Order
1. The appellant manufactures medicinal products out of herbal extracts. The questions which have arisen in this appeal, inter alia, are whether the extracts were goods for the purpose of the Central Excise Act and if so, whether they were classifiable under Chapter 13 or 30 of the Act.
2. The appellant carries on its business both in West Bengal as well as in Uttar Pradesh. Demands were raised in respect of the period 1-8-1990 to 28-2-1994 by Revenue Authorities in both the States on the basis that the herbal extracts were leviable to excise duty under Chapter 13. As far as West Bengal was concerned, the relevant entries were construed by the Commissioner and it was held that the goods were properly classifiable under Chapter 30 under Tariff Item 30.03 The rate of duty at that point of time was nil. He accordingly dropped the proceedings.
3. As far as Uttar Pradesh was concerned, however, the Commissioner decided the proceedings against the appellant holding that the extracts were properly classifiable under Chapter 13. The appellant's further appeal to the Tribunal from this decision was rejected and that is the order impugned before us.
4. The relevant entries in Chapter 13 are reproduced below:
“Chapter 13
Lac; Gums, Resins and other Vegetable
Saps and Extracts
Heading No.
Sub-Heading No.
Description of goods
Rate of duty
(1)
(2)
(3)
(4)
13.01
Lac; gums, resins and other vegetable saps and extracts
1301.10
- Lac
Nil
1301.90
- Other
15%”
5. The Revenue's contention that the extracts in question were properly classifiable under Sub-Heading 1301.90 and duty was leviable on the applicant under the Act in respect of the extracts at 15%.
6. As far as Chapter 30 is concerned it deals with pharmaceutical products. The entry on which reliance has been placed by the appellant is Sub-Heading 3003.30 It reads:
“Pharmaceutical Products
Heading No.
Sub-Heading No.
Description of goods
Rate of duty
(1)
(2)
(3)
(4)
30.03
Medicaments (including veterinary medicaments)
3003.30
- Medicaments, including those used in ayurvedic, unani, siddha, homoeopathic or biochemic systems
15%”
7. The extracts of the chapter note in connection with the relevant entry which have been relied upon by the appellant assessee are quoted verbatim:
“2. For the purposes of Heading 30.03:
(i) ‘Medicaments’ means goods (other than foods or beverages such as dietetic, diabetic or fortified foods, tonic beverages) not falling within Heading 30.02 or 30.04 which are either—
(a) products comprising two or more constituents which have been mixed or compounded together for therapeutic or prophylactic uses; or
(b) unmixed products suitable for such uses put up in measured doses or in packings for retail sale or for use in hospitals.
***
5. In relation to products of Heading 30.03, conversion of powder into tablets or capsules, labelling or relabelling of containers intended for consumers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.”
8. The appellants raised several contentions including that of limitation. But the mainstay of the appellant's argument is a circular which has been issued by the Central Board of Excise and Customs (CBEC) under Section 37-B of the Act by which the Board has issued a clarification in respect of liquid vegetable extracts obtained in the manufacture of ayurvedic medicines. The circular clarified:
“That liquid vegetable extracts unless subjected to fermentation or other preservative processes are not liable to be considered as ‘goods’ attracting the scope of excise levy. Mixed or compounded vegetable extracts which have therapeutic or prophylactic value are appropriately classifiable under Heading 30.03 of the Central Excise Tariff Act.”
9. It appears from the record that the extracts in question were liquid. Both the Commissioner and the Tribunal have held that the extracts had “medicinal value”. However, on the ground that the extracts themselves could not be used as medicaments, it was held that they were properly classifiable under Chapter 13 and not in Chapter 30.
10. The Commissioner's interpretation of the tariff item was made without reference to the CBEC circular. His conclusion that only products which are capable of being put to therapeutic or prophylactic uses as such i.e without further processing etc. would qualify for classification as medicaments under Chapter 30 is not in keeping with the interpretation given by the Board nor indeed the interpretation given by the Commissioner of Central Excise, Calcutta. The circular makes it quite clear that if the compound vegetable extracts had any therapeutic or prophylactic value they were properly classifiable under Heading Chapter 30.03 There is no requirement that the extract should be used for therapeutic or prophylactic purposes “as such”.
11. The Tribunal which referred to the circular misinterpreted it when it said:
“The ingredients — vegetable extracts could not be confused with the final medicaments prepared from such extracts along with other ingredients. Merely because the herbs had medicinal properties, it could not be said that the extracts were medicaments as per the definition in the tariff and as commonly understood.”
12. The Tribunal's reasoning appears to be contrary to the CBEC circular and in any event wholly contradictory. According to the Tribunal the circular in effect meant that:
“The mixed or compounded vegetable extracts which had no therapeutic or prophylactic value were not ‘goods’ but if they had therapeutic or prophylactic value, they were ‘goods’.”
13. In the course of its judgment the Tribunal noticed that the vegetable extracts in question did not have “due character of medicaments” and that they were not usable for “therapeutic or prophylactic purposes”.
14. If that be so, then according to the Tribunal's own reading of the CBEC circular they were not goods at all and could not be subject to excise duty.
15. Whichever way we look at it the reasoning of the Tribunal cannot be sustained. That the circular is binding on the Revenue Authorities cannot be disputed in view of the well-established law summarised in CCE v. Dhiren Chemical Industries (2002) 2 SCC 127, SCC para 11. Since the concurrent finding of fact is that the liquid extracts used by the appellant in the manufacture of the medicines had therapeutic value, then they can, according to the CBEC circular be classifiable only under Tariff Entry 30.03 and not 13.01
16. The appeal is accordingly allowed. The decisions of the Tribunal and Commissioner are set aside and the impugned demands quashed. There will be no order as to costs.