TaxTMI 
TaxTMI 
2022 (3) TMI 914
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.... 11AB of the Central Excise Act, 1944. I impose a penalty of Rs. 1,41,75,076/- (Rupees. One Crore Forty One Lakhs Seventy Five Thousand Seventy Six Only) under Section 11AC of the Central Excise Act, 1944." 1.2 Appeal No E/85885/2013 filed by Revenue is directed against order in appeal No 124/BPS/LTU/MUM/2012 dated 14.11.2012 of Commissioner (Appeals), Central Excise & Service Tax, LTU, Mumbai. By the impugned order, the Commissioner (Appeals) has held as follows: "20. In view of the forgoing, I set aside the impugned order as same is not sustainable in law and I allow the subject appeal with all its consequential relief to the Appellant , as per law." 1.3 Since the issues involved in both the appeals are identical both are taken up together. 1.4 Appellant/Assessee have filed a miscellaneous application for the change of cause title. We allow the same in view of the decision of Hon'ble Bombay High Court. 2.1 Appellant/Assessee are engaged in manufacture of Organic Chemicals classifiable under Chapter 29 of First Schedule to Central Excise Tariff Act, 1985. The organic chemicals manufactured by the appellant/assessee are also kno....
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....relied by the appellant/assessee. • Commissioner has erred grossly while interpreting definition of "Drug" as contained in the Drug Price Control Order stating that "drug includes bulk drug". • No adjustment of duty has been made in the impugned order by taking note of the fact that appellant/assessee had at time clearance paid 5% or 8% or 10% of value of Product cleared without payment of duty. Therefore, duty even if was demanded, should have been adjusted with such reversal of amount which was Rs. 1, 05,60,561/-. • Invocation of larger period of demand is not tenable as all the facts were in the knowledge of the department, there records were audited up to September, 2009, wherein the excise invoices made for the clearances of the Product for home consumption as well as for exportation were also inspected. From this inspection of records as well as examination of monthly ER • 1 Returns, a conclusion could have been derived by the auditors as regard to exemption claimed by the appellant/assessee for the Product manufactured and cleared by them. • No Penalty and interest is payable. 2.5 Following the order i....
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....3.3 Arguing for the Revenue, learned authorized representative submits that admittedly appellant/assessee have manufactured and cleared the "bulk drugs", which are specifically covered by the entry at Sl No 47 (B). This fact is also borne out by the test reports of the samples and letters of the purchaser. Since appellant/assessee have failed to follow the procedure as prescribed for availing the benefit of exemption as per entry at Sl No 47 (B), exemption under notification No 47 (B) should not be admissible to them. Accordingly the appeal filed by the appellant/assessee should be dismissed and that by the revenue be allowed. 4.1 We have considered the impugned orders along with the submissions made in appeals and during the course of arguments. 4.2 We are required to adjudicate upon the following issues in these appeals: a. Whether the benefit of exemption at Sl No 47 (A) of the notification no 04/2006-CE dated 01.03.2006 has been correctly availed by the appellant/assessee. b. If the answer to 'a' is negative can the duty be demanded from them by invoking extended period of limitation. c. Whether the amou....
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....ding the view that bulk drugs figured under Sl. No. 47(A) could be allowed the benefit of the Notification unconditionally, he relied on the decisions of the Tribunal in the case of M/s. Burroughs Wellcome (I) Ltd. v. CCE [2007 (216) E.L.T. 522 (Tri. Mum.)] and M/s. Cipla Ltd. v. CCE, Chennai [2007 (218) E.L.T. 547 (Tri. Chennai)]. 4. In the appeal before the Tribunal, the appellant revenue has taken the following grounds. It is submitted that "Lopinavir" is "bulk drug" and cannot be treated as "drug or medicines". The expression drug at Sl. No. 47(A) referred to finished pharmaceutical products or formulations whereas 'bulk drugs' at Sl. No. 47(B) referred to bulk drugs which were used in the manufacture of drugs or medicines. The assessee had classified the item under Chapter 29 of the Central Excise Tariff which covered organic chemicals; and drugs were classifiable under Chapter 30 of the tariff. It is submitted that the impugned goods were bulk drugs as per the definition of the term in the notification and as per common parlance. Drugs falling under Sl. No. 47(A) were exempted unconditionally whereas bulk drugs at Sl. No. 47(B) were exempted subject to fulfilme....
