Customs, Excise and Gold Tribunal - Tamil Nadu
Medopharm vs Commissioner Of Central Excise on 13 June, 2003
Equivalent citations: 2003ECR220(TRI.-CHENNAI), 2003(160)ELT1029(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. By this appeal M/s. Medopharm, the appellants herein challenge the order-in-Original No. 8/2001, dated nil of April, 2001 passed by the Commissioner of Central Excise, Chennai by which the Commissioner has confirmed a duty demand of Rs. 96,85,876/- (Rupees Ninety-six lakhs, eighty-five thousand, eight hundred and seventy-six) under Rules 12(1)(a), 52A read with provision to Section 11A(1) of the CE Act, 1944 and imposed penalty of Rs. 20,00,000/- (Rupees Twenty lakhs) under Rule 173Q of the CE Rules, 1944 in addition to imposition of mandatory penalty of Rs. 53,79,611/- (Rupees Fifty-three lakhs, seventy-nine thousand, six hundred and eleven) under Section 11AC of the Act. He has also demanded interest under Section 11AB of the Act. He has also ordered for adjustment of Rs. 15,00,000/- (Rupees Fifteen lakhs) paid by the appellants towards the above duty demand.
2. The brief facts of the case are that the appellants herein are manufacturer of patent and proprietary (P or P) medicaments falling under Chapter heading 3003.10 attracting duty @ 15% and general medicaments falling under Chapter sub-heading 3003.20 attracting nil rate of duty. The appellants availed the benefit of Modvat Credit of duty paid on the inputs used in the manufacture of finished products. The department on specific intelligence gathered came to know that the appellants were claiming fraudulently rebate under Rule 12(1)(a) on the export of generic medicines. On a visit to the unit by the officers it was found that the appellants were indulging in tampering with documents and had made wilful misstatement with a view to claiming rebate of duty paid on generic items which attracted nil rate of duty and by doing so, the appellants wrongly encashed the Modvat Credit lying unutilized in the RG 23A account. The department alleged that the appellants submitted two different sets of documents, one to Central Excise Department and another to Customs Department and bank authorities. In the documents submitted to the Central Excise department, AR4, invoice, packing list etc. in addition to the generic name, branded item is incorporated whereas in the documents submitted to the Customs department and the Bank, only the name of the generic item is mentioned and the name of the branded item is omitted. The department took the view that this has been done to give an impression to the Central Excise department that only branded items are being exported on payment of duty whereas the items exported were only generic ones. Thus the appellants were alleged to have indulged in falsification of documents like the AR4 and hence violated Rules 52A of the Rules ibid. In token of admitting the guilt the appellants paid an amount of Rs. 9 lakhs vide TR 6 Challan dated 29-1-98 with the mention of "pre-deposit of rebate claims amount sanctioned and received from the department". In terms of Rule 57F(13), refund of unutilized Modvat Credit is available provided this credit cannot be adjusted for payment towards clearances for home consumption or legitimate export under rebate. In the present case, the assessee-appellants however, had domestic sales of P or P medicines for utilizing such credit but chose to avail of Rule 12(1)(a) to en-cash the Modvat Credit. Further, having availed of the benefit of Modvat Credit on the inputs in the manufacture of export medicines, the department took the view that the assessee is ineligible for rebate under Rule 12(1)(b) and so also under Rule 12(1)(a). Statement was recorded from A. Balachandar, Manager, (Imports & Exports) on 16-4-98 wherein inter alia he has admitted that names of products have been tampered with while submitting documents to the Central Excise department. Statement was also recorded from Ms. K. Chandra, Executive M/s. Medopharm in which she has stated inter alia that the addition of brand name in the documents submitted to the Central Excise department was done as claim or rebate can be made only if brand name is used and that no rebate can be obtained for the items cleared for export unless brand name is used since the generic name attracts 'nil' rate of duty. Statement was also recorded from Shri A. Balachander, Manager (Imports) wherein he has stated inter alia that names of products have been tampered with while submitting the documents to the Central Excise Department. He has also stated that if the description in the Shipping Bill speaks about generic product being exported, only generic drugs have been exported. Shri Bhaskar, Executive Assistant, of the appellants also corroborated the statements given by other employees as noted above. Shri Sardarmul Chordia, Managing Director of the appellants stated that whatever the procedure the appellants having been adopting towards claim of rebate has been accepted by the department and hence they were under the impression that there was nothing wrong in claiming rebate in respect of generic medicines. It was in the above circumstances that show cause notice was issued to the appellants which culminated in the order impugned against which the appellants have come in appeal. The appellants assail the order of the lower authority inter alia on the following grounds :
(a) The generic name of the product was indicated in the shipping bills and other documents purely due to the banking regulations and also on account of the international trade practice of identifying medicaments only with their generic names and to avoid any consequential difficulties being faced by the overseas buyers. It was also a requirement of the Bankers to indicate the generic names. These vital factors have not been considered by the Commissioner.
