Case: Citric India Limited Vs. Union of India

M.L. PENDSE, J. ( 1 ) PETITIONER No. 1 is a Public Limited Company and on September 24, 1968 obtained a licence from Food and Drug Administration, Maharashtra, Bombay and commenced manufacture of pharmaceutical products, which are used in the drug formulations. One of the items manufactured by the petitioners is Citric Acid I. P. The Company filed classification lists from time to time classifying the product under Tariff Item No. 68 of the First Schedule of the Central excises and Salt Act, 1944, and the classification lists were duly approved by the Excise authorities. On March 1, 1975 the Central Government issued notification in exercise of powers conferred by sub- rule (1) of Rule 8 of Central Excise Rules, 1944 exempting goods of the description specified in the Schedule annexed to the notification and falling under Item No. 68 of the First Schedule from the whole of the duty of excise leviable thereon. This Notification No. 55 of 1975 was amended on March, 1978 by Notification No. 62 of 1978 and certain additional items were introduced in the Schedule. Item No. 9 reads as follows: "19. All drugs medicines, pharmaceuticals and drug intermediates not elsewhere specified". ( 2 ) THE petitioners claimed that Citric Acid I. P. was manufactured strictly in accordance with the standards prescribed under the Indian Pharmacopoeia and was manufactured in terms of the drug Licence. The petitioners filed fresh classification list on March 4, 1978 claiming benefit of exemption notification. On May 3, 1978 the Superintendent of Central Excise, Nasik approved the classification list confirming that the Company is entitled to the exemption under the notification. ( 3 ) BETWEEN January 1, 1979 and April 24, 1981 the Company was served with eleven show cause notices by Superintendent of Central Excise, Nasik, calling upon to explain why the claim for exemption should not be rejected and excise duty levied on citric acid under Tariff Item No. 68. In answer to the notices, the Company claimed that Citric Acid is item and in terms of provisions of Notification No. 62/78 excise duty cannot be levied on a drug item. On September 29, 1991 the Assistant Collector discharged the show cause notices holding that Citric Acid is a drug item eligible for exemption under Notification No. 62/78.( 4 ) THE Order of the Assistant Collector holding that the Company is entitled to the benefit of exemption notification was examined by the Collector of Central Excise, Poona in exercise of revisional powers under Section 35a (2) of the Excise Act, and by order dated April 26, 1993 the Collector declared that the benefit of exemption under the notification cannot be claimed by the Company as the view taken by the Assistant Collector that Citric Acid is a drug or a pharmaceutical was erroneous. The Collector also held that Citric Acid is only a basic chemical and not used directly as a drug intermediate. The Company challenged the order passed by the Collector by preferring an appeal as prescribed under Section 35b of the Excise Act before the Appellate Tribunal, New Delhi. The tribunal by order dated March 4, 1985 came to the conclusion that the claim of the Department that Citric Acid is not a pharmaceutical cannot be accepted and the Collector was wrong in assessment that Citric Acid is merely a chemical. The Tribunal in paragraph 4 of the order rejected the contention of the Department that Citric Acid is not a pharmaceutical and should not be so classified notwithstanding its use as an acidulant in dye manufactures, food processing and metal treatment. The Tribunal held that citric acid is widely used as pharmaceutical. The tribunal noticed that the Collector found that the manufacture of citric acid by the Company is in accordance with pharmacopoeial standards. After recording finding that citric acid finds use as a drug and pharmaceutical even though it has more uses in the food preparation industry and other process the Tribunal held that the exemption available under the notification is to drug, a drug- intermediate, a pharmaceutical and not to citric acid. The Tribunal held in paragraph 26 of the order:"We, accordingly, order that the exemption should be extended to all citric acid cleared by M/s. Citric India Ltd. and used in the manufacture of drug, medicines / pharmaceuticals. The Central excise may make enquiries and satisfy itself about the uses and M/s. Citric India Ltd. should, to this end, furnish all help and aid to the Central Excise department so that the concession can be extended to all the deserving clearances, in accordance with the law. But the citric acid not so used must be denied the exemption and we reject the appeal in regard to such clearances."The conclusion recorded by Tribunal in paragraph 26 is on the basis that to ascertain whether the duty is leviable on manufacture of citric acid, it is necessary to ascertain the end-use of the product manufactured. The Company feeling aggrieved by the conclusion recorded in paragraph 26 of the order passed by the Tribunal, preferred this petition under Articles 226 and 227 of the constitution of India May 2, 1985. The petition was admitted on May 3, 1985 and is now set down for final disposal.