Customs, Excise and Gold Tribunal - Mumbai
Parental Drugs (India) Ltd. vs Commissioner Of Central Excise on 27 February, 2004
Equivalent citations: 2004(93)ECC270, 2004(171)ELT259(TRI-MUMBAI)
JUDGMENT S.S. Sekhon, Member (T)
1. The appellants are aggrieved by the order of the Commissioner of Central Excise, Indore for having been denied the benefit of exemption notifications for certain Intra Venous Injection fluids (hereinafter referred to as IV fluids) being manufactured by them and ordering in three Show Cause Notices as follows:
(i) Show Cause Notice No NZU/INV/69/2001/1422
(a) confirming a duty demand of Rs. 74,92,015/- under the proviso of Section 11A (1) of the Central Excise Act, 1944;
(b) imposing a penalty of Rs. 74,92,0157- on the appellants under Section 11 AC of the Act and Rule 173Q of the Central Excise Rules, 1944;
(c) payment of applicable rate of interest.
(ii) Show Cause Notice No V(3Q)3-2/C-III/IIA/2002/2524
(a) confirming a duty demand of Rs. 97,68,8557- on the appellants under Section 11A (1) of the Act;
(b) imposing a penalty of Rs. 97,68,855/- on the appellants, under Rule 173Q of the Rules; and
(c) payment of applicable rate of interest.
(iii) Show Cause Notice No V (30)3-55/C-III/iiA/2002
(a) confirming a duty demand of Rs 57,59,223/- on the appellants under Section 11A (1) of the Act;
(b) imposing of a penalty of Rs 10 lakhs under Rule 25 of the Rules; and
(c) payment of applicable rate of interest.
2. The appellants are engaged in the manufacture of intravenous infusions of various kinds, which besides the fluids may include certain medicines having anti bacterial, antibiotic and antimicrobial properties. The issues in this case relate to one of the following items added to the fluids -
(a) Ciprofloxacin I.P
(b) Metronidazole I.P
(c) PDZOLE-D
(d)Ciprodex
(e) Tinipidi Isotonic Infusion, and
(f) Mannitol I.P.
3. A perusal of the show cause notices indicates that they proceed on the basis that:
(i) the I.V. fluids containing Ciprofloxacin I.P., or Metronidazole I.P., or PDZOLE-D, or Ciprodex, Tinipidi Isotonic Infusion or Mannitol I.P manufactured and cleared by the appellants were not eligible for the benefit of Notification 36/2000, not being "intravenous fluids." The main grounds, for this stand, are enumerated as under:
(a) No additives or preservatives could be added in I.V. fluids, whereas the drugs contained in the disputed entities were in the nature of additives.
(b) I.V fluids perform function of restoring sugar, fluid and electrolyte balance in the body. The drugs contained, in them, on the other hand, were for treatment of specific ailments, having antamoebic or/and antibiotic properties, among others.
(c) In the 2001-2002 Budget, an explanation, was inserted in Notification 36/2000, clarifying that only such IV fluids which were used for sugar, electrolyte or fluid replenishment, were exempt from duty and not other IV fluids. (In actual fact, this was not a clarificatory explanation, but an entirely new dispensation, vide Notifcation 3/2001 dated 1.3.2001.
(d) The additives in question, if cleared in tablet/syrup form, were eligible to duty @16% ad valorem, under S.H, 3003.20. It would be anomalous, therefore, to hold that, if they were cleared as 'injections', as in this case, they would be wholly exempt from payment o duty under Notn 36/2000.
(e) The Pharmaceutical Form-Fill-Seal Association had, by is letter dated 12.3.2001, stated that IV infusions of Mannitol, Amino Acid, Ciprofloxacin and Metronidazole, were dutiable ever after the 2991-02 Budget
(ii) The extended period for raising the demand, under the proviso to Section 11A of the Act, was invocable, as
(i) the appellant had suppressed the fact that Ciprofloxacin, Metronidazole and Tinidazole were Schedule 'H' drugs for the treatment of specific ailments, and had not supplied the labels thereof with the classification list filed by it, and
(ii) the appellant had wrongfully claimed the benefit of exemption from duty under Notification No. 36/2000.
(iii) Reliance was placed, in the show cause notice, on "Remington's Practice of Pharmacy" and the statement dated 26.5.2001 of Shri Vinod Kumar, Managing Director of the appellant company.
