Bombay High Court
Geoffrey Manners And Co. Ltd. vs Union Of India And Others on 1 January, 1800
Equivalent citations: 1980CENCUS419D, 1980(6)ELT7(BOM)
ORDER
1. The petitioner carry on business of manufacturing bulk drugs and pharmaceutical formulations at their factory situated at Lal Bahadur Shastri Marg Ghatkopar, Bombay. The drugs and pharmaceutical formulations manufactured are sold by the petitioner in capsules or tablets.
2. Under Section 2(f) of the Central Excise and Salt Act, 1944 (hereinafter referred to as the ``Act), the petitioner being manufactures were liable to pay excise duty on the manufactured products in their factory. The Government of India has enacted a special procedure for the movement of duty paid materials or component parts for use in the manufacture of finished excisable products. The said procedure is laid down in Rule 56-A of the Central Excise Rules, 1944 (hereinafter referred to as the ``Rules"), the relevant portion of which is as follow:-
``56A. Special Procedure for movement of duty-paid materials component parts for use in the manufacture of finished excisable goods.-
(1) Notwithstanding anything contained in these rules, the Central Government may be notification in the Official Gazette specify the excisable goods in respect of which the procedure laid down in sub- rule (2) shall apply.
(2) The COllector may, on application made in this behalf and subject to the conditions mentioned in sub-rule (3) and such other conditions as may from time to time be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under sub-rule (1) to receive material or component parts or finished product (like asbestos cement), on which the duty of excise or the additional duty under Section 2-A of the Indian Tariff Act, 1934 (32 of 1934), (hereinafter referred to as `the countervailing duty'), has been paid, in. his factory for the manufacture of these goods or for the more convenient distribution of finished product and allow a credit of the duty already paid on such material or component parts of finished product as the case may be:
Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods-
(i) if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil of duty."
3. Under the provisions of the Act and the Rules, ad valorem duty of excise was leviable at all relevant times on patents and proprietary medicines under Item No. 14E of the Tariff of the said Act. The Pharmaceutical Industry made certain representations to the Government of India and thereafter the Government issued a Notification No. 161/1966, dated October 8 , 1966 under which the manufacturers of patent and proprietary medicines were given an option under which the excise duty payable on the products could be determined either under Section 4 of the Act or under the NOtification.
4. The Pharmaceutical Industry represented to the Government that it as not open to advertise certain drugs and the manufacturers are required to give free samples to hospitals, Nursing Homes and Medical Practitioner.
The manufactures also represented that a portion of the patent or proprietary medicines are required to be kept aside from each batch of the drugs for testing of quality control purposes. The manufacturers thereupon requested for certain exemption from payment of excise duty. The Government thereupon issued a Notification dated April 20, 1961 whereby all chemical samples issued by the manufacturers of patent or proprietary medicines were exempted from the excise duty provided the clearances of such samples were limited to a quantity not exceeding 5% by value of the total duty paid clearances during the preceding months of all types of patent or proprietary medicines and provided further that the said samples were intended for free supply to hospitals, nursing homes, medical practitioners etc.
5. The petitioner received a communication dated April 24, 1970 from Superintendent of Central Excise by which the petitioner were asked to furnish certain information as to the material received by the petitioners under Rule 56-A. of the rules in order to enable the Excise authorities to raise demands for the recovery of duty on clinical samples packed from material received under rule 56-A The petitioner furnished the requisite information and thereafter the Superintendent issued a show cause notice dated June 29, 1970 demanding from the petitioner a sum of Rs. 36,012.84 being the duty payable on the materials removed as free samples under the NOtification dated April 20, 1961 between January 1, 1961 and March 31, 1970. The petitioner gave their reply but the Superintendent did not accept the explanation and confirmed the show cause notice buy his order dated February 3, 1971. The petitioners carried an appeal before the Appellate Collector, Central Excise, Bombay but the appeal was dismissed by an order dated October 30, 1973. The validity and legality of the demand notice and the orders passed by the authorities below are under challenge in the petition filed under Articles 226 of the COnstitution of India.
6. Mr. Desai, the learned counsel appearing in support of the petition, contended that the petitions are entitled to the advantage of NOtification dated April 20, 1961 annexed as ``Ex. B" to the petition and the authorities below was clearly in error in holding that proviso (1) of Rule 56A of the Rules deprives the petitioners of that advantage. The short question which falls, therefore, for determination is whether the petitioners are entitled to advantage of the Notification (Ex. B). As pointed out earlier, Rule 56A enables the Central Government to specify the excisable goods in respect of which the procedure laid down in sub-rule (2) shall apply. Sub-rule (2) provides for credit of duty in respect of any material or component parts used in the manufacture of finished excisable goods. The proviso to sub-rule (2) is crucial for determination of the dispute raised by the petitioners. It provides that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods if such goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon.
7. Mr. Desai submits that the excisable goods produced by the petitioners are not wholly exempted from the duty and what Notification (Ex. B) provides is exemption only to clinical samples limited to a quantity not exceeding 5% by value of the total duty paid during the preceding months. It is not possible to accept the submission of the learned counsel. In my judgment, the two authorities below were right in holding that proviso (i) of sub-rule (2) of Rule 56-A clearly attracts to the advantage claimed by the petitioners in respect of clinical samples under the Notification Mr. Desai submits that what is required under the proviso is total exemption to a particular item and not only to a quantity limited to 5%. The submission is that the products manufactured by the petitioner are not exempted but only a concession is given in respect of quantity not exceeding 5% of the value of the total duty paid. Mr. Desai submits that as the item manufactured by the petitioners is not wholly exempted, the authorities below were in error in holding that the proviso comes into play. It is not possible to accept this submission. A particular quantity has been wholly exempted from the excise duty and that quantity is determinable with reference to the clearance of all types of patent or proprietary medicines. The reading of the proviso and the Notification makes in abundantly clear that the clinical samples of a particular quantity are wholly exempted and, therefore, the proviso is directly attracted.
8. Mr. Desai then submitted that Rule 56-A must be strictly construed as it is well-settled a proviso to a Rule carves out an exception and such exception must be strictly proved. There cannot be any dispute on the principle stated by the learned counsel but even on such strict construction, I have no hesitation in holding that clinical samples to an extent of 5% are wholly exempted from the duty of excise leviable thereon. Mr. Desai then submitted that Rule 56-A only enables adjustment and Notification merely provides for a concession or a rebate and as such the proviso to Rule 56-A would not be attracted to the facts of the present case. The submission has no merit and must be repelled. It is clear that the Notification dated April 20, 1961 was issued to give certain concession to the pharmaceutical manufacturers on their representations and the concession granted cannot be so extended or construed as to nullify the proviso to sub-rule (2) of Rule 56-A. In my judgment, the authorities below orders do not require interference in this petition.
9. In the result the petition fails and the rule is discharged with costs. Mr. Desai, at this stage, applies for continuation of the interim order for a period of 4 weeks, the interim order to continue for a period of 4 weeks on condition that the Bank guarantee furnished will also continue.