Therapeutically inert ingredients and prior departmental knowledge defeated denial of exemption and extended limitation.

Exemption under the relevant central excise notifications was upheld because the addition of calcium carbonate, used only in low dosage as a diluent, was not shown to make the ingredient therapeutically active or to interfere with the therapeutic activity of chlorpropamide. The notifications permitted only therapeutically inert pharmaceutical necessities, and that condition was not proved to be breached. The extended limitation period was also unavailable because an earlier show cause notice on the same facts showed departmental awareness, preventing a valid allegation of suppression. The demand and penalty were set aside, and the appeal was allowed.

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Issues: (i) Whether Diabinese was entitled to exemption under the relevant central excise notifications notwithstanding the presence of calcium carbonate as an ingredient. (ii) Whether the extended period of limitation was available to the department for the impugned demand.

Issue (i): Whether Diabinese was entitled to exemption under the relevant central excise notifications notwithstanding the presence of calcium carbonate as an ingredient.

Analysis: The exemption notifications covered medicaments containing the specified ingredient chlorpropamide and permitted only such additional ingredients as pharmaceutical necessities that were therapeutically inert and did not interfere with the therapeutic or prophylactic activity of the specified ingredient. The evidence on record showed that calcium carbonate was used only in low dosage as a diluent, and the finding that it was an antacid was not enough without showing that the quantity used rendered it therapeutically active. There was also no allegation or finding that the addition of calcium carbonate interfered with the therapeutic activity of chlorpropamide. The statutory conditions of the notifications were therefore not shown to have been breached.

Conclusion: The exemption could not be denied on the ground of calcium carbonate, and the demand based on denial of exemption was unsustainable.

Issue (ii): Whether the extended period of limitation was available to the department for the impugned demand.

Analysis: A prior show cause notice had already been issued on the same factual matrix for an earlier period, showing that the department was aware of the relevant facts. In such a situation, suppression could not be alleged so as to justify invocation of the extended limitation period for the later notices.

Conclusion: The notices covering the relevant periods were barred by limitation insofar as they sought to invoke the extended period.

Final Conclusion: The demand and penalty were set aside and the appeal was allowed in full.

Ratio Decidendi: For exemption notifications allowing only therapeutically inert pharmaceutical necessities, denial requires proof that the added ingredient is therapeutically active in the quantity used or interferes with the therapeutic activity of the specified ingredient; the extended period of limitation cannot be invoked where the department was already aware of the relevant facts from an earlier notice.

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