Suppression-based duty demand and bulk-drug exemption require actual use under the notification, with penalty sustained.

Approval of a classification list does not, by itself, bar a demand under the proviso to Section 11A where the department alleges wilful misstatement or suppression of material facts; the note states that reopening was therefore competent. It also states that the 1982 bulk-drug explanation required actual use as a bulk drug or as an ingredient in a formulation, and that Lanolin Anhydrous failed that test because it was used as a cosmetic medium base. On that basis, exemption was denied from 1-11-1982 onwards, duty was sustained subject to recalculation for periods covered by finalised assessments, and the penalty was maintained.

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Issues: (i) Whether a demand under the proviso to Section 11A could be sustained despite earlier approval of the classification list and the plea that the demand was time-barred; (ii) Whether Lanolin Anhydrous was entitled to exemption as a bulk drug under the relevant notifications, particularly after the Explanation added in 1982 required use as such or as an ingredient in a formulation; (iii) Whether penalty was liable to be sustained.

Issue (i): Whether a demand under the proviso to Section 11A could be sustained despite earlier approval of the classification list and the plea that the demand was time-barred.

Analysis: The approved classification list did not preclude reopening where the department alleged wilful misstatement and suppression of material facts. Rule 173B required a fresh declaration when the rate of duty or the basis of exemption changed, and the subsequent filing of classification lists by the appellants showed that the position was not treated as closed for all purposes. The demand was therefore competent under Section 11A, and the earlier approval did not bar scrutiny of short levy founded on suppression.

Conclusion: The demand was not barred merely because a classification list had earlier been approved, and the authorities could invoke Section 11A.

Issue (ii): Whether Lanolin Anhydrous was entitled to exemption as a bulk drug under the relevant notifications, particularly after the Explanation added in 1982 required use as such or as an ingredient in a formulation.

Analysis: The Explanation added to the exemption notification defined bulk drugs as pharmacopoeial products used for diagnosis, treatment, mitigation or prevention of disease and used as such or as an ingredient in any formulation. The words used in the latter part of the Explanation were construed as requiring actual use. On the evidence accepted by the department, the product was used as a medium base in a cosmetic preparation and not as a bulk drug or as an ingredient in a formulation within the meaning of the notification. The appellants did not rebut that evidence.

Conclusion: The product was not eligible for exemption from 1-11-1982 onwards, and the duty demand was sustainable, subject to recalculation for the period where assessments had already been finalised.

Issue (iii): Whether penalty was liable to be sustained.

Analysis: In view of the findings on suppression, misstatement, and ineligible exemption, there was no basis to interfere with the penalty imposed for the contravention.

Conclusion: The penalty was upheld.

Final Conclusion: The appeal failed on the substantive controversy, but the duty was directed to be recalculated after excluding the period for which finalised assessments were shown, and the penalty was maintained.

Ratio Decidendi: Approval of a classification list does not prevent reopening under Section 11A where short levy is alleged on the basis of suppression or misstatement, and exemption under a bulk-drug notification may require actual use in the manner specified by the notification.

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