(b) The Commissioner has not considered their submission regarding appearance of the brand name/market name of the product either significantly or insignificantly with the details thereof submitted in separate statements and the explanation offered by them for the preparation of separate set of invoice and packing list containing such name viz. that the need for such preparation had arisen to comply with the legal formalities.
(c) The correctness of the declaration/returns and accounting of the excisable goods in the statutory records have not been disputed by the Commissioner.
(d) The verification recorded by the proper officer in the AR4 cannot be brushed aside by the Commissioner on the ground that he is not concerned with the correctness of the goods.
(e) Statements have been obtained from the officers which have been dictated by the officers and those statements are not voluntary in nature as the officers were threatened with arrest. Even copies of the statements were not given to the officers even though acknowledgement was obtained from them. The versions recorded in the various statements were dictated confessions and were contrary to the facts of the case and hence those statements are not admissible in evidence.
(f) The finding of the Commissioner that the appellant herein has come up with a plea that the statement of their officials were recorded under duress belatedly after one year of the issue of the show cause notice, i.e. 25-8-99 is totally incorrect and erroneous as they had taken such plea in their very first reply to the show cause notice itself at which time only they received the statement along with the show cause notice. A reading of the statements would show that these are not voluntary statements but were forced statements.
(g) Reliance of the Commissioner in the judgment of the Hon'ble Apex Court in the case of Kalema Tumba v. State of Maharashtra [2000 (115) E.L.T. 38 (S.C.)] and also on the decision of the Tribunal in the case of S. Elangovan & Others reported in 1988 (38) E.L.T. 364 (T) is totally incorrect.
(h) The reliance placed by the Commissioner on the export orders by holding that they were placed only for generic medicaments without considering the submissions of the appellants that they were not prohibited from affixing their brand name on goods as per the terms of the said orders, sample copies of which were furnished to the Commissioner, is totally prejudicial and devoid of any merits.
(i) The findings of the Commissioner as if the appellants herein had relied on the provisions of Rule 96ZN of the erstwhile rules to justify their action in indicating the brand names in the excise documents without taking note of the various other grounds canvassed is misconceived and unwarranted.
(j) The Commissioner's finding that in view of the judgment of the Hon'ble Supreme Court in the case of Astra Pharmaceuticals (P) Ltd. v. Collector reported in 1995 (75) E.L.T. 214, the claim of the assessee that since packing of the generic medicine contained their monogram, they should be classified under Ch. Sub-heading 3003.10 as P or P medicines, is not correct.
(k) The Commissioner has not taken note of the fact that only in few cases, generic medicaments which do not bear a product mark but bearing a monogram have been treated to be P or P medicaments on such account and cleared on payment of duty for export.
(l) The finding reached by the Commissioner that the appellants have tampered with the documents is arbitrary. The Commissioner had also not taken note of the fact that the appellants had not only submitted AR4, invoice, packing list containing the brand name of the product but also shipping bills and the bill of lading in respect of which there is no allegation of tampering.
