Concept Pharmaceutical Ltd. v. Commissioner Of Central Excise, Mumbai .

Factual and Procedural Background

The appellants are manufacturers of various pharmaceutical products, specifically Ampicillion (Ampicillin) Sodium Injections. These injections were sometimes cleared on payment of duty when sold under the brand name "Conampi Injection" under Heading 3003.10 of the Central Excise Tariff Act, 1985. When cleared bearing the generic name, no duty was paid; however, the appellants reversed 8% of the sale price on such clearances. During manufacture an intermediate product, Ampicillion Sodium powder, was produced and captively consumed to manufacture the final injections.

Show-cause notices were issued proposing a demand of duty on the captively consumed Ampicillion Sodium where the final products were cleared in generic name. A tabulated summary of notices, periods, demands and reversals as recorded in the order follows:

The original adjudicating authority dropped the show-cause notices granting benefit of Notification No. 67/95 to the appellants. On revenue appeal, the lower appellate authority held that appellants were not entitled to benefit of Notification No. 67/95 and confirmed the demands. The appellants appealed to this Tribunal (appeal Nos. E/3001/2003 and E/3002/2003).

Legal Issues Presented

1. Whether the appellants are entitled to the benefit of Notification No. 67/95-C.E. (as contended by the adjudicating authority) in respect of captively consumed Ampicillion Sodium.
2. Whether Notification No. 10/96-C.E., dated 23-7-1996 (exemption for goods consumed in manufacture of specified medicaments falling under Heading 3003) applies, thereby rendering no demand sustainable from 23-7-1996 onwards.
3. Whether the appellants are entitled to the benefit of Notification No. 7/94-C.E., dated 1-3-1994 (exemption for goods in Chapter 29 manufactured and captively consumed in the manufacture of bulk drugs) for the period prior to 23-7-1996.
4. How the amounts already reversed (notably the 8% reversal) and the Rule 57CC adjustment should be treated in quantifying any demand for the period prior to 23-7-1996.
5. Whether the show-cause notice No. 38/C.E./97 dated 12-7-1997 is barred by limitation.

Arguments of the Parties

Appellant's Arguments

• The appellants manufacture medicaments which fall under Chapter/Heading 30 of the Central Excise Tariff and are therefore within the class of goods contemplated by Notification No. 10/96-C.E., dated 23-7-1996; hence goods captively consumed in manufacture of those medicaments are exempt from excise duty from 23-7-1996.
• For the pre-23-7-1996 period, the appellants have already reversed approximately Rs. 6.00 lakhs (an amount which they contend is more than the demand proposed), and thus no demand is sustainable for that earlier period.
• They sought benefit of Notification No. 7/94-C.E., dated 1-3-1994, which exempts goods falling under Chapter 29 that are captively consumed in manufacture of bulk drugs, asserting applicability to their case.
• They contended that show-cause notice No. 38/C.E./97 dated 12-7-1997 is barred by limitation and that there was no suppression of facts.

Revenue's Arguments (Ld. Departmental Representative)

• The adjudicating authority erred in granting benefit of Notification No. 67/95-C.E.; that notification is not available to the appellants as held by this Tribunal in Aurobindo Pharma Ltd. v. C.C.E., Hyderabad (Tri.-Bang.).
• The reversal of 8% under Rule 57CC cannot be equated with payment of duty on clearance of goods captively consumed; therefore the demand as confirmed by the lower appellate authority should be sustained.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal examined the submissions of both parties and addressed the notifications and statutory provisions relied upon. The court's analysis proceeded as follows:

1. Notification No. 67/95-C.E.: The Tribunal accepted the Revenue's contention (supported by prior Tribunal authority) that the appellants were not entitled to the benefit of Notification No. 67/95-C.E. The appellants' counsel did not contest this point during arguments.
2. Notification No. 10/96-C.E. (dated 23-7-1996): The Tribunal considered the appellants' primary contention that Notification No. 10/96 exempts goods (specified in the schedule to CETA, 1985) when consumed within the factory in manufacture of goods specified in Column No. 3 of the table. The court noted that at Serial No. 7 of the notification the description in Column No. 3 is "medicaments" and that it was not in dispute that the appellants are manufacturers of medicaments. On that footing, the Tribunal held that the appellants are entitled to the benefit of Notification No. 10/96 for clearances made on or after 23-7-1996; hence no demand is sustainable for the period from 23-7-1996 onwards.
3. Notification No. 7/94-C.E. (dated 1-3-1994): The Tribunal considered and rejected the appellants' reliance on this notification for the pre-23-7-1996 period. The court observed that Notification No. 7/94 confers benefit only in respect of the manufacture of "bulk drugs." The Tribunal found that Ampicillion Sodium Injections (the appellants' final product) cannot be termed bulk drugs; therefore the appellants are not entitled to the benefit of Notification No. 7/94 for the earlier period.
4. Re-quantification and Adjustments for Pre-23-7-1996 Period: Because the appellants had already reversed 8% of the value of exempted products cleared prior to 23-7-1996, the Tribunal directed that the matter be remanded for re-quantification of demands for the period prior to 23-7-1996. The adjudicating authority is to consider the reversals and adjust them against any re-quantified demand. The Tribunal also kept the issue of limitation open for consideration during re-quantification.
5. Penalty: The Tribunal declined to impose penalty, stating that the issue involved interpretation of notification(s) and therefore no penalty was warranted.
6. Payment Directions: If, after re-quantification, any amount is payable by the appellants, they shall pay the same within thirty days of the re-quantification order.

Holding and Implications

Core Rulings:

• The appellants are not entitled to the benefit of Notification No. 67/95-C.E.
• The appellants are entitled to the benefit of Notification No. 10/96-C.E. with effect from 23-7-1996; accordingly, no demand is sustainable for periods from 23-7-1996 onwards.
• The appellants are not entitled to the benefit of Notification No. 7/94-C.E. for the period prior to 23-7-1996 because their product cannot be classified as "bulk drugs."
• The matter is remanded to the original adjudicating authority for re-quantification of demand for the period prior to 23-7-1996, with directions to adjust amounts already reversed (including the 8% reversal) and to keep limitation issues open for consideration.

Direct consequences for the parties as specified in the order:

• For clearances w.e.f. 23-7-1996: no demand is sustainable; those demands are set aside by reason of Notification No. 10/96-C.E.
• For the period prior to 23-7-1996: demands must be re-quantified by the original adjudicating authority after giving the appellants an opportunity to present their defence; reversals already made by the appellants shall be adjusted against any re-quantified demand. Any amount found payable must be paid within thirty days of re-quantification.
• No penalty was imposed because the issue required interpretation of the notifications.
• Disposition of appeals: Appeal No. E/3001/2003 is allowed; Appeal No. E/3002/2003 is remanded for re-quantification as directed.

The opinion does not discuss broader legal implications beyond the parties' interests; the decision operates to resolve entitlement to specific notifications for the periods in question and to remand quantification issues for determination by the original adjudicating authority.