1987 (1) TMI 81 - HC - Customs

Court exempts Sorbitol, Phenol, and Diethylene Glycol from excise duty, grants refund with interest

The court held that Sorbitol and Phenol USP were considered 'drug' or 'drug intermediates' exempted from excise duty under the exemption Notification. ... Drugs and medicines - Refund - Classification of goods - Precedents - Bills of Entry not readable partially - Drugs and drug intermediates Issues Involved:1. Whether Sorbitol and Phenol USP were 'drug' or 'drug intermediates' exempted from the whole of the duty of excise leviable vide exemption NotificationRs.2. Whether Phenol and Diethylene Glycol were 'drugs' immune from the whole of the duty of excise leviable under the exemption NotificationRs.3. Whether the rejection of the refund applications by respondent No. 2 is unsustainable in lawRs.4. What interest, if any, and on what terms, are the respondents liable to payRs.5. To what relief are petitioners entitledRs.Issue-wise Detailed Analysis:1. Sorbitol and Phenol USP as 'drug' or 'drug intermediates':The court affirmed that Sorbitol and Phenol USP were indeed 'drug' or 'drug intermediates' exempted from the whole of the duty of excise under the exemption Notification. The court relied on the precedent set by Pendse J. in the case of Rakesh Enterprises, which held that these substances fell under the exemption Notification dated March 1, 1975. The court dismissed the respondents' argument that the products were classified under heading 29.01/45 and not as drugs, noting that the Bills of Entry also mentioned Tariff Item No. 68, thus supporting the petitioners' claim.2. Phenol and Diethylene Glycol as 'drugs':The court concluded that Phenol and Diethylene Glycol were also 'drugs' immune from the whole of the duty of excise under the exemption Notification. The respondents' contention that these products were not drugs due to the absence of recognition by any pharmacopoeia was rejected. The court emphasized that the definition of 'drug' in Section 3(b) of the Drugs and Cosmetics Act is inclusive and should be understood in its ordinary, popular, and natural sense. Thus, these products were considered 'bulk drugs' entitled to the exemption.3. Rejection of refund applications:The rejection of the refund applications by respondent No. 2 was found to be unsustainable in law. The court referenced Pendse J.'s decision in Shalimar Textile Manufacturing Private Limited v. Union of India, which established that the reason given for rejecting the refund applications (i.e., being time-barred under Section 27(1) of the Customs Act, 1962) was not valid. The court held that the duty had been paid under a mutual mistake of law, and thus, the applications for refund were legitimate.4. Interest on the refund:The court determined that the respondents were liable to pay interest at the rate of 12% per annum on the refunded sums. The interest would be calculated from the expiry of eight weeks from the date of the judgment. The court rejected the petitioners' claim for interest at 21% per annum, deeming it an exaggeration.5. Relief to petitioners:The court ordered that the petitions succeed and quashed the orders rejecting the applications for refund. The respondents were directed to refund the Additional Duty recovered within eight weeks from the date of the judgment. Failure to comply within this timeframe would result in an additional liability of interest at 12% per annum from the expiry of the eight weeks. The respondents were also ordered to bear their own costs and pay those incurred by the petitioners.Order:The petitions were successful, and the orders rejecting the refund applications were quashed. The respondents were directed to refund the Additional Duty within eight weeks, failing which they would be liable to pay interest at 12% per annum from the expiry of the eight weeks. The respondents were also ordered to bear their own costs and pay those incurred by the petitioners. The rules were made absolute in these terms.