(m) The appellants are not legally obliged to file packing list and the commercial invoice with the Maritime Commissioner and hence the allegation regarding tampering is not correct.
(n) The Customs Officer had also made endorsement in the shipping bills as having verified the same and hence the allegation of tampering is not correct.
(o) The Commissioner ought to have considered the fact that when a notice having been issued to the appellants proposing to demand back the entire credit utilized for the export clearance, it cannot simultaneously make a self contradicting claim that the appellants are not eligible for the rebate under Rule 12(1) (b) of the erstwhile rules on the ground that they had taken Modvat Credit by placing reliance on Rule 12(3).
(p) The appellants are eligible to the rebate in terms of Rule 57F(13).
(q) Invocation of the provisions of Section 11A(1) of the Act, is also not correct and the department should have resorted to the provisions of Section 35E.
(r) Since the demand itself is not sustainable, the question of imposing penalty under the mandatory provisions of Section 11AC and demand of interest under Section 11AB is not legal.
3. The learned Counsel appearing for the appellants while reiterating the grounds taken in the appeal has also submitted that in this case the proviso to Section 11A(1) cannot be invoked inasmuch as the show cause notice does not bring out sufficient evidence that the appellants had deliberately suppressed and misstated the fact of exporting generic medicines as branded medicaments with intend to en-cash the unutilized Modvat credit lying in their account. Further, the department had also full knowledge of the case which is clearly evident from the fact that the shipping bill on which total reliance had been placed by the department had been made available to the rebate sanctioning authority along with the AR4 and other connected documents. He has submitted that commercial invoice is not a statutory document and hence it was not submitted. He has further submitted that over 91% of the goods produced by them are exported and only an insignificant quantum of about 9% is sold in the domestic market. He has further pleaded that while P & P medicines classifiable under sub-heading 3003.10 attracts duty @ 15%, for generic medicines falling under sub-heading 3003.20 there is NIL rate of duty. He has further pleaded that Maritime Commissioner has granted refund for the year 1995-96, 1996-97 and for 1997-98 and having been convinced of the eligibility of the appellants to the rebate. He has also invited our attention to page 9 of the paper book where copy of the labelling instructions of the foreign buyer has been filed. He has submitted that it can be seen from the instructions at Sl. No. 4 wherein it is clearly indicated that the label for each pharmaceutical and vaccine products shall meet W210 GMP Standard and shall include the INN or generic name prominently displayed over and above the brand name, where a brand name has been given. The instructions further stipulate that brand name should not be bolder or larger than the generic name. It would thus be clear that the Generic name was prominently shown because of the specific requirement of the foreign buyer to meet their requirement. He has also invited our attention to the decision of the Tribunal in the case of ACE Laboratories Ltd. v. CCE, New Delhi, reported in 2001 (128) E.L.T. 376 wherein it was held that when the goods were classified and assessed at the time of removal for export as P & P medicines, the department cannot allege later goods exported are not P & P medicines. It was also held therein that Modvat Credit is admissible in respect of inputs utilized in the manufacture of goods exported. He in the circumstances prayed for allowing the appeal.
4. Shri A. Jayachandran, learned JDR appearing for the department submitted that the appellants have added some words in the invoices submitted to the Maritime Collector. In the invoice and in the shipping bills they omitted the branded name, but when they submitted those documents to the Maritime Commissioner the brand name was added. He submitted that different sets of documents were submitted i.e. one to the Central Excise Department incorporating the brand name which is absent in the sets submitted to the Customs and the Bank authorities. He has further submitted that AR-4 shows that the appellants had availed the facility of examination of the goods in Customs whereas the requirement is that whenever examination is done by the Central Excise, Part A on the reverse of AR-4 is filled up by Central Excise Officers. He has also invited our attention to para 34 of the order impugned wherein the Commissioner has extensively dealt with aspect pertaining to submission of documents like AR-4, packing list, invoice. The Commissioner has also noted that the various officers of the appellants have given statements admitting the commission of offence and none of them retracted the statements immediately thereafter and they had taken the plea of coercion and threat only at the time of personal hearing on 25-8-99 when they had submitted the written submission also. Therefore, the Commissioner has rightly rejected their belated retractions as an afterthought. He submitted that manipulation of documents is writ large on the face of the records as the appellants have got the rebate by fraudulent means and hence the order of the Commissioner is legal and proper and he prayed for upholding the impugned order and rejection of the appeal.