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....ed with. We also note that there is substantial compliance with the requirement of the rules by the assessee. 8. The respondents have relied on the following case law :- (a) Final Order Nos. 979 and 980/2008 dated 21-8-2008 - 2009 (233) E.L.T. 372 (Tri.) of the Bangalore Bench of the Tribunal in the case of M/s. Astrix Laboratories Ltd. & others v. CCE, Hyderabad. (b) M/s. Burroughs Wellcome (I) Ltd. v. CCE [2007 (216) E.L.T. 522 (Tri.-Mum.)] (c) M/s. Cipla Ltd. v. CCE, Chennai [2007 (218) E.L.T. 547 (Tri. Chennai)] 9. We observe that in the Final Order Nos. 979-980/2008, Bangalore Bench of the Tribunal, had decided a similar dispute involving interpretation of the Notification No. 4/2006-C.E. and its entries Sl. Nos. 47(A) and 47(B). The appellants therein had manufactured and cleared Nevirapine and Stavudine figuring at Sl. Nos. 117 and 118 respectively of List 3 appended to Notification No. 21/2002-Cus dated 1-3-2002. As the impugned goods had been bulk drugs, the appellants were required to follow certain conditions. As they had not followed the prescribed conditions, benefit in terms of Sl. No. 47(B) wa....
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.... 29 or 30 The following goods, namely (A) Drugs, medicines, diagnostic kits or equipment specified in List 3 5% - - (B) Bulk drugs used in the manufacture of drugs or medicines at (A) above. 5% - 5 The Tribunal observed that undisputedly bulk drugs imported by the appellants found mention in the List 3 referred to at Sl. No. 80(A). It was held that the impugned bulk drugs were liable to be considered as drugs mentioned at Sl. No. 80(A). It was beyond doubt that "bulk drugs" were also 'drugs'. They were so defined under the Drugs (Prices Control) Order, 1995 also. The imported goods which were specified in List 3 must fall within the coverage of the 'drugs' specified in List 3 and consequently the benefit of Sl. No. 80(A) would be admissible to them." 4.4 We also note that in case of Hetero Drugs [2006 (205) ELT 932 (T-Chennai)] the benefit claimed in similar situation in terms of Notification No 21/2002-Cus, tribunal stated as follows: "2. The original authority confirmed demand of total amount of duty of over Rs. 55 lakhs against th....
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....icines specified in List 3 and (B) Bulk drugs used in the manufacture of the drugs or medicines at (A) above vide Sl. No. 80 in the table annexed to the Notification. Prior to 9-7-2004, the effective rate of CVD for bulk drugs was 'nil'. After the said date, by virtue of the amendment to the Notification, there was no rate prescribed for CV duty on bulk drugs. For the entire period, there was a condition attached to bulk drugs, which was to the effect that the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 should be followed by the importer. Admittedly, in this case, the appellants did not follow such procedure. However, it is the submission of ld. Counsel that the benefit of exemption which was otherwise available to bulk drugs in terms of Sl. No. 80(B) of the table annexed to the above Notification should not have been denied to the assessee on a procedural ground. In this connection, reliance is placed on Thermax Private Limited v. CC [1992 (61) E.L.T. 352 (S.C.)], wherein a default of the assessee in the matter of compliance with Chapter X Procedure was condoned and the benefit of Rule 192 of the Ce....
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....y claiming the benefit of Notification 04/2006 did 01.03.2006 (Sr.No.47(A)] (Unconditional Exemption). I also find that the assessee has claimed that they are paying amount equivalent to amount of 5%, 8% or 10% of value of the clearance effected of final product which is fully exempted from payment of Central Excise duty in terms of rule 3(1) of the CENVAT Credit Rules, 2004., as they were not maintaining separate records for inputs used in the manufacture fully exempted /dutiable final product, as prescribed under Rule 6 of the CENVA T Credit Rules, 2004". 12. As per Notification 04/2006-C.E, dated 01.03.2006 at Sr. No.47 (A) & (B) drugs or medicines including their salts & esters, diagnostic test kits (falling under Chapters. 28, 29, 30 or 38) and specified in List 3 or 4 appended to Notification 21/2002- Customs dated 01.03.2002 are unconditionally exempted from payment of central excise duty. Also bulk drugs used in the manufacture of such drugs/medicines are exempted from payment of duty if manufactured and used in the factory of production provided conditions are followed. In the instant case, they have cleared the impugned product outside their factory premise....
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....nder: "Amioadrone is bulk drug is mentioned in Customs Notfn 21/2002 dtd 01.03.2002 at S.No.80 of List No.3. The sample is in the form of powder. This cannot be consumed by human as such; it has to go through manufacture before human consumption." 15. To ensure the usage by the buyers of the said products, a letter was issued to M/s. Cadila Healthcare Ltd & M/s. Torrent Pharmaceutical Ltd by the Department to which M/s. Cadila Healthcare Ltd & M/s. Torrent Pharmaceutical Ltd have responded vide letters dated 27.05.2010 & 24.05.2010 respectively stating that the Amiodarone Hydrochloride is a bulk drug/API and used by them for manufacture of formulations. Thus the product in question is nothing but a bulk drug. 16. In the subject Notification at Sr.No.47(B) it is stated that Bulk drugs used in the manufacture of the drugs or medicines at Sr. No.47(A) are exempted provided procedure laid down in the Central Excise (Removal of Goods at Concessional rate of Duty for Manufacture of excisable Goods) Rules 2001 is followed where the use of such bulk drugs is elsewhere than in the factory of production. In the instant case, the assessee do not....