4. The Commissioner passed an order dated 24.9.2002 ex parte and confirmed the duty demanded under the three show cause notices mentioned above. The appellants challenged this order before the Hon'ble High Court of Madhya Pradesh Bench at Indore, who vide order dated 24.1-.2002 directed the Commissioner to dispose of the applications preferred by the appellants for setting aside of the ex parte order expeditiously. However, the Commissioner vide his letter dated 29.11.2002 refused to set aside the ex parte order. The appellants therefore filed a writ petition challenging the direction issued vide its letter dated 29.11.2002 and the Hon'ble High Court was pleased to quash the order passed by the Commissioner and directed the Commissioner to hear the matter on merits. The appellants had also filed appeals No 3949 of 2002 in the Tribunal and was withdrawn on 27.7.2003 on the High Court having quashed the order rendering these appeal infructuous.
5. Pursuant to the order quashing of the order by the Hon'ble High Court which was confirmed by the Division Bench vide order dated 8.4.2003, the Commissioner fixed a hearing. However, after accepting the request made by the appellant to bring any expert evidence of persons qualified in the field of pharmacology so as to demonstrate that the products in question were 'IV fluids' and therefore eligible for the benefit of exemption notification, the Commissioner on the next date of hearing refused the permission to produce and examine Dr Pradeep Vavia and Dr Ms Juvekar, expert witnesses, from the University of Bombay, having experience of over 20 years in pharmacology field and or take on record the detailed notes prepared. He passed the present order, impugned, confirming the demands and imposing mandatory penalties under Section 11AC and Rule 173Q and Rule 25 of the Central Excise (No. 2) Rules, 2001 along with interest under Section 11AB as applicable.
6. After hearing the learned senior counsel Mr M. Chandrasekharan, assisted by Mr Ahmedi, Ld Advocate and Mr Nagarkar, the learned consultant and the learned D.R., and considering the materials on record, it is found:
(a) the charge in the show cause notice was that "products are not IV fluids within the meaning of 'Remington's Practice of Pharmacy and not being IV fluids they were not eligible for the benefit of exemption notification.' However, the Commissioner accepts in paragraph 28 of the impugned order that products were in fact of a kind at S.No. (iv) fluids, as per Remington's Practice of Pharmacology. He held, such fluids are of a kind specified at serial number (iii) the Remington's Practice of Pharmacology were eligible to the benefit of the exemption notification. Whereas the kind of fluids at serial number (iv) and (v) were not eligible for the benefit of exemption notification. Thereafter the Commissioner concluded that the entities in question were in the nature of fluids mentioned at serial (v) of Remington's Practice of Pharmacology and would not be eligible to the benefit of the exemption notification.
On consideration of this aspect it is found that Ramington's Practice of Pharmacy (chapter 88 pages 1549 and 1550 which are reproduced in paragraph 27 of the impugned order and are as follows:
" (A) it has been estimated that 40% of all drugs administered in hospitals are given in the form of injections and their use is increasing. Part of this increase in parenteral therapy is due to the wider use of intravenous fluids (I.V. Fluids). In the last decade, the use of I.V. Fluids has doubled, increasing from 150 millionunits to 320 milion units annually, Not only do I.V. fluids continue to serve as the means for fluids replenishment, electrolyte balance restoration and supplementary nutrition, but they also are playing major role as vehicles for administration of other drug substances and in total parenteral nutrition (TPN). Intravenous fluids are finding greater use as the means of reducing the irritation potential of the drugs and the desirability for continuous and intermittent drug therapy.
(B)Large volume injections intended to be administered by Intravenous infusions commonly are called I.V. Fluids and are included in the group of sterile products referred to as large volume pareterals. These consist of single dose injections having a volume of 100 ml or more and containing no added substances.
(C) Intravenous Fluids are sterile solutions of simple chemicals such as sugar, amino acids or electrolytes -materials which easily can be carried by the circulatory system and assimilated.
(D) Intravenous Fluids commonly are used for a number of clinical conditions. These incluse
(i) Correction of disturbances in electrolyte balance
(ii) Correction of disturbances in body fluids (fluid replacement)
(iii) The means of providing basic nutrition
(iv) The basis for the practice of providing TPN
(v) Use as vehicles for other drug substances.
Indicate a common use of such fluids for clinical conditions Serial no (v), as use as vehicles for other drug substances and Serial no (iv) as the basis for providing TPN for the products in question. The finding that the impugned entities were only meant for use as mentioned at serial no (v) above i.e. uses of 'vehicles for other drug substances' and therefore fall outside under exemption provided by Notification 03/01 dated 1.3.2001 or exemption notification No. 06/02 dated 1.3.2002 would be the conclusion, as arrived at by the Commissioner without any technical data or any expert's opinion on such exclusive said usage.