5. We have carefully considered the submissions made by both the sides and have gone through the case records. The learned Counsel for the appellants argued the matter for a considerable length of time in his endeavour to convince us that there was no deliberate attempt, on their part to tamper with the documents to fraudulently claim the rebate as alleged by the department. After hearing both the sides extensively and having gone through the records we observe that the gravamen of the department against the appellants is that the appellants have exported generic medicines which attracts NIL rate of duty and in order to get the benefit of rebate, the records were manipulated to show that they have exported P or P medicines attracting 15% duty and that the rebate earned would not have otherwise been used and should have been kept as un-utilized Modvat. Examining this question, we observe that the appellants have taken the plea that the product in almost all cases carry brand name either predominantly or insignificantly, printed or stamped apart from the fact that they also bear pharmacopoeial, name like BP, USP, etc. and that tablets/capsules manufactured and exported by them carry inscriptions like letter or number with which they are recognised in the market. These facts have not been controverted by the department. We also observe that copies of the orders placed by the foreign buyers do not prevent the appellants from showing their brand name. In fact the labelling instructions of the foreign buyer say that the generic name should be prominently displayed and the brand name should not be bolder or larger than the generic name. We would like to further observe that so far as export of any item is concerned, the requirement of the buyer cannot be ignored and this is what the appellants have done by showing generic names in the P or P medicines exported. Further, the appellants were required to observe the banking regulations in consonance with the purchase order, while preparing the documents for export. By doing so, in our opinion, it cannot be said that the appellants have resorted to fraudulent means to get the benefit. Now we proceed to answer the following questions involved in this case :
(1) Whether there was suppression on the part of the appellants?
(2) Whether the goods exported by the appellants were P & P medicines or generic medicines?
(3) Whether the rebate was sanctioned erroneously?
6. Examining the first question as to whether there was suppression of fact on the part of the appellants to claim the rebate by falsifying/manipulation of documents as alleged by the department, we observe that the department's charge is that barring AR4, all documents such as packing list, invoices, shipping bills etc. submitted to the Customs authorities bear only the generic names of the medicines exported and that the appellants have produced different set of documents to Central Excise authorities, and to the Bank and Customs authorities. We observe that the appellants all along have been submitting that generic name was mentioned as per the specific requirement of the foreign buyer and also to meet the requirement of the Bank authorities. The appellants had also made available shipping bill, AR4 and other documents to the rebate sanctioning authority which were verified and satisfied by that authority before the rebate was sanctioned. It is not the case of the Revenue that the appellants have not accounted for the goods as P or P medicines in their statutory registers and that they have not filed any monthly returns under Rule 173G or have not filed any declaration under Rule 57A. Further, in the present case, the entries made in the shipping bill by the Customs officer to the effect "verified AR4" cannot be overlooked. The plea of the department that Customs Officer was not concerned with the description of the goods, cannot be countenanced for the reason that if he was not competent to do the verification, he should not have verified the entries and certified the same. In such circumstances it cannot be said that the appellants have held back any information from the department to gain any undue benefit.
6.1 We also observe that the Tribunal in the case of Orissa Cement v. CCE, reported in 1996 (81) E.L.T. 154 has held that when the department had allowed the refund after due scrutiny the extended period of limitation is not applicable in terms of provision to Section 11A(1) of the Act. The Hon'ble Apex Court in the case of Collector v. Chemphar Drugs & Liniments reported in 1989 (40) E.L.T. 276 (SC) has held that where the department had full knowledge about the facts and the manufacturer's action or in action is based on their belief that they are required or not required to carry out such action or inaction the period beyond six months cannot be applicable. In view of the above, we are of the considered opinion that the charge of suppression of fact on the part of the appellants cannot be sustained and we answer this question in favour of the appellants.