( 5 ) SHRI Pochkhanwala, learned counsel appearing on behalf of the petitioners, submitted that the declaration given by the Tribunal that exemption is available only to manufacture of citric acid which is cleared and used in the manufacture of drug medicines / pharmaceuticals and the department should have enquired and satisfied about the end use is contrary to law and not sustainable. The learned counsel urged that it is wholly unnecessary to examine what is the end-use of the manufactured product to determine whether the excise duty is leviable on the process of manufacture of a product. The learned counsel urged that an identical question came up for consideration before one of us (Pendse, J.) and by judgment reported in 1986 (25) E. L. T. 906 (Rakesh Enterprises and Anr. v. Union of India and Ors.) it was held that once a product is found to be a drug or drug-intermediate or pharmaceutical then the advantage of exemption notification is available to the manufacturer and it is not permissible for the Department to claim that exemption can be claimed only if the end-product of the manufactured item is used as a drug. The decision was confirmed by Division Bench of this Court by judgment reported in 1991 (56) E. L. T. 39 (Union of India v. Rakesh Enterprises). The submission is correct and deserves acceptance. The controversy arose as to whether phenol usp is a drug, drug-intermediate or pharmaceutical, and after the finding was recorded that phenol is both drug and drug-intermediate, it was contended by the Department that it is not suffice that the product is a drug or drug-intermediate for the purpose of exemption. The department claimed that it must be established that the article was so used as a drug. The contention was turned down with finding that it is not permissible to read some additional words in the exemption notification. It was held that the plain reading of the exemption notification makes it clear that the exemption is available as soon as the article as found to be a drug or drug-intermediate. We are in respectful agreement with the view taken by the single Judge and which was confirmed by the Division Bench of this Court, and the order of the Tribunal directing that the exemption is available only if it is established that the end-use of the Citric Acid was for the manufacture of drug medicines and pharmaceuticals cannot be sustained.( 6 ) SHRI Desai, learned counsel appearing on behalf of the Department raised a preliminary objection to the maintainability of the petition filed by the Company under Article 226 of the constitution of India. The learned counsel submitted that under Section 35l of the Excise Act it is open to challenge the order passed by the Appellate Tribunal by filing an appeal before the Supreme Court. The learned counsel urged that as an adequate and efficacious remedy was available to the Company of filing appeal to the Supreme Court, it is not proper to entertain the petition under Article 226 of the Constitution of India. Normally, we would have acceded to the submission of the learned counsel and directed the petitioners to approach the Supreme Court by filing an appeal, but we are not adopting this course for more than one reason. Shri Desai informed us with reference to the averments made in paragraph 3 of the return shown by Mr. C. T. Dhindale, Assistant Collector of Central Excise, on October 19, 1992 that against the order of the Tribunal holding that Citric Acid is a drug and pharmaceutical the Department has filed an appeal before the Supreme Court under Section 35l of the Excise Act and the same is pending. On the last occasion when this claim was made that the appeal filed by the Department is still pending in the Supreme Court, we called upon the learned counsel to furnish the number of pending appeal. Shri Pochkhanwala submitted that the claim that appeal is pending in the supreme Court is entirely incorrect because during last seven years the petitioners had never received any notice from the Supreme Court and it is inconceivable that the appeal lodged in the year 1985 would remain pending for more than seven years. Shri Desai sought adjournment and which was readily granted to ascertain about the claim of pendency of the appeal. In spite of diligent search made by the learned counsel with the assistance of the officers of the Central excise, to trace can be found of any pendency of appeal against the order of the Tribunal. In these circumstances were proceed on the basis that either appeal which is alleged to have been filed in the Supreme Court by the Department was not prosecuted or was dismissed on merits. In these circumstances the question to be determined is whether the petition filed under Article 226 of the Constitution to challenge the direction of the Tribunal in paragraph 26 quoted hereinabove, should be entertained. We are inclined to entertain the petition as the dispute is pending in this Court for last over seven years and driving the parties now to file an appeal to the supreme Court would lead to multiplicity of litigation and considerable expenses. We are conscious that when remedy of appeal is available, this Court is reluctant to exercise writ jurisdiction, but taking into consideration the peculiar facts and circumstances of the case, we are not prepared to accede to the preliminary objection raised by Shri Desai that the petition should not be entertained.