2009 (3) TMI 55 - SC - Central Excise

Supreme Court overturns judgment, shifts burden of proof to assessee for tax exemption, directs Tribunal to reconsider.

The Supreme Court allowed the Department's Appeals, setting aside the impugned judgment and remitting the matters to the Tribunal for fresh consideration. ... Intravenous Fluids - Exemption under Not. no.3/01 - 2001-02 Budget, inserted explanation in Not. no. 36/2000, clarifying that IV fluids used only for sugar, electrolyte or fluid replenishment, were exempt - tribunal not examined the effect of the 2001-02 Budget while accepting the exemption claim – tribunal not examined the fact that when IV Fluid has dominant therapeutic value, it will not come within the exemption as it has to be treated as a Schedule-H drug – matter remitted to tribunal Issues:1. Interpretation of Exemption Notification No.3/2001 regarding the coverage of Intravenous Fluids.2. Whether the addition of certain medicines to Intravenous Fluids affects their classification under the exemption notification.3. Consideration of whether Intravenous Fluids with therapeutic value should be classified as Schedule-H drugs.4. The burden of proof on the assessee to establish eligibility for exemption under the notification.Issue 1 - Interpretation of Exemption Notification No.3/2001:The main issue in this batch of Civil Appeals was the interpretation of Exemption Notification No.3/2001 concerning the coverage of Intravenous Fluids. The Notification replaced earlier notifications and defined 'Intravenous Fluids' as those used for sugar, electrolyte, or fluid replenishment, thereby restricting the open-ended exemption. The Department relied on the 2001-2002 Budget provision to deny the exemption claimed by the respondents under the new notification. The Tribunal was directed to examine the effect of the Budget provision on the definition of 'IV Fluids' and provide its findings accordingly.Issue 2 - Impact of adding medicines to Intravenous Fluids:Show cause notices alleged that certain medicines added to the Intravenous Fluids, such as anti-bacterial and antibiotic properties, gave the product therapeutic value beyond the scope of the exemption notification. The Tribunal was tasked with considering whether the addition of these items affected the classification of the fluids under the notification and to make a determination in accordance with the law.Issue 3 - Classification of Intravenous Fluids as Schedule-H drugs:A point of contention was the labeling of the IV fluids as Schedule-H drugs by the respondent-Company due to the addition of specific items. The Department argued that IV Fluids with dominant therapeutic value should be treated as Schedule-H drugs based on the Drugs and Cosmetics Rules, 1945. The Tribunal was instructed to deliberate on this issue and provide a decision in line with the legal provisions.Issue 4 - Burden of proof on the assessee:The Supreme Court emphasized that exemption notifications must be strictly construed, and the burden of proof lies on the assessee to demonstrate that the item falls within the exemption notification's scope. The Court directed that if further evidence was required on the Schedule-H Drug issue, the Tribunal could either decide the matter itself after allowing parties an opportunity or remit it to the Adjudicating Authority for a decision on the factual aspect.In conclusion, the Department's Appeals were allowed, the impugned judgment was set aside, and the matters were remitted to the Tribunal for fresh consideration in accordance with the law. The Court highlighted the importance of strict interpretation of exemption notifications and the need for the assessee to substantiate eligibility for exemption.