(b)The Commissioner has refused to hear Experts and Expert's opinions. That by itself would lead to a conclusion that the order is biased and not to be upheld for denial of principles of natural justice. The discard of the advice, obtained from office of the Deputy Director of Food and Drug Administration, Indore which has been recorded in para 20 of the impugned order question especially the following "In this connection, it is informed that any I.V. Fluids does not loose its basic character of I.V. fluids simply by adding to it any medicament. In your case, adding of either ciprofloxacin with dextrose, ciprofloxacin with sodium chloride, metronidazole with dextrose, metronidazole with sodium chloride, tinidazole with sodium chloride and mannitol is covered under definition of intravenous fluids for which you have been given licence in form No. 28-D. The route of administration of these products are through intravenous hence the said products come under intravenous infusion." (Emphasis supplied) this certification, by an Expert, relied upon by the appellants, goes to prove that addition of any of the alleged substances, in addition to the dextrose and sodium chloride, etc as essential ingredients of I.V. fluids does not render the effectiveness of the basic character of I.V. fluids, e.g. if fluid, electrolyte replacement supplementation. In any case, no material contrary to this certification of the entity in question being IV fluid serving its purpose of fluid replacement has been brought on record That this addition would render the sugar, electrolyte fluid replacement supplement ineffective is not provednd simple reading of the Deputy Director of the Food and Drug Administration's letter, the only expert opinion relied, in the order of the learned Commissioner, indicates that the I.V. fluids with dextrose, sodium chloride or mannitol would ;be serving the intending functions of "use for sugar electrolyte fluid replenishment" in the body of a patient and that the drugs e.g. ciprofloxacin; which are added, may serve an additional function of medicinal or therapeutic value to fluid replenishment functions the purpose and intent for which the 'IV fluids' were being offered to patients. No patient would be given a litre or more of a fluid the packing as in this case with Glucose etc if the intent was only to inject a drug. The patients who do not need fluid replenishment cannot and will not be given such infusions to carry the drug. Notification No. 36/00 dated 4.5.2000 at serial No 47A exempt 'IV fluids' without any qualification. Notification No 3/01 dated 1.3.2001 at serial No. 56 reads "IV fluids which are used for sugar, electrolyte or fluid replenishment." The Board's clarification relied upon by the Commissioner cannot be read to interpret that the later notification and the earlier notification would apply and are restricted in exemption to only to such 'IV fluids' which have sugar electrolyte or fluid replenishment and used EXCLUSIVELY or ALONE for such purpose and do not have anything extra as is being pleaded by the Revenue before us. That would be reading the word "EXCLUSIVE or ALONE" in the notifications which is not called for and cannot be done
(c) The learned Senior Counsel relies upon a letter of 18.5.2000 of the Deputy Director of the Food and Drugs Administration, Indore Division addressed to the appellant and letter dated 18.5.2000 by the appellant addressed to the Superintendent Indore Division wherein the appellant had intimated that certain items (Sodium Chloride, Irrigation Solution, Glycine, Irrigation Solution, Intra Peritoneal Dialysis Solution and Water for injection) were not 'IV fluids' and therefore not ible for exemption and they have paid duty on such items which were cleared- during the period 4.5.2000 to 17.5.2000. This letter, would, itself indicate that the wherever use of fluid replenishment or electrolyte or sugar replenishment was not the purpose of an infusion fluid being manufactured and ever the intended and actual products was different, the appellants have paid the duty on such items. The entities under dispute, now, are such where the intended use of sugar, electrolyte fluid replenishment is the intended use, the additional subsidiary use, may be as for the anti bacterial or other medicinal properties induced by use of small quantities by admixture of ciprofloxacin etc. That itself would not render the intended use ineffective. The learned Senior Counsel relies upon the decision in the case of Union of India v. Tata Iron and Steel Co Ltd, Jamshedpur 1977 (J-61) ELT (SC) wherein the Apex Court examining the case independently under the Central Excise law had held as follows:
"23. The High Court rightly held that the contention of the Revenue fails on two broad grounds. First, there cannot be double taxation on the same article. Counsel for the revenue gave the example of excise duty on motor cars, in spite of the fact that mere was duty on tyre and duty on metal sheets. The analogy is misplaced. In such cases the duty is on the end product of motor car as a whole. The duty on tyres and the duty on metal sheets do not enter the area of duty on motor car. Second, Notification No 30/60 grants exemption to duty paid pig iron. The High Court rightly said that the Notification does not say that exemption is granted only when duty paid pid iron is used and that the exemption would not be available if duty paid pig iron is mixed with other non duty paid materials. If the intention of the Government were to exclude the exemption to duty paid pig iron when mixed with other materials then the notification would have used the expression "only" of "excusivcly" or "entirely" in regard to duty paid pig iron. The object of the notification was to grant relief by exempting duty paid pig iron." (Emphasis supplied) The reliance is well placed and following the same, exemption under the notification in the present case cannot be denied.
