Customs, Excise and Gold Tribunal - Delhi
Piya Pharmaceutical Works vs Collector Of Central Excise on 28 March, 1984
Equivalent citations: 1985ECR498(TRI.-DELHI), 1985(19)ELT272(TRI-DEL)
ORDER H.R. Syiem, Member (T)
1. This is an appeal filed by M/s. Piya Pharmaceutical Works at Ghaziabad against the order of the Collector of Central Excise, Meerut No. 16 Collr./1982. The order does not bear any date although the party says in its appeal that it is dated 6-10-1982. We shall, therefore, take it as dated 6-10-1982 (There is a faint dated in the photo copy which appears to be 6/10, but no year is shown).
2. In this order the dispute was about M/s. Piya Pharmaceutical's entitlement to exemption under Notification No. 71/78-C.E., dated 1-3-1978. By this notification, about 69 articles and commodities were given exemption under certain conditions. The exemption was total for the goods specified in the table of the notification up to the first 5 lakhs cleared on or after the 1st of April in the financial year by a manufacturer. Condition (a) was that the exemption would not apply to a manufacturer
(i) during the financial year 1978-79, if the aggregate value of the specified goods cleared, if any, by him or on his behalf, for home consumption, from one or more factories, during the period commencing on the 1st day of April, 1977 and ending on the 28th day of February, 1978, had exceeded Rs. 13.75 lakhs; and
(ii) during financial year subsequent to the financial year 1978-79, if such clearances, if any, of the specified goods during the preceding financial year, had exceeded rupees fifteen lakhs.
(There were other conditions also but these two conditions, namely conditions (i) and (ii) of condition (a) are the cause of the dispute and we need, therefore, not reproduce the other conditions).
3. On 30th March, 1979, this notification was amended by another Notification No. 141/79-C.E.; this amending notification besides other-things inserted a third condition in condition (a), and read "(iii) who manufactures excisable goods falling under more than one item number of the said First Schedule and the aggregate value of all excisable goods cleared by him or on his behalf for home consumption, from one or more factories, during the preceding financial year, had exceeded rupees twenty lakhs".
It also inserted an explanation which is reproduced below "Explanation IV. - For the purpose of computing the aggregate value of clearances under this notification, the clearances of any specified goods, which are exempted from the whole of the duty of excise leviable thereon by any other Notification issued under Sub-rule (1) of Rule 8 of the afore- said Rules and for the time being in force, shall not be taken into account."
4. When this amendment was introduced on 30th March, 1979, a manufacturer was disentitled to the exemption if in the preceding financial year he produced excisable goods falling under more than one item of the Tariff, and the aggregate value of all such excisable goods, cleared by him during such preceding financial year exceeded Rs. 20 lakhs.
5. The Central Excise found that during 78-79, M/s. Piya Pharmaceuticals cleared goods which fell under Tariff Item No. 14E and Tariff Item No. 68 during the financial year 78-79 valued at Rs. 3,524,497.56 and during 79-80 valued at Rs. 2,826,026.78. Having cleared goods falling under more than one tariff item of values exceeding Rs. 20 lakhs in those years, the Central Excise held that M/s. Piya Pharmaceuticals was disentitled to the exemption in 79-80 and 80-81. They said that M/s. Piya Pharmaceuticals were not entitled to clear medicine free of duty of the value of Rs. 5 lakhs under the Notification 71/78- C.E. and Notification No. 80/80-C.E. (which continued the exemption under 71/78).
6. The Central Excise also charged M/s. Piya Pharmaceuticals with having misdeclared their medicine Piyamycetine Vet as a life saving drug and with having cleared it under exemption Notification No. 116/79 even though the medicine was found not to be covered by that notification. The Collector then ultimately passed his order of 6-10-1982 in which the demanded duty of Rs. 1,09,095.35 (basic) and Rs. 3,09,291 (special) under Rule 9(2) of the Central Excise Rules, 1944. He also imposed on M/s. Piya Pharmaceuticals a penalty of Rs. 25,000/- under Rules 9(2) and 173Q of the same rules.
