1990 (7) TMI 109 - SC - Central Excise

Homeodent held dutiable as alcohol-based medicinal toilet preparation u/s3(1); refund via s.11B without limitation

SC held that 'Homeodent' is a medicinal and toilet preparation containing alcohol and is therefore dutiable under s.3(1) of the Medicinal and Toilet ... Seeking to recover duties of excise on Homeodent under the Medicinal & Toilet Preparations (Excise Duties) Act, 1955 (`the 1955 Act'), even though the product was classifiable under the Central Excises and Salt Act, 1944 (`the 1944 Act') - Government not to take extralegal steps - Collection of duty without the authority of law - Medicinal and toilet preparation - Refund - Time limit - whether in the process any ingredient was used containing alcohol in respect of a product which is medicinal in nature and as such would be dutiable under the 1955 Act - HELD THAT:- In view of the facts alleged and found by the District Excise Officer, Ghaziabad, as mentioned, it appears to us that the Homeodent was a medicinal and toilet preparation and liable to excise duty. This Court in M/s. Baidyanath Ayurved Bhawan (Pvt.) Ltd., Jhansi v. The Excise Commissioner, U.P. & Ors. [1970 (10) TMI 28 - SUPREME COURT] has held that in order to attract duty under the 1955 Act, all that is required is that a medicinal preparation should contain alcohol. Alcohol may be part of the preparation either because it is directly added to the solution or it came to be included in it because one of the components of that preparation contained alcohol. It is undisputed that mother-tincture was one of the components that was used in the preparation of Homeodent and it has been found that alcohol was there and mother-tincture was added in the medicinal preparation as its component. That was not the case before any authorities in this case but being present it was found in liquid form which incidentally again was disputed because test reports were not accepted by the petitioner but according to the respondent authorities, indicated the presence of alcohol. Section 3(1) of the 1955 Act was attracted. This Court in the aforesaid decision further reiterated that even if the imposition of excise duty under Section 3(1) of the said Act on preparations in which alcohol was indirectly introduced attracts multipoint taxation that by itself would not render the duty illegal. The provisions for rebate of duty on alcohol contained in Section 4 of the said Act show that multipoint tax on medicinal preparations containing alcohol was within the contemplation of the legislature otherwise there was no purpose in incorporating Section 4 into the Act. In this case, however, the case of the petitioner is that duty has been recovered under the 1944 Act; if any refund has to be made, it must be made in accordance with law. There is a question of limitation for claiming refund of this duty. The provisions are not clear. In such a situation, it appears to us that the justice requires that provisions should be made more clear and in the view of the facts and the circumstances that have happened, we would direct that if the petitioners are entitled to any refund of the duty already paid to the Central Government in view of the duty imposition now upheld against them in favour of the State Government such refund application should be entertained and considered in accordance with law. We are conscious in giving this direction, we are not strictly following the letter and the provisions of the Act. But in a case of this nature, where there is some doubt as to whether duty was payable to the Central Government under the 1944 Act or whether the item was dutiable under the 1955 Act, it would be just and proper and in consonance with justice in fiscal administration that the Central Government should consider in the light of the facts found, if an application is made under Section 11B of the 1944 Act and pass appropriate order. Such application should be made within four months from the date of the judgment. In the facts and the circumstances of this case, the limitation period under Section 11B of the 1944 Act should not apply. This direction, in our opinion, must be confined in the facts and the circumstances of this case only. Thus, we are of the opinion that the impugned order dated 18th January, 1989 passed by the District Excise Officer, Ghaziabad, must be given effect to and thereafter the petitioner's application for refund, if any, made before the authorities under Section 4 of the 1944 Act within the time indicated as before should be disposed of in the manner indicated above, if made. If any money is due to the Government, the Government should take steps but not take extra-legal steps or manoeuvre. Therefore, we direct that the right of renewal of the petitioner of licence must be judged and attended to in accordance with law and the occasion not utilised to coerce the petitioners to a course of action not warranted by law and procedure. Secondly, in a situation of this nature, we are of the opinion that the Government should consider feasibility of setting up of a machinery under a Council to be formed under Article 263 of the Constitution to adjudicate and adjust the dues of the respective Governments. In these peculiar facts, it appears that the dispute is under two different central legislations