Customs, Excise and Gold Tribunal - Delhi
Dabur India Ltd. vs Commissioner Of Central Excise on 8 May, 1998
Equivalent citations: 1998(104)ELT469(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. This is an application for waiver of pre-deposit of a sum of Rs. 2,98,56,499.73 confirmed as duty on vegetable extracts manufactured by the applicants herein and captively consumed for manufacture of ayurvedic medicines, during the period 1-8-1990 to 28-2-1994, and a penalty of Rs. 2,98,56,450/- imposed as penalty on the applicants herein for contravention of the relevant Central Excise Rules. The demand arises consequent on classification of the extracts by the Central Excise authorities under CET sub-heading 1301.90. On the other hand the applicants contend that the extracts are for therapeutic or prophylactic use and being obtained by extraction from the medicinal plants/herbs without addition of any preservatives, are not marketable and hence not 'goods' within the meaning of the Central Excise Law. In the alternative, it is their claim that they fulfil the definition of medicaments as contained in Note 2 to Chapter 30 and, therefore, fall for classification under that Chapter, in which event they are not liable to any duty. The appellants also rely upon the Circular, dated 16-9-1997 issued by the Central Board of Excise and Customs clarifying that the liquid vegetable extracts unless subjected to fermentation or other preservative processes, are not liable to be considered as 'goods' attracting excise duty and further clarifying that the mixed or compounded vegetable extracts which have therapeutic or prophylactic value are classifiable under CET sub-heading 30.03. The applicants also contend that the demand is barred by limitation - the show cause notice was issued on 30-8-1995 covering the period from August, 1990 to February, 1994. The applicants submit that they were under the bona fide belief, strengthened by a communication from the Additional Commissioner of Central Excise, Allahabad to the Commissioner of Central Excise, Meerut on the duty liability of vegetable extracts under Chapter 30 and that the vegetable extracts manufactured by them were not excisable goods and even if considered to be goods, in any event they can be classified only under Chapter 30 and not under Chapter 13. The applicants also submit that since there was a divergence of views on the classification of the products and ultimately the view expressed by the CBEC is in their favour, penalty is not warranted. They, therefore, plead that the requirement of pre-deposit may be waived and recovery stayed pending the appeal.
2. Opposing the contention of the applicants, learned JCDR draws our attention to the findings contained in the impugned order regarding marketability of the vegetable extracts in view of which they have been held to be goods attracting levy of excise duty. Regarding the alternate claim for classification under Chapter 30, he submits that, as rightly held by the adjudicating authority, only products which are directly capable of being put to therapeutic or prophylactic use would qualify as medicaments in terms of Note 2 to Chapter 30 and since the extracts are used as intermediate products in the manufacture of ayurvedic medicines, the extracts themselves cannot be considered as medicaments falling under Chapter 30. The learned JCDR contends that the extended period of limitation is available since the applicants did not properly declare the products manufactured in their factory, resulting wilful suppression of facts with intent to evade payment of duty. According to him, penalty is also justified for deliberate flouting of the Central Excise Rules. In these circumstances, he prays that the applicants may be directed to deposit the entire amount of duty and penalty.
3. We have considered the rival submissions. At the outset it is clarified by Shri V. Sridharan, learned Counsel for the applicants that the liability to duty on simple vegetable extracts i.e. extraction from single plant, such as neem leaves extracts, liquorice extracts and sarpgandha extracts is not disputed and the applicants undertake to deposit the amount of duty involved on these extracts. We accordingly direct them to deposit the duty involved on simple extracts within a period of 4 weeks from the date of receipt of this order and report compliance on 6-7-1998. Regarding compound extracts, we find that the HSN Explanatory Notes to Heading 13.02 states that the Heading excludes vegetable extracts which have been mixed or compounded (without the addition of other substances) for therapeutic or prophylactic purposes and such mixtures and similar medicinal compound extracts made by treating a mixture of plants are classified under 30.03 or 30.04. The HSN Explanatory Notes to Chapter 30 states that Chapter 30 includes medicinal compound vegetable extracts including those obtained by treating a mixture of plants. Note l(d) to Chapter 13 excludes medicaments falling under Chapter 30 from the coverage of Chapter 13. The CBEC Circular dated 16-9-1997 on which the applicants have prima facie rightly relied, reads as under:
Circular No. 334/50/97-CX F.NO.102/11/94-CX.3 Ministry of Finance Department of Revenue Central Board of Excise & Customs To All Chief Commissioners of Central Excise & Customs, All Commissioners of Central Excise & Customs, All Commissioners of Central Excise, All Commissioners of Central Excise (Appeals), All Commissioners of Central Excise (Judicial), All Commissioners of Customs, Dir. General of Anti-Evasion (Customs & Central Excise) ; and Dir. General of Inspection (Customs & Central Excise), Subject:- CE - Excisability of liquid vegetable extracts obtained in the manufacture of Ayurvedic Medicines - Clarification regarding -
Sir/Madam, I am directed to say that a doubt has been raised as to whether liquid vegetable extracts obtained in the course of manufacture of Ayurvedic medicines are excisable under the Central Excise Tariff Act, 1985 and if so whether they merit classification under Chapter 13 or under Chapter 30 of the Central Excise Tariff Act, 1985.