7. In his discussions, the Collector merely restates that under amending Notification No. 141/79-C.E., it was provided that the exemption would not be available to a manufacturer who manufactures excisable goods falling under more than one tariff item number and whose aggregate value of different excisable goods cleared by him or on his behalf in the preceding financial year exceeded Rs. 20 lakhs. He states that M/s. Piya Pharmaceuticals continued to avail the exemption although they were not entitled to it by reasons of the changes introduced by Notification No. 141/79 and even after the introduction of a new Notification No. 80/80-C.E., dated 19-6-1980, which superseded Notification No. 71/78-C.E. He said that they did not file any fresh classification list and they suppressed the fact of their total production of excisable goods and clandestinely removed excisable goods without payment of duty knowing that they were liable to pay excise duty since they were not eligible to the exemption. He further said that the factory misdeclared Piyamycetine Vet as eligible to concessions under 116/69 although the goods were not covered by this exemption. The aggregate value of medicine cleared under Item 68 and Item 14E altogether exceeded Rs. 20 lakhs during, 78-79. The Collector goes on to say that by explanation introduced by Notification No. 141/79 for computing the aggregate value of clearances under Notification 71/78, the clearances of any specified goods which are exempted from the whole of the duty leviable thereon by any exemption notification under Rule 8 was not to be taken into account and since the goods which fell under Item 68 were not goods specified under Notification No. 71/78, clearances under this item were to be taken into account for the purpose of computing the aggregate value of clearances.
8. The appellant had submitted before the Collector that the goods which were exempted under Item 68 were not excisable goods but the Collector brushed this aside and said that as per Section 2(d) of the Central Excises and Salt Act, 1944, 'excisable goods' meant goods specified in the First Schedule as being subject to a duty of excise and includes salt. If the goods were otherwise specified in the tariff and were subject to a duty of excise which may be exempted under an exemption notification, the goods cannot be said to be "out of the purview of the Tariff" (Sic).
9. When the case was heard on 29-2-1984, the learned counsel for the appellants began his arguments by saying that the Collector has exercised powers under Rule 9(2) when that rule gave these powers only to the Asstt. Collector. This is how Rule 9(2) reads :
"if any excisable goods are, in contravention of Sub-rule (1) deposited in, or removed from, any place specified therein, the producer or manufacturer, thereof shall pay the duty leviable on such goods upon written demand made within the period specified in Section 11A of the Act by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to 2,000 rupees, and such goods shall be liable to confiscation".
The relevant part of Section 11A that was relied upon by the learned counsel is Sub-section (2) and reads :
"the Asstt, Collector of Central Excise shall, after considering the representation, if any, made by the person on whom notice is served under Sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined".
11. According to the learned counsel since only the Asstt. Collector has been given power to determine the amount of duty of excise due from the person on whom the notice of demand is served, it is only the same officer, namely the Asstt. Collector, who can decide and determine any duty that is due under the notice.
12. In this case, the Collector had taken it upon himself to determine the duty due from M/s. Piya Pharmaceuticals as a consequence of the notice issued by the Asstt. Collector on 8-5-1981. As the Collector is not empowered to do so, the action of demanding duty and the attempt to recover the so-called short levy is null and void and so is the penalty imposed under Rule 173Q and Rule 9(2) and the order of the Collector, therefore, requires to be set aside.
13. The learned counsel said that they had filed a classification list No. PPM/1/211/79 in March 1979 and this was approved only in April, 1979, after Notification 141/69 had taken effect. The Central Excise knew when they approved this classification list that Notification 141/79-C.E., had already come into operation and they should have taken steps then to inform the factory that they were required to file a fresh classification list. Instead, the Central Excise not only approved this classification list but took no other action to correct the factory if they thought the factory had committed an error.
14. At the relevant time the factory was under the bona fide belief that exempted goods were not excisable goods and therefore they took it that they did not include the value of exempted goods in the aggregate value of clearances. In this behalf they were supported by the judgment of Delhi High Court of Sulekh Ram- Cencus 1978/174D which ruled that exempted goods were not to be classed as excisable goods. In this judgment, Delhi High Court, said "on this observation it is arguable that the goods manufactured by the petitioner cease to be excisable goods after they were exempted from the payment of duty. For the exemption notification was entitled to be regarded as a part of the Act itself. If the Act and the notification are read together, the fact is that the goods manufactured by the petitioner were taken out of the First Schedule and, therefore, were not excisable goods within the meaning of Section 2(d) of the Act. If so Rule 9 could not apply to them". The counsel also referred to a judgment of the Allahabad High Court in Nagrat Paints-Civil Misc. Writ No. 2615/1972 TLR 1978 (NOC) 45 in which that Court expressed agreement with the Delhi High Court's findings in Sulekh Ram's case.
15. The learned counsel went on to argue that subsequent classification lists were also filed and at no time did Central Excise stop them or correct them. He referred to classification list No. PPM/1/192/80. It was returned by the Assistant Collector with a letter to say that the classification list had been approved provisionally as the goods were under dispute and the report of the chemical examination was pending. They were told that they could clear the goods on the rate declared by them in colum 8 of the classification list subject to the conditions in Rule 9(B) of Central Excise Rules on execution of B-13 Bond. They were also told that the goods would be treated as unauthorisedly cleared if the differential duty works out to be higher than that amount (i.e. Bond amount). The succeeding price list was also approved provisionally.
