TaxTMI 
TaxTMI 
2003 (6) TMI 158
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....used in the manufacture of medicines. Manufacture and sale of drugs is controlled in India by the Act known as the Drugs and Cosmetics Act, 1940 and the Rules framed thereunder. In terms of Rules 71(7), 74(o), 76(2) and 78(p) of the Drugs and Cosmetics Rules, 1945, the Appellants have to draw samples of the products manufactured by them, mention particulars of such samples like two ingredients of the samples along with raw materials out of which such samples have been produced etc. in terms of the Rules mentioned therein. It is also the duty of the manufacturer of such drugs to safely keep the test report. In terms of Schedules M & U of the Rules as contained in the above batch of the goods manufactured by the assessees and also maintenance of the records of the same. The show cause notice dated 3rd April, 2000 was issued to the assessee proposing to reverse the Modvat credit to the tune of Rs. 10,37,930/- utilised by the Appellants in respect of inputs utilised for the production of the goods which went through the quality control test and notice also proposed recovery of duty of Rs. 19,33,473/- in respect of the samples of the final product. The period in dispute is April, 1995 t....
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....ecords are required to provide a complete account of the manufacturing history of each batch of a drug showing that it has been manufactured, tested, and analysed in accordance with the manufacturing procedures and written instructions as per the master formula. 11. Reprocessing and recovery. - (a) If a product batch has to be reprocessed, reprocessing procedure should be authorised and recorded. An investigation should be carried out into the causes necessitating reprocessing and appropriate corrective measures should be taken for prevention of recurrence. 16. The Quality Control System. - Quality Control Department - Every manufacturing establishment shall have a quality control department supervised by approved expert staff directly responsible to the management but independent of other departments. The quality control department shall control all raw materials, monitor all in-process quality checks and control the quality and stability of finished products. The quality control department shall have the following principal duties :- (i) to prepare detailed instructions, a ....
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....Calcutta Clinical Research Association Ltd. v. U.O.I. [1999 (109) E.L.T. 56 (Cal.)] where the ld. Single Judge of the said High Court held as follows : "7. The manufacturer or producer had to comply with the requirements of Drugs Act because Mr. Roy Chowdhury contended that no patent medicine could come into the market unless it had so complied and these goods would not be marketable without such compliance. Mr. Roy Chowdhury drew my attention to certain observations in Craies on Statute Law, Sixth Edition, at page 145. It appears to me that manufacture of patent and proprietary medicine can only be completed when it is in accordance with the provisions of Drugs Act. There cannot be manufacture of patent and proprietary medicines unless they are in accordance with Drugs Act. Indeed, Section 18 of the Drugs Act prohibits manufacture and sale of drugs unless certain things are contained in the labels of such drugs. Therefore, it appears to me that the definition of the Drugs Act is relevant even prior to the introduction of sub-clause (iii) of Section 2(f) of the Central Excises and Salt Act, 1944. In the case of Mayor of Portsmouth v. Smith (1885) 10 AC 364 (HL) at p. 371 L....
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....mposition of levy in this case was valid. Unlabelled medicines are not and cannot be described as patent and proprietary medicine. Mr. Dutta's second contention therefore fails." As against this the ld. DR reiterated the findings recorded by the lower authority. 4. We have considered the rival submissions. 5. The Appellant is manufacturing P or P medicines. The Drugs and Cosmetics Act, 1940 was passed by the Parliament to regulate the import, manufacture, distribution and sale of Drugs and Cosmetics. Being a regulatory legislation the Parliament has prescribed in Chapter IV thereof the standards of quality, Misbranded Drugs and Adulterated Drugs, Spurious Cosmetics etc. The Act also provides for procedure for inspection and also provides for report by the Government Analyst. Section 27 of the said Act specifically provides for penalty for manufacture and sale of drugs in contravention of this Chapter. Rule 85 of the Rules provides for cancellation of the licence in case the licensee failed to comply with the provisions of the Act or Rules made thereunder. The relevant provision is set out below : "Rule 74 - Conditions of licence in [Forms 25 and 25F]. - A licence in [Fo....
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....ence samples from each batch of the drugs manufactured by him in a quantity which is at least twice the quantity of the drug required to conduct the test. The reading of clauses (c & l supra) forces us to say that only such of the samples which are found to be in conformity with the prescribed standard could be marketed. In fact this has been emphasised in the above way in Para 4 of the Order of the Tribunal in the case of Bayer Diagnostics India Ltd. v. Commissioner of C. Ex. & Customs, Vadodara (supra). In the show cause notice at Pages 23 & 24 of the Paper Book, reference has been made to the statement of Mr. Bhat having admitted that the company were drawing the samples of fully manufactured packed goods for Q.C. purposes and also admitted that the inputs on which credit is availed is also utilised for Q.C. purposes. He also stated that on the samples of finally packed goods, the company did not pay any central excise duty because they were not marketable. The assessing authority has taken this as a ground for denying the Modvat as also charging for duty purposes. 6. It may be emphasised here that the show cause notice at Para 6 reads as under :- "Whereas it also appears ....
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.... are ready for marketing. Therefore, the same should have been accounted for in the RG-1 and duty should have been discharged on such quantity." Rule 74(c) of the Drugs and Cosmetics Rules prescribes that each batch of raw materials used by a manufacturer for manufacture of the final product and each batch of final product shall be tested and a record maintained thereof. The conversion of the inputs into "finished products" cannot be denied by any person. The product is not sold because of the embargo as envisaged under Rule 74(c) of the Drugs and Cosmetics Rules. 7. If in a case the raw materials are converted into the finished product and the samples are tested in terms of Rule 74(c) of the Drugs and Cosmetics Rules, on such examination it is found to be not in conformity within prescribed standards, then such entire batch of the final products so manufactured are destroyed. Supposing the raw materials is also tested in terms of Rule 74(c) and they are not in conformity with the prescribed standards, they are also destroyed. 8. The argument of the learned Counsel as regards the destruction of the raw material as well as the manufactured products is that such destroyed or....
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....are drawn for test purposes could be included for purpose of exigibility of excise duty. The Hon'ble Supreme Court in Paragraphs 17 & 18 thereof have held as follows :- "17. From a conspectus of the aforesaid decisions, it would be clear that for the purposes of levy of excise duty, the test to be applied is whether the goods manufactured are marketable or not. In the present case the cigarette, which is the end product of tobacco, is fit for consumption before the same is removed for test. Packing of the cigarette cannot be said to be incidental or ancillary to the manufacturing process, but the same may be incidental or ancillary to its sale only. In case it is laid down that packing of cigarette is incidental or ancillary to the completion of manufactured products, the same may result into evasion of excise duty as before packing the cigarettes the same may be regularly supplied to each and every employee for his consumption without payment of excise duty thereon. The definition of "manufacture" under Section 2(f) very clearly includes process which is incidental or ancillary to the completion of manufactured product. Manufacture of cigarette is completed when the same emerge....