Customs, Excise and Gold Tribunal - Bangalore
Himalaya Drug Company And Ors. vs Cce on 23 January, 2004
Equivalent citations: 2004(93)ECC291
ORDER K.C. Mamgain, Member (T)
1. These are 4 (Four) appeals filed by the appellants M/s Himalaya Drug Co., Sh. M.A. Manal, Chairman, Dr. Syed Farooq, Partner & Sh. Shabir Shariff, Chief Financial Officer/Partner of Company against Order-in-Original No. 25/2002 dated 24.9.2002 passed by the CCE, Delhi-I Commissionerate, New Delhi.
2. On the basis of intelligence that M/s Himalaya Drug Co. (hereinafter referred to as M/s HDC), New Delhi are engaged in the manufacture of Ayurvedic bulk drugs, and clearing the same without payment of Central Excise duty and without obtaining the Central Excise registration, the Central Excise Officer of New Delhi visited the factory premises of M/s HDC, New Delhi on 13.9.2000 to ascertain the facts. On enquiry it was found that M/s HDC was a partnership firm and having three manufacturing units one at Dehradun, second at New Delhi and third at Bangalore. Out of these three units New Delhi and Dehradun units were manufacturing the Ayurvedic medicines in bulk form and the Bangalore unit was manufacturing the tablets, syrups etc. They were not paying any duty on the Ayurvedic Medicines manufactured in bulk form at New Delhi on the belief that the goods were being cleared to their own unit at Bangalore or captive consumption and there was no liability of duty on goods being manufactured at New Delhi unit. Further they were paying duty on similar products manufactured at Dehradun unit as medicaments under chapter heading 3003.39 of CETA, 1985. The officers seized the goods found lying in the factory of M/s HDC at New Delhi on reasonable belief that these were liable for confiscation. It was found that M/s HDC, New Delhi was not registered with the Central Excise Department in spite of the fact that their value of clearances of excisable goods had exceeded the SSI exemption limits and they were not entitled for the benefit of exemption as they had crossed the limit of aggregate value of clearances of Rs. 3 crores during the preceding years. M/s HDC, New Delhi got registered with the Central Excise authorities on 14.9.2000 for manufacture of semi-finished Ayurvedic medicines under Chapter heading 3003.39 of the first schedule to the Central Excise Tariff Act, 1985 and filed their classification declaration under Rule 173-B and started clearing the goods from their Delhi factory to their Bangalore factory on payment of duty. On enquiry from M/s HDC at Dehradun, it was found that the unit was registered on 24.4.97 and they were paying Central Excise duty at the normal rate. The drugs (intermediate stage) were being produced at Dehradun factory and they were being cleared in bulk packing to their unit at Bangalore for further processing. On investigation, it was found that M/s Chemiloids, Khammam Vijayawada, A.P. was also manufacturing almost similar types of items as manufactured by M/s HDC, New Delhi and it was found that they were paying Central Excise duty. Similarly, M/s Charak Pharmaceuticals (I) Ltd., Samalkha, Haryana was also manufacturing similar items as was manufactured by M/s HDC, New Delhi and they have also classified the goods under Chapter Heading 3003.39 and they were paying duty @ 16% on clearance of products outside the factory.
The investigation also revealed that on identical/similar goods manufactured by M/s HDC, Dehradun clearance was on payment of duty. The Drug Licensing Authorities at New Delhi had given permission to manufacture (a) granules for making tablets (b) extracts for making syrups (c) extracts/oil for making ointment, cream or oil. M/s HDC has claimed that the products manufactured at Delhi unit are not consumable as medicaments and these cannot be recommended for any therapeutic or prophylactic use and as such these products do not appear classifiable under chapter heading 30 of Central Excise Tariff Act, 1985. It was found that these are essential extracts of afforded herbal extracts ingredients liable to be classified under chapter heading 1301.10 of Central Excise Tariff Act, 1985. Further, on the basis of detailed investigation and particularly the fact that M/s HDC were paying duty on similar products manufactured and cleared by Dehradun factory from April 1997 onwards but New Delhi unit had cleared similar products without obtaining Central Excise registration and without observing Central Excise procedure, show cause notice was issued to them alleging contraventions of various provisions of Central Excise Rules and proposing to recover Central Excise duty and imposition of penalty under Rule 173Q of Central Excise Rules, 1944 read with Rule 25 of Central Excise (No. 2) Rules 2001 and Section 38A of Central Excise Act 1944. Penalty was also proposed on Shri B.M. Manal, Chairman, Dr Syed Farooq, Partner and Shri Shabir Shariff, Chief Financial Officer under Rule 209A of Central Excise Rules, 1944 read with Rule 26 of Central Excise (No. 2) Rules 2001 read with Section 38A of Central Excise Act, 1944. The case was adjudicated by the Commissioner of Central Excise, Delhi-I Commissionerate, who classified the products under chapter heading 1301.10 of Central Excise Tariff Act, 1985 and confirmed duty of Rs 5,07,43,669 for clearance from 1.3.97 to 13.9.2000 under Section 11-A of Central Excise Act, 1944 and also imposed equivalent penalty on M/s HDC and penalty of Rs. 50,00,000 each on Shri B.M. Manal, Chairman and Dr. Syed Farooq, Partner and Rs. 10,00,000 on Shri Shabir Shariff, Chief Financial Officer under Rule 209A of Central Excise Rules, 1944 read with Rule 26 of Central Excise (No. 2) Rule 2001 read with Section 38A of Central Excise Act, 1944.