16. In respect of Piyamycetine Vet, they had included this medicine in their list PPM/1/190/80 claiming exemption under Notification No. 116/69- C.E., dated 3-5-1969. This was approved provisionally. They were never told why the notice of 8th May, 1981 said that it was not found to be covered under that notification. There seems to have been some chemical test of the drug but they were never informed of the result or about the basis why they said that it was not a life saving drug.
17. The learned counsel for the department in reply said that a classification list was filed in the beginning of March, 1979. The learned counsel drew our attention to a note in classification list PPM/1/211/79 which reads :
"notification 181/79 dated 10-5-1979".
He said that this note was not to be found in the original list. By amendment Notification No. 141/79-C.E., dated 30-3-1979 an amendment was inserted in the original Notification No. 71/78. One part of the amendment provided that if the manufacturer manufactured goods under more than one tariff item and the aggregate value of these goods cleared by him for home consumption exceeded 20 lakhs in the preceding financial year, he would be debarred from the exemption. The same amendment also inserted an explanation which clarified that goods which were exempted from the whole of the excise duty by any other notification under Rule 8 and are specified in the notification, their clearances would not be taken into account for the purposes of calculating the aggregate value. This amendment notification came into force on 1-4-1979 but the factory took no action to file a fresh classification list The explanation would have told the factory that only goods which fell in the specified category would be excluded from calculation of the aggregate value of clearances if they were totally exempted from duty under any other notification issued under Rule 8. Its failure to do so shows the fraudulent intent of the factory. There was no other classification list for the rest of the financial year i.e. 1979-80. The second classification list was filed on 8-3-1980 and was approved on 17-7-1980 provisionally. The classification list No. PPM/2/288/80 was approved from 19-6-1980. There was no claim to exemption under Notification 71/78 in these classification lists. A subsequent classification list PPM/3/317/80 carried the claim for exemption under Notification 80/80, dated 19-6-1980 (successor Notification to 71/78-C.E.). It also carried a note that the first clearance for home consumption of medicine upto Rs. 5 lakhs were exempted as already approved under Notification No. 71/78-C-E. A declaration was given in the classification list PPM/3/317/80 when a new Notification 69/80 came into operation.
18. The learned counsel said that there was failure by M/s. Piya Pharmaceutical to make the proper declaration when amending Notification 141/80-C.E. came into operation, to establish its exemption under Notification No. 71/78-C.E. as was its duty to do as it was a claimant; all claimants to duty concessions must establish their claims to the exemption, and until they do so and till the exemption is pronounced to be extendable to them, they cannot avail themselves of the exemption but must await the sanction and the order of the proper authority. The reliance on the judgment in Sulekh Ram and Nagrat Paints judgment were after thoughts because these judgments were never cited before the Collector. He referred to the argument of the appellant that the Rule 9(2) could not be called into operation because there had been no contravention of Rule 9(1) ; by not paying the proper duty, M/s. Piya Pharmaceutical had come to contravene Rule 9(1). The appellants could not say that Rule 9(2) had been used wrongly since the rule could be enlisted only when there has been a contravention of Rule 9(1). The appellants claim that they filed classification lists and the clearances were with the full knowledge of the Central Excise and there was no clandestine removal. Rule 9(2) incorporates Section 11A which has two time-limits. One, the normal limit of six months and two, the longer limit of five years when the short levy was because by suppression, mis-statement and, generally, by any falsification. In 1979 the factory was guilty of suppression because it did not come forward to inform the Central Excise authorities that by reasons of the new method of calculation of aggregate clearances, it was no longer entitled to the exemption ; in 1980 there was mis-statement. He said that Rule 9(2) was attracted because there had been evasion. The Tribunal held in Ganesh Metal Corporation v. Collector of Central Excise, Madras-1983 E.L.T. 2506 (CEGAT) that all the facts relating to the goods had not been made fully known to the Central Excise authorities ; therefore this would render valid the application of Rule 9(2).