(d) The Apex Court have held & it is well settled law, that there is no room for reading any intendment. Regard must be had to the clear meaning of the words used. The entire matter is governed wholly by a language of a notification. It has been laid "If the tax payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exemption authority (see AIR 1970 SC 775 in the case of Hansraj Gordhandas v. H.H. Dave, AC CE& C, Surat). Therefore, the attempt of the revenue to read the word 'only' or Exclusively used, in the said notification cannot be upheld.
(e) The ld D.R. stresses on the decision in the case Rajasthan Spinning &n Weaving Mills Ltd (1995 (77) ELT 474 (SC) as relied upon by Ld Commissioner to plead that in that case the notification exempted 'polypropylene spun yarn' & the Hon'ble Supreme Court did not grant the exemption to "polypropylene blended spun yam" being manufactured. Similarly the exemption in this case cannot be granted to "IV fluids" which contained other medicaments in addition go Glucose, sugar or electrolytes" and liberal construction of the notification were not called for. The learned Sr. Counsel has in reply rightly drawn attention to para 14 of the said judgment extracted in the impugned order to submit that a perusal thereof would show that the Apex Court in that case had noted the finding of the Tribunal that 'no proof was shown that such blended yarn was known as polypropylene in the commercial parlance and came to deny the benefit. In the present case, the letter of Food and Drugs Administration authorities who approve the products impugned for sale and marketing for commercial and therapeutic use indicates that there is material available in the present case to arrive at the 'commercial and market understanding of the entity in question. The circular dated 2.3.2001 of the Form-Fill Seal Association relied upon in the proceedings, would only indicate an understanding of the Association as regards their understanding of the language used & in the interpretation of the notification. The Association's interpretation cannot be binding since that is not even an advise of a man trained in law to be considered to be binding in any manner. The Commissioner has stalled the production of the material by defence of material evidence of understanding of the entities in question by Experts. Thereafter to find force in the arguments placed and the decision as relied upon by the Revenue would not be called or and applicable to the facts in the present case.
(f) The notification in question, in this case, on a plain and single interpretation would encompass 'IV fluids' administered through intravenous route, "The notification 3/2001 dated 1.3.2001 would only curtail the ambit of the exemption only to disallow small volume parenterals, which were permissible under the earlier notifications broader entry. The emphasis in both the notification is on method and administration by intravenous route fluid sugar electrolyte requirements of a patient and not on the composition thereof as is being made out by Revenue.
(g) The interpretations on the Remington's Practice of Pharmacy as placed by Revenue cannot lead to a conclusion that it does not permit addition of a particular antibiotic or a drug. In fact it relates to also permits and covers the use and additions of entities in multidrug formulation. This view has been supported by the other technical literature relied upon by the appellants as they refer to the notice.
(h)The allegation that additives Ciprofloxacin, Tenidazole and Metronidazole are covered by DPCO (Drugs Price Control Order) and therefore essential drugs and not IV fluids also cannot be upheld since Dextrose IV fluids is also covered by DPCO. A price control order surely cannot be used to rely upon an interpretation of the said notification when there is no direct/indirect reference to DPCO in the notification.
(i) The supply of label, on the packages along with classification declaration is an age old practice under the Central Excise Procedures. Therefore, the findings that labels were not produced cannot be upheld. The labels on a perusal indicate the details of the contents. Therefore, the alleged suppression cannot be upheld to invoke the larger period under proviso to Section 11A (1). The submission of letter dated 18.5.2000 and payment of duty by the appellants on certain "fluids" and its intimation to the department by this letter would lead to a conclusion that mala fides on the part of the appellant do not exist. Hence the ground for invoking of the proviso clause cannot be upheld.
(j) In view of the findings herein, the duty domain on merits cannot be made. Are firstly barred by limitation. Therefore, they cannot be upheld. There is therefore no reason for upholding the penalty and or interest as arrived at in the order. The same are to be set aside.
7. In view of the above, the appeal is to be allowed after setting aside the impugned order.
8. Appeal allowed as above.
(Pronounced in Court on 27-2-2004)