[Order per : T.K. Jayaraman, Member (T)]. - These appeals have been filed against OIA dated 31st August 04 passed by the Commissioner of Central Excise Delhi-I.
2. The brief facts of the case are as follows :
The appellants are manufacturing patent or proprietary ayurvedic medicaments and preparations at Bangalore since 1975. The goods manufactured in Bangalore are classifiable as Auyurvedic medicaments falling under Chapter 30 of the Central Excise Tariff Act, 1985. The appellants have two other factories situated at Dehradun and New Delhi. In these factories, the raw materials which are various parts of the herbs like barks, flowers, fruits roots leaves etc., are converted into granules, extracts and oils which are in a semi-finished stage. The factories at Dehradun and Delhi are also issued with drug licences by the concerned authorities. These drugs as per the licence would be manufactured up to the extract or granule stage only by the factories and would be further formulated into tablets syrups, ointments and creams at the manufacturing unit of the appellant located at Bangalore. The Central Excise Authorities directed the appellants to take Central Excise registration at Dehradun and Delhi. After making enquiries, a show cause notice dated 3-4-2002 was issued alleging that the appellants were clearing excisable goods classifiable as vegetable extract under Chapter 30 from the Delhi factory. The Commissioner of Central Excise Delhi issued an order dated 24-9-2002 confirming the proposal made in the show cause notice. The appellants approached the Tribunal. The Tribunal set aside the Order of the Commissioner and remanded the case back to him for proper classification of the products in dispute. In the de novo proceedings, the Commissioner passed the impugned order dated 31-8-2004 holding that the products are classifiable under Chapter Heading 3003.39 of the Central Excise Tariff Act, 1985. The appellants strongly challenged the findings of the Commissioner.
3. Shri Shivadas learned advocate appeared on behalf of the appellants and Shri L. Narasimha Murthy learned SDR on behalf of the Revenue. Learned advocate urged the following points.
(i) Even though the show cause notice proposed that the goods manufactured at Delhi are classifiable under Chapter Heading 1301.10, the Commissioner in the impugned order classified the product under Chapter 30, therefore, the impugned order is beyond the proposal made in the show cause notice and hence liable to be set aside. The learned Advocate relied on the following case laws.
(a) Hindustan Polymers Co. Ltd. v. CCE - (S.C.)
(b) Warner Hindustan Ltd. v. CCE - (S.C.)
(c) Sharp Batteries & Allied Industries P. Ltd. v. CCE -
(d) CCE, Meerut-II v. Beltek Canadian Water Ltd. -
(e) Comteck Laboratories v. CCE, Mumbai -
(f) Chimique Industries v. CCE, Bangalore [Final Order Nos. 129-130/2005, dated 19-1-2005 of CESTAT Bangalore Bench].
(ii) The classification under Chapter 30 is incorrect as the goods can be classified under this chapter only if they have already been compounded for therapeutic or prophylactic use at the point of clearance. In other words even as per the Board Circular dated 16-9-97, mixed vegetable extracts which are not compounded for therapeutic or prophylactic value would not be considered as goods at all.
(iii) As per the licence issued by the Drug Controller, the appellants are legally prohibited from selling the semi-finished output cleared from Delhi factory. In view of this, the products cannot be considered as goods for purposes of charging excise duty. The following case laws are relied on :-
(a) Delhi Cloth & General Mills Co. Ltd. v. Joint Secretary, GOI - 1978 (2) E.L.T. (J 121) (Del.)
(b) Union of India v. Delhi Cloth & General Mills Company Ltd. - (S.C.)
(c) Pfizer Ltd. v. CCE, Mumbai-III -
(d) Cipla Ltd. v. CCE - 2004 (64) RLT 823
(e) Standard Batteries Ltd. v. CCE - .
(iv) The evidence of marketability by the Department has to be with reference to the commodity in the same form in which it is to be taxed. The Commissioner has relied on the report of the Assistant Commissioner’s affidavit which indicates that the products of the other companies of similar nature are marketable. The product of Vijayawada is standardised. In the case of appellants, the products are not standardised and the products cleared from Delhi are not marketable as such. The burden to prove marketability is on the department. The department has not produced any evidence that the item on which duty is sought to be levied is marketed in the condition in which it is proposed to be taxed. The following case laws were relied on.
(a) Cadila Laboratories Pvt. Ltd. v. CCE - (S.C.)
(b) Union of India v. Sonic Electrochem (P) Ltd. - (S.C.)
(c) Rashtriya Ispat Nigam Ltd. v. CCE - (Tri.).
(v) The department was in the knowledge that the appellants were manufacturing products in Dehradun and New Delhi and that further process was undertaken in their factory at Bangalore. Declaration was also filed by the appellants as early as 14-8-97. Thus, there is no suppression on the part of the appellants and the extended period cannot be invoked.
(vi) The entire duty if payable at Delhi would get subsumed as credit at Bangalore factory and hence there cannot be any intention to evade duty. The learned SDR reiterated the grounds in OIO.
4. We have gone through the rival contentions. The proposal made in the show cause notice is for classification of the products in Chapter 13. However, the Commissioner has classified them under Chapter 30. The order is going beyond the scope of the show cause notice. On this ground alone, the OIO is liable to be set aside. As regards the merits of the case, the appellants have submitted that as per the drug licence issued, the factories at Delhi and Dehradun cannot sell their products to any one else. In fact, they are in the nature of intermediary goods. They are semi-finished, they cannot be used as such. Under these circumstances, they cannot be held to be marketable. Moreover, even if duty is held to be payable on these products cleared at Delhi factory, CENVAT credit would be available at Bangalore Factory. In view of this there cannot be any intention to evade central excise duty. From the records, it is seen that there are no grounds for holding that the appellants have suppressed facts in order to evade payment of duty. In these circumstances, the OIO cannot be sustained. All the case laws relied on by the appellants are very relevant. The Board in it’s Circular dated 16-9-97 has clarified that the vegetable extracts which emerge at intermediary stage in the manufacture of Ayurvedic, Unani or Siddha medicines are not marketable unless subjected to preservative process. Therefore, such vegetable extracts unless subjected to preservative process are not liable to be considered as goods attracting excise duty. In view of the fact that there is specific prohibition to sell these goods to other buyers these goods cannot be compared with the products manufactured by others for sale. We have to consider the products at Delhi Unit only as intermediary goods. Therefore we hold that the impugned goods are not excisable. We also do not find any justification for invoking longer period. In view of the above finding, we allow the appeal with consequential relief if any.
(Operative portion of the Order already pronounced in open Court on conclusion of the hearing)