2. A general study of the process for obtaining these extracts reveals that in the first stage medicinal herbs/shrubs are ground/crushed to obtain coarse powder and thereafter it is boiled in water to get the extract. In the second stage the said extract is subjected to preservative processes whether fermentation or otherwise.
3. The matter has been examined. In this context it mentioned that liquid vegetable extracts which emerge at an intermediate stage in the manufacture of Ayurvedic, Unani or Siddha medicines are not marketable unless subjected to preservative processes whether fermentation or otherwise. Therefore, such 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. If these are subjected to fermentation which gives rise to self generated alcohol, they go out of the purview of CETA, 1985 in view of Chapter Note 4 to Chapter 30 and attract duty under the Medicinal & Toilet Preparations (ED) Act, 1955. Rule 66 of the M & TP Rules, 1956 also makes it clear that medicinal preparations containing self generated alcohol are chargeable to duty under the M & TP Act. In this connection attention is drawn to the judgment of Supreme Court in the case of M/s. Baidyanath Ayurved Bhavan (P) Ltd. [1971 (1) SCR 590] wherein it has been held that in order to attract duty under the M & TP Act, all that is required is that a medicinal preparation should contain alcohol. Alcohol may be part of the preparation either because it is directly added to the solution or it came to be included in it because one of the components of that preparation contained alcohol.
4. If such extracts are subjected to other preservative processes which do not give rise to self generated alcohol or addition of alcohol in the extracts, they would attract duty under the CETA, 1985. Such extracts can be classified as under:
Simple Extract - Extraction from single herb/plant.
Compound Extract - Extraction from different herbs/plants together.
HSN explanatory notes at page 93 excludes vegetable extracts from Chapter 13 which have been mixed or compounded for therapeutic or prophylactic purposes. HSN explanatory notes at page 436 further state that Heading 30.03 includes medicinal compound vegetable extracts including those obtained by treating a mixture of plants. As per HSN explanatory notes single ingredient extracts are classifiable under Chapter 13 of the CET. However, single ingredient extracts when put up in measured doses for therapeutic or prophylactic purposes or in forms or packings for retail sale for such purposes are covered under Chapter Heading 30.04.
5. In view of the above it is 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. Single ingredient extracts are classifiable under Chapter 13 of the Central Excise Tariff. However, single-ingredient extracts when put up in measured doses for therapeutic or prophylactic purposes or in forms of packings for retail sale for such purposes are appropriately classifiable under Heading 30.03 of the Central Excise Tariff.
6. All pending disputes/assessments on the issue may be settled in the light of these guidelines.
7. Field formations and trade may be advised suitably.
8. Receipt of this Circular may please be acknowledged. Hindi version is enclosed.
Yours faithfully, Sd/-
(Srinivas Tata) Under Secretary to the Government of India In the light of the above Circular read with HSN explanatory Notes to Chapter 13 and 30 and the relevant entries in the Central Excise Tariff, we are satisfied that the applicants have made out a strong prima facie case for waiver of duty demand on compound vegetable extracts and accordingly dispense with the requirement of pre-deposit of duty on compound vegetable extracts and dispense with the pre-deposit of penalty and stay recovery thereof pending the appeal.
4. Duty liability on simple vegetable extracts, which is admitted by the applicants, is to be discharged within a period of 4 weeks. Compliance to be reported on 6-7-1998.