-1994, if captively consumed for the manufacture of final product on the ground that the records kept by it at the recipient end would indicate its intended use and substantial compliance with procedure set out in Chapter 10 of the Central Excise Rules, 1944, for consideration? The Constitution Bench answering the said question concluded that a manufacturer qualified to seek exemption was required to comply with the preconditions for claiming exemption and therefore is not exempt or absolved from following the statutory requirements as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of the pre- requisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleased if a clear statutory pre-requisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means actual compliance in respect to the substance essential to every reasonable objective of the statute and the Court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. 33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are compli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availing exemption. Presumably for this reason the Bench which decided Surendra Cotton Oil Mills case (supra) observed that there exists unsatisfactory state of law and the Bench which referred the matter initially, seriously doubted the conclusion in Sun Export Case (supra) that the ambiguity in an exemption notification should be interpreted in favour of the assessee. 41. After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 43. There is abundant jurisprudential justification for this. In the Governance of rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (supra), a Bench of two-Judges of this Court considered the question whether non-alcoholic beverage base like Gold spot base, Limca base and Thumps Up base, were exempted from payment of duty under the Central Government notification of March, 1975. While considering the issue, this Court pointed out the strict interpretation to be followed in interpretation of a notification for exemption. These observations are made in para 17 of the judgment, which read as follows : How then should the Courts proceed? The expressions in the Schedule and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur. The words used in the provision, imposing taxes or granting exemption should be understood in the same way in which these are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. It is, however, necessary to bear in mind certain principles. The notification in this case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act. The notification must be read as a whole in the context of the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic beverage basis under the notification in question . Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit. 46. The above decision, which is also a decision of two-Judge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are to be invoked at different stages of interpreting it. The question whether a subject falls in the notification or in the exemption clause, has to be strictly construed. When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er two-Judge Bench decision, this Court laid down that eligibility clause in relation to exemption notification must be given strict meaning and in para 44, it was further held - The principle that in the event a provision of fiscal statute is obscure such construction which favours the assessee may be adopted, would have no application to construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of exemption (See Novopan India Ltd. v. CCE and Customs). 51. In Hari Chand case (supra), as already discussed, the question was whether a person claiming exemption is required to comply with the procedure strictly to avail the benefit. The question posed and decided was indeed different. The said decision, which we have already discussed supra, however, indicates that while construing an exemption notification, the Court has to distinguish the conditions which require strict compliance, the non-compliance of which would render the assessee ineligible to claim exemption and those which require substantial compliance to be entitled for exemption. We are pointing out this aspect to dispel any doubt about the lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At no point of time the assessee had informed the Department that the subject product was used outside the factory of production. Pertinently, it is necessary to observe that under the present scheme of self assessment, where full faith is imposed on the assessee and records maintained by the assessee are accepted for tax purposes, it is very essential that the assessee also reciprocates the trust and comes clean on their activities. Besides, considering all the facts, the officers have very little scope to know about the use of the item in question so as to arrive at any meaningful conclusion. Also, the assessee, as a corporate with resources at command, it is all the more expected that they will be fully aware of the Rules and procedures of Central Excise. The conclusion therefore would be that the act of assessee, would justify invoking the extended period to demand duty. We do not find any justification in the impugned order for invoking the extended period, as Commissioner has not even recorded finding to effect, that the ingredient with intent to evade the payment of duty, for invoking the extended period of limitation is present in the case. The issue under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11A of the Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out that the proviso to Section 11A deals with the time for initiation of action. Section 11AC is only a mechanism for computation and the quantum of penalty. It is stated that the consequences of fraud etc. relate to the extended period of limitation and the onus is on the revenue to establish that the extended period of limitation is applicable. Once that hurdle is crossed by the revenue, the assessee is exposed to penalty and the quantum of penalty is fixed. It is pointed out that even if in some statues mens rea is specifically provided for, so is the limit or imposition of penalty, that is the maximum fixed or the quantum has to be between two limits fixed. In the cases at hand, there is no variable and, therefore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated which he knows or has reason to believe . The said clause referred to wilful action. According to learned counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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