Tribunal rules no excise duty on free drug supply for clinical trials

The Tribunal ruled in favor of the appellant-company, stating that the manufacture and supply of a drug for clinical trials free of cost did not attract central excise duty as the drug did not meet the marketability test for excisable goods. The duty demand was deemed unsustainable, and the impugned order, duty demand, and penalty were set aside. The Tribunal did not explicitly address the time-barred issue of the duty demand but based its decision on the lack of marketability of the drug during the clinical trial stage.

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Issues involved:
1. Whether the manufacture and supply of a drug for clinical trials free of cost attracts central excise duty.
2. Whether the demand of duty is barred by limitation of time.
3. Whether the drug manufactured and supplied for clinical trials meets the marketability test for excisable goods.

Analysis:

1. The appellant-company developed a new drug for treatment, obtained a license, and manufactured it for clinical trials free of cost. The issue was whether such manufacture and supply attract central excise duty. The appellant argued that without a license from the Drugs Controller, the drug was not marketable during the clinical trial stage. They cited case laws to support that goods must be marketable to attract excise duty. The Tribunal agreed, stating that the drug for clinical trials did not meet the marketability test and could not have been bought and sold. Therefore, the duty demand was not sustainable, and the impugned order, duty demand, and penalty were set aside.

2. The appellant contended that the demand of duty was time-barred as they believed in good faith that manufacturing for clinical trials did not attract excise duty. The Tribunal did not address this issue explicitly in the judgment but ruled in favor of the appellant based on the lack of marketability of the drug during the clinical trial stage.

3. The Tribunal emphasized that under the law, no drug can be manufactured and sold without approval and a license from the Drugs Controller, which is subject to successful clinical trials. The Tribunal held that the drug manufactured and supplied for clinical trials free of cost did not meet the marketability test to be considered excisable goods. The duty demand was set aside, and the appeal was allowed with consequential relief to the appellants.

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