( 7 ) SHRI Desai then submitted that the finding recorded by the Tribunal that the Citric Acid the product manufactured by the petitioners, is a drug, drug-intermediate or pharmaceutical is incorrect. We are afraid we cannot permit the learned counsel to raise this contention, because the Department has not challenged that finding of the Tribunal either by filing petition in this court or by filing appeal before the Supreme Court. The appeal alleged to have been filed is either not filed or stands summarily dismissed. Consequently the conclusion of the Tribunal as regards the nature of product manufactured has become final and it is not open for the department to reagitate in the present proceedings. Shri Desai then submitted that even accepting that Citric Acid is a drug, drug-intermediate or pharmaceutical still the finding of the Tribunal that unless the Company established the end-use of the manufactured product, exemption is not available, should not be disturbed. We are afraid we cannot acceded to the submission. It is necessary to reiterate that the impost of excise duty is in respect of manufacture of a product and the liability to pay excise duty accrues as soon as manufactured article comes into existence. The liability to pay duty is not dependent upon the end-use of the product and it is not open for the manufacturer to claim that the liability is dependent upon the end-use of the product and so also to the Department to claim that exemption cannot be claimed till it is established that the manufactured product is used for ultimate manufacture of a drug or drug-intermediate. The advantage of exemption cannot be denied with reference to end-use, unless exemption notification so provides. In our judgment, in view of the decision recorded by this Court in the case of Rakesh Enterprises, the contention of Shri Desai cannot be acceded to.( 8 ) SHRI Desai referred to the decision of the Supreme Court reported in 1988 (38) E. L. T. 564 (Collector of C. E. Guntur v. Andhra Sugar Ltd.) to urge that the requirement of end-use though not built into the exemption notification is not only implied but also becomes imperative in a situation when the product has uses other than drug intermediate. The learned counsel submitted that this is the ratio laid down by the Supreme Court. The submission is not accurate. On careful perusal of the entire judgment of the Supreme Court, it is obvious that the observations set out in the head-note are not the findings or conclusions of the Supreme Court. The issue before the Supreme Court was whether the Acetic Andydride manufactured by the respondents and sold to drug manufacturers is eligible to benefit of exemption under Notification No. 55/75 as amended by Notification No. 62/78 as drug intermediate. The manufacturer has succeed before the tribunal and the appeal was carried to the Supreme Court by the Collector. The Supreme Court in paragraph 2 of the judgment observed that the question is was the item manufactured a drug or an intermediate in terms of the notification. In paragraph 6 of the judgment the Supreme Court noted that on the facts of the case that Acetic Andydride manufactured was used in the manufacture of the drugs. In view of the finding of fact noticed by the Supreme Court, the question as to whether the end-use of the manufactured product can be considered to determine levy of duty or benefit of exemption notification did not come up for consideration. The supreme Court referred to the decision of the single Judge of Karnataka High Court and where the learned Judge had quoted the observations of Government of India in a revision petition to the following effect:" In the Governments view this requirement of end-use though not built into the exemption notification, is not only implied but also becomes imperative in a situation where the product is used other than as drug intermediate."It is therefore obvious that the Supreme Court has not laid down any such principle, but the head-note merely carves out what was quoted in the order passed by the Government in the revisional jurisdiction and which was noted by the Single Judge of the Karnataka High Court. In our judgment, the reliance on the decision of the Supreme Court in these circumstances is not accurate. In our judgment the petitioners are entitled to the relief.

