Drug intermediate classification turns on commercial understanding and drug-law recognition, bringing empty hard gelatine capsules within exemption.

Empty hard gelatine capsules were treated as a drug intermediate for exemption purposes because classification turned on commercial understanding, the Drugs and Cosmetics Act, 1940 definition of "drug," and trade and administrative recognition of their role in medicine manufacture and administration. The Tribunal relied on evidence that the capsules had a medicinal function, were used for controlled release and delivery of medicines, and were regarded by authorities as part of the drug field. The contention that they were merely packing material was rejected, and the exemption under Notification No. 62/78 was upheld.

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Issues: Whether empty hard gelatine capsules are to be treated as a drug intermediate eligible for exemption under Notification No. 62/78, and whether the meaning of "drug" under the Drugs and Cosmetics Act, 1940 should guide classification for excise purposes.

Analysis: The relevant notification was construed in the light of the commercial and trade understanding of the product, supported by the statutory definition of "drug" in the Drugs and Cosmetics Act, 1940 and by administrative and technical materials recognising gelatine capsules as connected with drug manufacture and administration. The Tribunal found that the capsules had a medicinal function, were used in the controlled release and administration of medicines, and were treated by the concerned governmental authorities as part of the drug field. The competing view that they were merely packing material was rejected in the face of the broader evidence and the line of authority relied upon by the respondents.

Conclusion: Empty hard gelatine capsules were held to be a drug intermediate and entitled to the benefit of Notification No. 62/78; the appeal was therefore dismissed.

Ratio Decidendi: Where a fiscal exemption turns on the commercial understanding of a product, the definition and treatment of that product under the Drugs and Cosmetics Act, 1940 and the surrounding trade and administrative recognition may be used to determine whether it qualifies for exemption as a drug-related article.

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