4. Shri G. Shivadass, learned Advocate appeared for the appellants and Smt. Radha Arun, SDR appeared for the Revenue.
5. Shri G. Shivadass, learned Advocate pleaded that the Commissioner of Central Excise, New Delhi, without appreciating the submissions made by the appellants confirmed the proposals made in the show cause notice. He pleaded that the semi-finished/intermediate outputs cleared from the New Delhi factory are prohibited in law from being sold to any other customer for the reasons that all the final products of the appellants being medicaments, any manufacturing activity can take place only after obtaining a licence from Drugs Controller. The Licensing Authority has given the licence to the Delhi factory to manufacture the products up to the semi-finished granulation/extract stage only. The permission indicates that for further processing after this stage, it is to be cleared only to the appellant's Bangalore factory and nowhere else. This being the case, even if there are buyers, the appellants cannot sell the same by virtue of this condition which is imposed on them by the Licensing Authority. Thus, in law it is not possible for the appellants to sell the semi-finished products to any one. The licence issued by the Drugs Controller at Delhi specifically stipulates that part of the process alone are to be carried out at Delhi factory and that the remaining processes have to be carried at the Bangalore factory. Any attempt done by the appellants to sell the semi-finished goods cleared from the Delhi factory would tantamount to contravention of the condition imposed in the licence invoking action by the Drugs Control authorities under Section 33 of the Drugs & Cosmetics Act, 1940. They are prohibited from selling the impugned items. Therefore, there cannot be considered as goods for charging excise duty. In support of this contention, he relied upon the following decision:
(i) Delhi Cloth & General Mills Co. Ltd. v. Joint Secretary, Govt. of India, 1978 (2) ELT (J 121) (Del.)
(ii) Union of India v. Delhi Cloth & General Mills Co. Ltd., 1997 (92) ELT 315 (SC)
(iii) Pfizer Ltd., v. CCE, Mumbai-III, 2002 (146) ELT 477
6. The extracts or the granules cleared from the Delhi factory are semi-finished products and are not marketable. The reliance placed by the department on the report of the Assistant Commissioner, Vijayawada indicates that the product of the other companies are standardized. It is settled law that the department has to lead the evidence that the item on which the duty is sought to be levied is marketed in the condition in which it is proposed to be taxed. He relied on the following decisions:
(a) Cadila Laboratories Pvt. Ltd. v. CCE, 2003 (152) ELT 262 (SC)
(b) Union of India v. Sonic Eletrochem (P) Ltd., 2002 (145) ELT 274 (SC)
(c) Rashtriya Ispat Nigam Ltd., v. CCE, 2002 (150) ELT 743 (Tri.) He referred to the Circular No. 495/61/99-CX3 dated 22.11.1999 issued by the CBEC in which it has been clarified that with regard to the manufacturing process of agarbathi that a preparation of odoriferous compounds which are applied on the agarbathi vary from one agarbathi manufacturer to another and that the said preparations are not sold by them in the market to keep their respective trade secrets. The Board has also clarified that since the constituents, the preparations and formula of preparation are kept as secret, the compounds cannot be considered to be marketable in the commercial parlance. In Circular No. 464/30/99-CX dated 30.6.99, the Board has clarified in regard to manufacture of particle boards from sugarcane bagasse and other agricultural waste that during the process of manufacture of the said products, specially developed binders mixed with their agricultural resides and used by the industry only for captive consumption cannot be considered to be chargeable to excise duty since they are not marketed or sold commercially as such. He also pleaded that in any case even if the appellants are held that duty is payable for the intermediate products at Delhi, the same is available to them as Modvat/Cenvat credit in Bangalore. Hence the whole issue is one of revenue neutrality and consequently the demand is time barred. He relied the following decisions in support of his contention --
(a) Jay Yushin Ltd. v. CCE, 2000 (119) ELT 718 (LB)
(b) Amco Batteries v. CCE, 2003 (153) ELT 7 (SC)
(c) Crompton Greaves v. CCE, 2002 (139) ELT 101
(d) Hindustan Copper v. CCE, 2001 (135) ELT 1342 The duty paid at Bangalore is much more than what is demanded from their Delhi factory. The entire duty if payable at Delhi would be utilised as credit at the Bangalore factory. It would only be a scriptory exercise. In support of his contention, he relied upon the decisions of the Tribunal in the case of Smithkline Beechan Consumer Healthcare Ltd. v. CCE, 2003 (153) ELT 579 and in the case of Gopal Zarda v. CCE, 2001 (128) ELT 409. It was also pleaded that when goods are being transferred to another factory of same manufacturer, extended period under Section 11A of Central Excise Act is not applicable. He relied on the Tribunal's decision in the case of Kit Ply Industries v. CCE, Mumbai, 2003 (157) ELT 110 and in the case of Indian Aluminium Co. v. CCE, Mumbai, 2003 (58) RLT 95. 