Bulk drug classification and Modvat recovery require strict proof of patent-proprietary status and valid extended limitation grounds.

A bulk drug treated as a medicament under Chapter 30 was not shown on the record to be a patent or proprietary medicament, so classification under Sub-Heading 3003.20 was not sustained. Recovery of Modvat credit had to proceed under Rule 57-I within limitation, and the extended period required specific material showing fraud, wilful misstatement, suppression, collusion or intent to evade duty. As the notice did not properly establish those grounds and was inconsistent with the applicable Board circular, the denial and reversal of Modvat credit were not upheld.

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Issues: (i) Whether the bulk drug was correctly classifiable under Sub-Heading 3003.20 of the Central Excise Tariff or fell under Sub-Heading 3003.10. (ii) Whether denial and reversal of Modvat credit on inputs could be sustained, including on the question of limitation and the proper invocation of the recovery provisions.

Issue (i): Whether the bulk drug was correctly classifiable under Sub-Heading 3003.20 of the Central Excise Tariff or fell under Sub-Heading 3003.10.

Analysis: The product was treated as a specified bulk drug covered by the drugs licence, the Drugs Price Control Orders and the pharmacopoeia, and therefore it answered the description of a medicament within Chapter 30. However, there was no material to show that it was marketed as a patent or proprietary medicament or that the conditions necessary to bring it within Sub-Heading 3003.20 were established. The classification adopted by the lower authorities was therefore not sustainable, and the assessee's claim to classification under the competing sub-heading could not be rejected on the material on record.

Conclusion: The classification under Sub-Heading 3003.20 was not upheld.

Issue (ii): Whether denial and reversal of Modvat credit on inputs could be sustained, including on the question of limitation and the proper invocation of the recovery provisions.

Analysis: Recovery of Modvat credit had to be made under Rule 57-I, and the notice had to be within the prescribed limitation unless the extended period was properly attracted by allegations and material showing fraud, wilful misstatement, collusion, suppression of facts or intent to evade duty. The notice in question did not invoke the necessary basis for the extended period, and the departmental action was also inconsistent with the binding Board circular governing the enquiry on declarations. In these circumstances, the demand for reversal of Modvat credit could not be sustained.

Conclusion: The denial and reversal of Modvat credit were not upheld.

Final Conclusion: The appellate order and the orders of the lower authorities were set aside, and the assessee succeeded on the demand relating to Modvat credit, with the impugned classification and credit denial not surviving.

Ratio Decidendi: A bulk drug cannot be classified as a patent or proprietary medicament without supporting material, and recovery of Modvat credit must be made under the prescribed rule within limitation unless the conditions for the extended period are specifically established.

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