19. In respect of Piyamycetine Vet, the medicine contained Vitamin B1, Vitamin B2 and Niacin. Notification 116/69 while given exemption to the goods containing ingredients specified in the Schedule, also specified that if the medicines contained any ingredients not specified in the Schedule, it would be debarred from the exemption unless such ingredients are pharmaceutical necessities such as diluents, disintegrating agents, moistening agents, lubricants, buffering agents, stabilisers and preservatives. The notification also provides that the pharmaceutical necessities should be therapeutically inert and do not interfere with the therapeutic or prophylactic activity of the ingredients specified to the Schedule. It could not be said that the vitamins contained in Piyamycetine Vet with the active ingredient chloramphenicol were pharmaceutical necessities after the kind or types listed nor can they be said to be pharmaceutically inert. Vitamins are all known to be employed in the treatment of deficiency diseases and have a place of their own in the therapy and prophylaxy of humans as well as animals. The appellants claim that the chemical examination was not supplied but this would make no difference in view of what he had submitted above.
20. The learned counsel for the appellants then submitted that in accordance with the self removal procedure the factory was bound to clear in accordance with the approval given to the classification list; it could do neither more nor less and the duty had been determined in the classification list approved by Central Excise. He reiterated the fact that the approval to the classification list PPM/1/211/79 was accorded by the Central Excise after the coming into force of Notification 141/79-C.E. This classification list carried a note claiming exemption of the first clearance upto an aggregate value not exceeding Rs. 5 lakhs, under Notification No. 71/78 in a financial year. There could be no clearer indication of their intent and the Central Excise could not now claim ignorance of the true position of their status in respect of Notification No. 71/78.
21. The fact that stands out in this case is that M/s. Piya Pharmaceutical who was required to make a proper declaration after the coming into force of Notification 141/79 did not do so. It merely filed a classification list in March, 1979 saying that it would avail exemption of the first 5 lakhs clearance under Notificating No. 71/78. The factory cannot seriously claim that when Notification 141/79-C.E. was promulgated, its position and status under the exemption notification remained the same. The amendment brought about very important changes in the manner of calculating the total value of clearances and also wrote in a new condition in respect of past clearances. Henceforth, the aggregate value of clearances would not include values of clearances of specified goods totally exempted under other exemption notifications ; while, in order to arrive at past clearances, a limit of 20 lakhs was imposed as the disqualifying border if the manufacturer cleared goods falling under more than one Central Excise Tariff Item. M/s. Piya Pharmaceuticals manufactured goods which fell under Item 14E and under Item 68. It said that goods under Item 68 were free of duty and therefore were not required to be included in arriving at the value of Rs. 20 lakhs in calculating past clearances. In doing so it claims, that it was supported by the judgments of the Delhi High Court in the Sulekh Ram case and by the Allahabad High Court in Nagrat Paints judgment. But it was correctly pointed out by the learned counsel for the department that there does not seem to be any sign of M/s. Piya Pharmaceuticals having relied on these judgments in the past; at least not till after the matter went before the Collector for his decision. We are ourselves not convinced that the factory had been led to believe that exempted goods were not to be considered excisable goods for the purpose of arriving at the Rs. 20 lakhs calculation. The true reason appear to be that before the amendment, there was no cut off limit of 20 lakhs for past clearances of heterogeneous goods nor was there any explanation of the type introduced by Notification 141/79-C.E. Therefore the factory continued in its belief that it could still claim the exemption that it had apparently been enjoying in the past years. The Delhi High Court held in Vishal Andra Industries v. Union of India-1983 E.L.T. 2269 that even if the goods are exempted from excise duty they did not cease to be excisable goods. The Madras High Court also decided in Handloom Weavers Cooperative Society v. Asstt, Collector of Central Excise, Erode, 1978 E.L.T. J 57 that even if the goods are exempted from duty it continued to be excisable goods and the character of products as excisable goods does not depend on the actual levy of duty but on the description as excisable goods in the tariff schedule. The judgments we have quoted here were later judgments than the one that M/s. Piya Pharmaceuticals claim they relied upon. This is to say nothing of our doubt that M/s. Piya Pharmaceuticals actually relied upon the judgments as they claim they did.
22. The learned counsel for the appellants submitted that the proper course for the Collector was to exercise his powers under Section 35A of the Central Excise and review the decision taken by the Asstt. Collector who approved the classification lists. He also argued that Rule 9(2) would not permit the Collector to do what he did because by reason of Section 11A only the Asstt. Collector could determine the duty due. What the learned counsel appears to have over-looked is that the incorporation of Section 11A in Rule 9 was not to make Section 11A the operative procedure but merely to put a curb on the issue of demands. In the past, before the incorporation, demands under Rule 9(2) were governed by no time limit; with incorporation of Section 11A such demands are required to be "made within the period specified in Section 11A of the Act" by the proper officer. It is that the demand should be made within the time limit prescribed by 11A-not the process developed in Section 11A that should be followed. As we have observed this was to curb the tendency of the officers frequently to resort to the demands under Rule 9(2) without regard to the time when the short levy occurred. The timeless limit of Rule 9(2) was a weapon that had been frequently misused ; we think that the Govt. did right in cutting down such unlimited power. We think that the learned counsel for M/s. Piya Pharmaceuticals was mistaken when he argued that only the Asstt. Collector could have issued an order of the kind the Collector did in this case.