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....o said notification. Admittedly procedure as per said condition no. 2 has not been followed by the appellant/assessee. When such procedure as specified by the notification has not been followed the benefit of the exemption at Sl No 47 (B) is not admissible to the appellant. 4.7 We are not impressed by the arguments advanced by the appellant/assessee that they have correctly availed the exemption under Sl 47 (A), by referring to definition as per Drug Price Control Order, defining ""drug" includes bulk drug and its formulation." If this interpretation is agreed to entry at Sl No 47 (B) will become redundant and it is settled position in law any interpretation which renders some entry in the fiscal/ taxing statue cannot be correct interpretation. Generalis Specialibus non Derogant means erstwhile special law is given superiority over later general law. This has been followed while making interpretations, in India and across the world. As per this Latin Maxim the intention of legislature for providing the specific entries, should be ascertained and honoured. Hence the specific entry in the notification will have to be given precedence over the general entry, not defined but b....
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....g exemption and therefore is not exempt or absolved from following the statutory requirements as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas case (supra), to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows - "The law is well-settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying ....
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....able objectives for which it was passed. 33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. 34. The test for determining the applicability of the substantial compliance doctri....
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.... case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 43. There is abundant jurisprudential justification for this. In the Governance of rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the Courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualizing different situations. For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the revenue has established co....
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....r. The words used in the provision, imposing taxes or granting exemption should be understood in the same way in which these are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. It is, however, necessary to bear in mind certain principles. The notification in this case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act. The notification must be read as a whole in the context of the other relevant provisions. When a notification is issued in accordance with power conferred by the statute, it has statutory force and validity and, therefore, the exemption under the notification is as if it were contained in the Act itself. See in this connection the observations of this Court in Orient Weaving Mills (P) Ltd. v. Union of India, 1962 Supp 3 SCR 481 = AIR 1963 SC 98. See also Kailash Nath v. State of U.P., AIR 1957 SC 790. The principle is well-settled that when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment. But in this connection, it is well to remember the observations of the Judicial Com....
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....it." 46. The above decision, which is also a decision of two-Judge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are to be invoked at different stages of interpreting it. The question whether a subject falls in the notification or in the exemption clause, has to be strictly construed. When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification by giving full play bestowing wider and liberal construction. The ratio of Parle Exports case (supra) deduced as follows : "Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed, construe it liberally". 47. We do not find any strong and compelling reasons to differ, taking a contra view, from this. We respectfully record our concurrence to this view which has been subsequently, elaborated by the Constitution Bench in Hari Chand case (supra). 48. The next authority, which needs to be referred is the case in Mangalore Chemicals (supra). As we have already made reference to the same earlier, repetition....
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....claiming exemption is required to comply with the procedure strictly to avail the benefit. The question posed and decided was indeed different. The said decision, which we have already discussed supra, however, indicates that while construing an exemption notification, the Court has to distinguish the conditions which require strict compliance, the non-compliance of which would render the assessee ineligible to claim exemption and those which require substantial compliance to be entitled for exemption. We are pointing out this aspect to dispel any doubt about the legal position as explored in this decision. As already concluded in para 50 above, we may reiterate that we are only concerned in this case with a situation where there is ambiguity in an exemption notification or exemption clause, in which event the benefit of such ambiguity cannot be extended to the subject/assessee by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must receive a construction favouring the assessee. Both the situations are different and while considering an exemption notification, the distinction cannot be ignored. 52. To sum up, we answer the reference....
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....meaningful conclusion. Also, the assessee, as a corporate with resources at command, it is all the more expected that they will be fully aware of the Rules and procedures of Central Excise. The conclusion therefore would be that the act of assessee, would justify invoking the extended period to demand duty." We do not find any justification in the impugned order for invoking the extended period, as Commissioner has not even recorded finding to effect, that the ingredient with intent to evade the payment of duty, for invoking the extended period of limitation is present in the case. The issue under consideration is purely of interpretation of two competing entries in the notification and the appellant/assessee has explained the reasons for the interpretation made by him for adopting a particular interpretation. The interpretation as adopted by the appellant/assessee was also affirmed by the tribunal in the cases as referred by the appellant/assessee. Just because the interpretation of the notification adopted by the appellant/assessee is not acceptable, it cannot be ground for invoking extended period of limitation. 4.8 Now we take up question at "c" in para 4.2. Appella....
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....is fixed. It is pointed out that even if in some statues mens rea is specifically provided for, so is the limit or imposition of penalty, that is the maximum fixed or the quantum has to be between two limits fixed. In the cases at hand, there is no variable and, therefore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated "which he knows or has reason to believe". The said clause referred to wilful action. According to learned counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in Section 11AC. Where the outer limit of penalty is fixed and the statute provides that it should not exceed a particular limit, that itself indicates scope for discretion but that is not the case here." 23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must ....