Decision reasoning: 1[ds]In spite of diligent search made by the learned counsel with the assistance of the officers of the Central excise, to trace can be found of any pendency of appeal against the order of the Tribunal. In these circumstances were proceed on the basis that either appeal which is alleged to have been filed in the Supreme Court by the Department was not prosecuted or was dismissed on merits. In these circumstances the question to be determined is whether the petition filed under Article 226 of the Constitution to challenge the direction of the Tribunal in paragraph 26 quoted hereinabove, should be entertained. We are inclined to entertain the petition as the dispute is pending in this Court for last over seven years and driving the parties now to file an appeal to the supreme Court would lead to multiplicity of litigation and considerable expenses. We are conscious that when remedy of appeal is available, this Court is reluctant to exercise writ jurisdiction, but taking into consideration the peculiar facts and circumstances of the case, we are not prepared to accede to the preliminary objection raised by Shri Desai that the petition should not beare afraid we cannot permit the learned counsel to raise this contention, because the Department has not challenged that finding of the Tribunal either by filing petition in this court or by filing appeal before the Supreme Court. The appeal alleged to have been filed is either not filed or stands summarily dismissed. Consequently the conclusion of the Tribunal as regards the nature of product manufactured has become final and it is not open for the department to reagitate in the present proceedings. Shri Desai then submitted that even accepting that Citric Acid is a drug,or pharmaceutical still the finding of the Tribunal that unless the Company established theof the manufactured product, exemption is not available, should not be disturbed. We are afraid we cannot acceded to the submission. It is necessary to reiterate that the impost of excise duty is in respect of manufacture of a product and the liability to pay excise duty accrues as soon as manufactured article comes into existence. The liability to pay duty is not dependent upon theof the product and it is not open for the manufacturer to claim that the liability is dependent upon theof the product and so also to the Department to claim that exemption cannot be claimed till it is established that the manufactured product is used for ultimate manufacture of a drug orThe advantage of exemption cannot be denied with reference tounless exemption notification so provides. In our judgment, in view of the decision recorded by this Court in the case of Rakesh Enterprises, the contention of Shri Desai cannot be accededcareful perusal of the entire judgment of the Supreme Court, it is obvious that the observations set out in theare not the findings or conclusions of the Supreme Court. The issue before the Supreme Court was whether the Acetic Andydride manufactured by the respondents and sold to drug manufacturers is eligible to benefit of exemption under Notification No. 55/75 as amended by Notification No. 62/78 as drug intermediate. The manufacturer has succeed before the tribunal and the appeal was carried to the Supreme Court by the Collector. The Supreme Court in paragraph 2 of the judgment observed that the question is was the item manufactured a drug or an intermediate in terms of the notification. In paragraph 6 of the judgment the Supreme Court noted that on the facts of the case that Acetic Andydride manufactured was used in the manufacture of the drugs. In view of the finding of fact noticed by the Supreme Court, the question as to whether theof the manufactured product can be considered to determine levy of duty or benefit of exemption notification did not come up foris therefore obvious that the Supreme Court has not laid down any such principle, but themerely carves out what was quoted in the order passed by the Government in the revisional jurisdiction and which was noted by the Single Judge of the Karnataka High Court. In our judgment, the reliance on the decision of the Supreme Court in these circumstances is not accurate. In our judgment the petitioners are entitled to the relief.