23. When the amending Notification 141/79-CE., was introduced it became clear that further entitlement to the exemption had been placed on a different footing. All those who manufacture goods falling under two or three different Central Excise tariff items would be barred from the exemption if the total value of the clearances of those goods in the previous year exceeded Rs. 20 lakhs. M/s. Piya Pharmaceuticals produced goods which fell under Tariff Item 14E and Tariff Item 68 and the total value of the clearances of these goods in 78-79 was Rs. 3,524,497.56 and this fact was well known to the factory. The explanation inserted by the amendment would help exclude from the calculation only those goods which were specified in the notification and which were totally exempted. M/s. Piya Pharmaceuticals would therefore not benefit from this explanations ; as we have seen, its claim that it thought that only dutiable goods were to be considered excisable was not based on sound footing. There is no sign that the appellants made efforts to clear up the doubts, if it ever had any. They seem to have taken it for granted that they were entitled to the exemption and appear to have put the blame on Central Excise because they approved the classification list demanding the exemption even after the amendment 141/79-C.E. had come into operation. We do not consider this as satisfactory attitude. The Central Excise cannot be said to have approved a free clearance under the amended exemption notification because the conditions after the amendment had not been placed before them vis-a-vis M/s. Piya Pharmaceutical's which, in our view, was absolutely necessary to be done before M/s. Piya Pharmaceutical could say that it had established and perfected its claim to exemption before the Central Excise. It is true that the Central Excise too did not stop the factory from continuing to avail the free clearances until it issued its notice in May, 1981. But it did, eventually, do so by issuing the notice. That it could have done it sooner does not detract from the validity of the action.
24. The appellants argument in respect of Piyamycetine Vet are not very good ones. We have never heard of anybody calling Vitamins therapeutically inert. They are not inert nor are they diluents, disintegrating agents, etc. etc. They are in themselves active therapeutical agents ; even when they are not administered therapeutically, they are taken as preventives or prophylactics ; they have a role to perform which is quite distinct from that of an antibiotic agent like chloramphenicol.
25. The counsel for M/s. Piya Pharmaceuticals argued that the notice was barred by time which must be taken as the normal time of six months, as they have not suppressed nor mis-stated nor falsified anything. All the details of production and clearances were available to Central Excise and they cannot say there was anything they did not know or did not have to arrive at any conclusion that they might need to arrive. We are not able to accept this. To have all details of clearances, production, etc. etc. is not the same thing as having a sheet or a statement or a declaration for a particular purpose designed to meet that one purpose. If the Central Excise were to know that from 79-80, M/s. Piya Pharmaceuticals would not be entitled to the free first five lakhs, they must be given a declaration for that purpose with relevant totals of clearances of the different goods, whether 14E or 68, so that they can calculate for themselves if the limits are b6ing exceeded or not. And even if we say the Central Excise were at fault when they had all the details, M/s. Piya Pharmaceuticals was at greater fault for failing to do what they surely knew they need to do, or must do in the changed circumstances, to ensure that they were still entitled to the exemption. It is well for all to remember that in taxation there are no permanent benefits to be permanently enjoyed. They can change and the exemption or benefit seeker must keep his title bright if he wants to continue to enjoy the bounty, always keeping in mind the fact that the time may come when the subsidy will be withdrawn, where-upon at such time, as a beneficiary under the law, he must desist from eating the fruits when they are no longer meant for him. The right thing for him is to forbear and to abstain-it is not right that he should reason with himself and say 'I shan't stop unless I am stopped'. The line between this and deception is very thin.
26. The appellant argued that the Collector should have reviewed the Asstt. Collector's order under his power under Section 35A. We cannot see the merits of this argument. A demand was issued for duty thought to have been short levied, That demand was confirmed by a process we can find no fault with. We reject this contention.
27. It came up during arguments that the Asstt. Collector wrote a number of letters that some classification lists had been approved provisionally under Rule 9B but no bonds were taken as is required under that rule. We are unable to account for this, nor were the two sides at the hearing able to throw any light. It is not the first time that we have seen records of this kind that say provisional assessment had been made-but in reality no such thing was done. It is, perhaps, one of those habits the Central Excise cannot break.
28. The Collector filed before us a cross-objection. We are at a loss to make anything of this.
29. We reject the appeal.