7. Coming to the second question as to whether the medicines exported are P or P medicines or generic medicines. We observe that it is an undisputed fact that appellants manufacture both P or P medicines and generic medicines and the production of generic medicine is negligible and 91.19% of their goods are exported to foreign countries and only 8.81% is sold in the domestic market. Their overseas buyers are both Govt. agency as well as private party in respect of both types of medicines. When a particular buyer/buyers want the generic name of the medicines should be prominently mentioned, they are not prohibited from mentioning their brand name also and when orders for branded medicines are received, they are not prohibited from mentioning the generic names though not prominently. This is supported by the documentary evidence that in terms of the labelling instructions, copy filed at page 9 of the paper book, it is clearly mentioned that generic name should be prominently displayed above the brand name where the brand name has been given and the brand name should not be bolder than the generic name. It therefore, shows that in the matter of sale of goods to the foreign buyers, the seller in India has to accept the terms of sale, for example, if the buyer wants, the generic name should be boldly mentioned, there is no escape route on the part of seller not to honour the specific requirement if he has to sell his products abroad and earn valuable foreign exchange. Therefore, no fault can be found on the part of the seller (appellants) just because the brand name has been added in the documents as per the requirement of the foreign buyer and just because the appellants have mentioned the generic medicines also, it cannot be said that the appellants have not exported branded goods though they have exported insignificant quantum of generic item also more particularly in view of the fact that the appellants are engaged pre-dominantly in the manufacture of P or P medicines which fact has not been disputed by the department. In the background of these facts the charge of the department that only generic medicines were exported and not branded cannot be accepted and deserves to be rejected and is accordingly rejected. It goes without saying that when they have taken a specific plea that their production itself is mostly branded medicines which plea is not opposed by Revenue, they could not have exported only generic medicines. Therefore, it is not understandable as to how such allegation can be sustained. Further, it is also not the case of the Revenue that they have come out with any list showing the exact quantum of P or P medicines and the generic medicines manufactured by the appellants to support their charge against the appellants that they have exported only generic medicines. We also note that, the Tribunal in the case of ACE Laboratories Ltd. v. CCE, New Delhi, reported in 2001 (128) E.L.T. 376 has held that when goods were classified and assessed at the time of removal for export as P & P medicines, the department cannot allege later that goods exported are not P or P medicines. It was also held therein that Modvat credit is also admissible in respect of inputs utilized in manufacture of goods exported. The department has placed reliance on the statements obtained from various officials of the appellants that the appellants have indulged in mentioning brand name in order to claim the rebate. We have gone through the statements recorded from various officers of the appellants and on a reading of the statements, going by its tenor, in our view, it cannot be said that those statements except in the case of the Managing Director, Shri M. Sardarmul Chordia, were voluntary in nature and the plea of the appellants in this regard that those statements were taken under threat of arrest cannot be ignored. They had taken a plea that those statements were taken under threat of arrest in the reply to the show cause notice dated 24-8-1998. We also observe that Shri Sardarmul Chordia, Managing Director of the appellants in reply to question No. 8 has stated that whatever procedure they have been adopting towards claim of rebate has been accepted by the department, thus making him think that, that was a legal way of procuring rebate". In view of our above discussion, we come to the conclusion that merely because the appellants have also exported generic medicines of insignificant quantum, it cannot be said that they have exported only generic medicines and not P or P medicines. We therefore answer this question in favour of the appellants. In arriving at this conclusion we also take note of the fact that the Government of India has accepted in principle that export of goods from India should be relieved of domestic levies (both Customs and Central Excise) so that Indian goods can be internationally competitive. This policy is sought to be implemented through the measures such as rebate of end-product excise duty where such duty has been paid on exported goods and export of goods under bond i.e. without payment of duty on end-product or their inputs, Modvat Credit of input excise duty is given, provided drawback for the same is not taken etc. Such measures are meant to encourage exports and mere technicalities should not come in the way of grant of eligible benefits. Further if exported goods are entitled to drawback but by mistake a free shipping Bill filed on the declaration of export goods was not in the manner prescribed, the drawback cannot be denied provided there has been substantial compliance with the requirement of declaration as held (i) in the case of Mafatlal Fine Spg. & Mfg. Co. v. Collector reported in 1988 (33) E.L.T. 540, (ii) Piramat Exports v. Collector reported in 1986 (25) E.L.T. 723 (iii) Madura Coats v. GOI reported in 1986 (23) E.L.T. 63 (Mad). In the present case it cannot be denied that there has been substantial compliance with the requirement of law.