and under one the State authorities will realise and impose the taxes on finding on certain basis and under the other the same transaction may be open to imposition by Central Government authorities on a particular view of the matter. In such a situation, how and wherein the refund should be made or any duty paid in respect of part of a transaction to one of the authorities, the State or the Centre, to be adjusted should be the subject matter of a settlement by the Council to be set up under Article 263 of the Constitution. This is a matter on which we draw the attention of the concerned authorities for examination because Section 3 of the 1955 Act and Section 3 of the 1944 Act may overlap similar transaction in certain cases. Appeals are disposed of. Issues Involved:1. Applicability of the 1944 Act vs. the 1955 Act.2. Presence of alcohol in Homeodent.3. Classification of Homeodent as a homeopathic medicine or toilet preparation.4. Jurisdiction and authority of State vs. Central Excise authorities.5. Adherence to principles of natural justice.6. Validity of demand and recovery of excise duties.7. Refund of duties paid under the 1955 Act.8. Limitation period for recovery and refund of duties.9. Coercion by authorities in renewing licenses.Issue-wise Detailed Analysis:1. Applicability of the 1944 Act vs. the 1955 Act:The primary issue was whether Homeodent should be classified under the Central Excises and Salt Act, 1944 (1944 Act) or the Medicinal & Toilet Preparations (Excise Duties) Act, 1955 (1955 Act). The Supreme Court noted that both Acts operate in different fields and there is no overlapping between the two. The determination of which Act applies depends on whether alcohol was used as an ingredient in Homeodent.2. Presence of alcohol in Homeodent:The factual dispute involved whether Homeodent contained alcohol. The petitioner argued that although mother tinctures containing alcohol were used, the alcohol evaporated during the manufacturing process, resulting in no alcohol in the final product. The authorities, however, found that mother tincture, which contains alcohol, was used in the preparation, thus attracting duty under the 1955 Act.3. Classification of Homeodent as a homeopathic medicine or toilet preparation:The classification of Homeodent was crucial. The petitioner contended it was a homeopathic medicine, but the authorities classified it as a toilet preparation containing alcohol under Item 4 of the Schedule to the 1955 Act. The Supreme Court upheld the authorities' classification, noting that Homeodent was a homeopathic preparation and a toothpaste, thus a toilet preparation.4. Jurisdiction and authority of State vs. Central Excise authorities:The Court addressed the jurisdictional conflict between State and Central Excise authorities. The petitioner had paid duties under the 1944 Act, but the State authorities sought to levy duties under the 1955 Act. The Court emphasized that the authorities under each Act are empowered to assess and levy duties independently, and the Central Government's direction to re-adjudicate the case de novo was valid.5. Adherence to principles of natural justice:The petitioner argued that the demand for duties was made without issuing a show-cause notice or providing an opportunity for a hearing, violating principles of natural justice. The Supreme Court acknowledged this and noted that the Central Government had set aside the initial orders for this reason, directing fresh adjudication after due process.6. Validity of demand and recovery of excise duties:The demand for duties amounting to Rs. 68,13,334.20 was challenged. The Court upheld the demand, noting that the authorities had correctly classified Homeodent under the 1955 Act. However, the Court directed that any refund of duties paid under the 1944 Act should be processed in accordance with law.7. Refund of duties paid under the 1955 Act:The petitioner sought a refund of Rs. 46.67 lakhs paid under the 1955 Act. The Court directed that if the petitioner is entitled to a refund of duties paid to the Central Government, an application should be made under Section 11B of the 1944 Act and considered on merits.8. Limitation period for recovery and refund of duties:The petitioner argued that the demand was time-barred under Rule 11 of the 1956 Rules. The Supreme Court noted that the limitation period should not apply in this case due to the unique circumstances and directed that the refund application be considered without the limitation constraint.9. Coercion by authorities in renewing licenses:The petitioner alleged coercion by authorities in renewing licenses to compel payment of disputed duties. The Supreme Court condemned such coercion, stating that the government cannot use extra-legal measures to enforce payments and directed that license renewals be handled in accordance with law without coercion.Conclusion:The Supreme Court upheld the classification of Homeodent under the 1955 Act and the corresponding demand for duties. It directed that any refund of duties paid under the 1944 Act should be processed in accordance with law. The Court also condemned coercive tactics by authorities and emphasized adherence to principles of natural justice. The writ petitions and appeals were disposed of with these directions, and all interim orders were vacated.