7. He further pleaded that in the show cause notice it is alleged that the goods manufactured by the appellants at the New Delhi unit are identical/similar in nature to the goods manufactured at Dehradun unit. Since the Dehradun unit was paying duty, the Delhi unit also ought to have paid duty on the said goods. The Commissioner has also observed in paragraph 3 on page 30 of the order that the appellants are engaged in the manufacture of the same products at Dehradun. Since the products cleared from Dehradun are classified under chapter 30 of the Central Excise Tariff Act, 1985 as Ayurvedic Medicaments which has been accepted by the department, therefore if Revenue was of the view that the product manufactured by the appellants at Delhi is the same as the product manufactured at Dehradun, then the product manufactured at Delhi ought to have been classified under chapter 30 and not under chapter 13 of the Central Excise Tariff Act, 1985. If the products need to be considered as excisable, it would only be classifiable under chapter 30 and not under chapter 13 of the Central Excise Tariff Act, 1985 in view of the specific exclusion in the HSN Explanatory Notes to chapter 13 which states that the vegetable extracts which have been compounded for therapeutic or prophylactic purpose and similar medicinal compound extracts made by treating the mixture of the blends are to be classified under chapter heading 30.03 or 30.04 and not under chapter heading 13.01. This has been clarified by the Board in Circular dated 16.9.97 where it has been indicated that in terms of the HSN Explanatory notes only single ingredients extracts are classified under Chapter 13 of the Central Excise Tariff Act, 1985 and that mixed or compounded vegetable extract which have therapeutic or prophylactic value are classifiable under Chapter 30.03 of the Central Excise Tariff Act, 1985. He relied upon the decision of the Supreme Court in the case of Dabur India Ltd. v. CCE, 2003 (157) ELT 129 (SC).
8. On behalf of Revenue, it was pleaded that plea of the appellants is not correct on the marketability of the goods. Similar goods are marketed by other manufactures. Our attention was drawn to the report of the Assistant Commissioner of Central Excise, Vijayawada wherein it was stated that M/s Chemiloids, Vijayawada are also manufacturing similar types of herbal extracts and are marketing the same to M/s Charak Pharma (I) Ltd., Silvassa and to M/s Charak Pharmaceuticals (P) Ltd., Bulsar. It was also pointed out that M/s Charak Pharmaceuticals (I) Ltd., Samalkha are manufacturing extracts for Livomyn Tablets and are marketing it to M/s Charak Pharmaceuticals, Maddur, Distt. Mandya (Karnataka). The herbal extracts manufactured are marketable. To determine marketability, the product should be capable of being sold to consumers as it is. Since the products manufactured by Delhi unit of appellants are capable of being sold, these are excisable goods. Rest of the points as discussed in the Order-in-Original were re-iterated.
9. We have carefully considered the submissions made by both sides. We find that the appellants pleaded that the Commissioner in his order has observed that the appellants are engaged in manufacture of the same products at Dehradun and products are being classified under Chapter 30 of the Central Excise Tariff Act, 1985 as medicaments at Dehradun and these are being cleared on payment of duty. It was therefore pleaded that if the Revenue was of the view that products manufactured by the appellants at Delhi are the same products manufactured at Dehradun then the products manufactured at Delhi should be classified under Chapter 30 and not under Chapter 13 of the Central Excise Tariff Act, 1985. They also relied upon the Supreme Court decision in the case of Dabur India Ltd. v. CCE, 2003 (157) ELT 129 (SC). We find that the Board has also issued instructions F. No. 102/11/94-CX.3 (Circular No. 334/50/97-CX, dated 16-9-1997 regarding the Excisability liquid vegetable extracts obtained in the manufacture of Ayurvedic Medicines. The Supreme Court in the case of Dabur India Ltd. (supra) has observed that --
"10. The Commissioner's interpretation of the tariff item was made without reference to the CBEC circular. His conclusion that only products which are capable of being put to therapeutic or prohylactic use as such i.e. without further processing etc. would qualify for classification as medicaments under Chapter 30 is not in keeping with the interpretation given by the Board nor indeed the interpretation given by the Commissioner of Central Excise, Calcutta. The Circular makes it quite clear that if the compound vegetable extracts and any therapeutic or prohylactic value they were properly classifiable under Heading Chapter 30.30. here is no requirement that the extract should be used for therapeutic or prophylactic purposes "as such".
10. In view of our above findings, we set aside the order of the Commissioner and remand the case back to the Commissioner of proper classification of the products in dispute and adjudicate according to the provision of law giving proper opportunity of hearing to the appellants. All other issues are kept open. Thus, these four appeals are allowed by way of remand.