8. Now coming to the last question as to whether the appellants were eligible for the rebate and whether the rebate was sanctioned erroneously, we observe that in the instant case, the following facts remain undisputed :
(a) Duty was paid by the appellants on the inputs used in the manufacture of the final product viz. medicines and Modvat credit was earned by them.
(b) Appellants have exported the final goods manufactured out of excisable inputs.
We observe that in terms of Rule 12(1) (a) rebate of duty paid on the excisable goods is admissible to the exporter and in terms of Rule 12(1) (b) duty paid on the excisable materials used in the manufacture of goods is admissible if such goods are exported outside India. In terms of Rule 57F(13), where any inputs are used in the final products which are cleared for export under bond or used in the intermediate products cleared for export in accordance with Sub-rule (4), the credit of specified duty in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason, such adjustment is not possible, the manufacturer shall be allowed refund. In the instant case the fact that the appellants have earned the benefit of Modvat Credit is not in dispute and so also their eligibility to avail the benefit of Modvat Credit. The appellants were not able to make such adjustments of Modvat Credit in respect of the unutilized quantum of Modvat Credit because their domestic sale was negligible. There was therefore, no means of utilizing the credit for duty paid clearances for home consumption. To allow the benefit, the only restriction is that both the benefits i.e. benefit of Modvat Credit and the drawback, should not be allowed. It is not the case of the Revenue that the appellants have drawn the double benefit. In view of the above, we are of the considered opinion that the appellants were eligible for the Rebate and the refund has been correctly sanctioned. We are also not able to countenance the allegation of the department that the appellants have exported only generic medicines which attracts NIL rate of duty and in order to avail the benefit of rebate they have manipulated the records to show that P or P medicines were exported which attracts 15% duty, in asmuch as the clearance of the generic medicines were negligible as noted above. We are also not able to accept the plea of the Revenue that the appellants were able to utilize the Modvat Credit which was accumulated, in asmuch as their domestic sale was less than 9% of the total clearance. In terms of Rule 57F(13), if for any reason they were not able to utilize the Modvat Credit so earned, in the domestic sales, and for any reason such adjustment of the Modvat Credit was not possible, the manufacturer shall be allowed refund. In other words, they were entitled to the benefit of Modvat Credit in the form of cash if they have not utilized the Modvat Credit towards clearance of the final product in the domestic sales. In the instant case as already noted above, the appellants were not able to make any adjustment of Modvat Credit in the domestic sale as the domestic sales were negligible. In any case, Modvat Credit which was earned by them would not have lapsed as they were eligible for refund where such adjustment of Modvat Credit was not possible. It is also on record that they have been granted rebate of the duty which they have paid on the final product exported out of the country. Therefore, in any case they were entitled to rebate and thus there was no necessity for them to have manipulated the records as alleged because their exports were over 90% of the total clearance and they were entitled to cash refund. Therefore, the third question is also answered in favour of the appellants. We are, therefore, of the considered opinion that the impugned order is not sustainable and we set aside the same and allow the appeal.