Drug intermediate exemption allowed for Diosgenin; actual-use proof not required where the goods had no other known use.

Diosgenin was treated as eligible for exemption under Notification No. 55/75-C.E. as a drug intermediate because the product had no use other than conversion into hormones used as drugs, and a substance need not be confined to the penultimate stage of manufacture to qualify. The Tribunal also rejected a condition requiring proof of actual use in drug manufacture, finding it unwarranted where the goods had no other known use and their description itself indicated intended use in hormone production. The exemption was therefore allowed without the restrictive actual-use condition.

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Issues: (i) Whether Diosgenin was eligible for exemption under Notification No. 55/75-C.E. as a drug intermediate; (ii) Whether the benefit of exemption could be made conditional upon proof of actual use of the imported goods in the manufacture of drugs.

Issue (i): Whether Diosgenin was eligible for exemption under Notification No. 55/75-C.E. as a drug intermediate.

Analysis: The imported product was shown to have no use other than conversion into hormones used as drugs. The Tribunal relied on earlier decisions holding that a material need not be confined to the penultimate stage of manufacture in order to qualify as a drug intermediate, and that a substance used in the manufacture of drugs may fall within the exemption even if it is a raw material or starting chemical.

Conclusion: The product was held eligible for the exemption as a drug intermediate, in favour of the assessee.

Issue (ii): Whether the benefit of exemption could be conditional upon proof of actual use of the imported goods in the manufacture of drugs.

Analysis: The Tribunal found no material to show any alternate use for the imported goods and noted that the product description itself indicated its intended use in the manufacture of hormones. In these circumstances, and following the Bombay High Court view relied upon, the Tribunal held that insistence on proof of actual use was unwarranted where the goods had no other known use.

Conclusion: The condition requiring proof of actual use was set aside, in favour of the assessee.

Final Conclusion: The appeals succeeded and the exemption was allowed without the restrictive condition imposed by the appellate authority.

Ratio Decidendi: A material that has no use other than manufacture of drugs may qualify as a drug intermediate for exemption purposes without proof of actual use, and need not be confined to the penultimate stage of manufacture.

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