Case: Cipla Limited Vs. Union of India

( 1 ) PETITIONER No. 1 is a joint stock company incorporated on August 17,1935 under the provisions of the Companies Act. The company runs its factory at Bombay and manufactures medicines known as `patent and proprietary medicines falling under Tariff Item No. 14e of the first Schedule of Central Excise Act and the goods are liable to pay excise duty at prescribed rate. The excise duty on patent and proprietary/medicinal preparations was imposed with effect from March 1,1961. The medicines manufactured by the company are not advertised but it is customary that free supply of medicinal preparations and drugs is made to hospitals, nursing homes and medical practitioners to enable them to get familiarise with such preparations. The samples handed over to the hospitals and medical practitioners are free and the company does not recover any charges for the value2 ) THE Government of India, Ministry of Finance (Department of Revenue) published exemption notification dated April 1,1977 in exercise of(1) of Rule 8 of Central Excise Rules, 1944 exempting clinical samples issued by any manufacturer of patent or proprietary medicines falling under Tariff Item No. 14e of the First Schedule of the Central Excise Act from the whole of the duty of excise leviable thereon. The notification provides that the manufacturer is entitled to the benefit of exemption notification providedsuch clearances in any month are limited to a quantity not exceeding four per cent by value of the total duty paid clearances during the preceding month of all types of patent or proprietary medicines; (b) samples are intended for free supply to hospitals, nursing homes or medical practitioners; and (c) the samples are packed in a form distinctly different from regular trade packing and each smallest packing is clearly and spicuously marked physicians sample, not to be sold. The explanation to the exemption notification reads as underthis notification, manufacturer means (a) where it is a company within the meaning of the Companies Act, 1956 (1 of 1956), a company. . . . . (i)which does not hold any share in the capital of any foreign company, and (ii)no part of the capital of which is held by foreigner or a foreign company; (b)where it is firm. . . . . (i)the firm has no interest in any foreign firm; and (ii)no interest in the firm is held by a foreigner or a foreign company, and (c)where it is an individual, such individual is not a foreigner. "( 3 ) THE dispute in this petition filed under Article 226 of the Constitution centres around to the applicability of the explanation to the petitioner company. It is required that to be stated that the validity of the explanation was challenged before Gujarat High Court and by judgment reported in 1980 (6) E. L. T. 759 (Guj.) (Suhrid Geigy Ltd. v. Union of India and Another), the Division bench of the Gujarat High Court held that clause (a) to the explanation is ultra vires under article 14 and Rule 8 of Central Excise Rules and it has no nexus with the object which the notification seeks to serve. The appeal preferred by the department before the Supreme Court is pending final disposal. Shri Korde, learned counsel appearing on behalf of the petitioners, submitted that in the present case, even accepting the validity of the explanation, the department is in error assuming that the benefit of exemption notification is not available to the company in view of the explanation. The company had entered into correspondence with the Assistant Collector of Central Excise, bombay claiming benefit of exemption notification and the department declines to accept the claim. Ultimately, while approving the classification list filed by the company, the Assistant collector of Central Excise by order dated March 17,1982 held that the company is not entitled to exemption under the notification dated April 1,1977. The company therefore preferred the present petition to challenge the order of the Assistant Collector and denial of benefit of exemption notification.

Court's reasoning:
It is not in dispute that the petitioner company in pursuance of encouragement given by the Central Government has started a joint venture in Malaysia with a total investment of Rs.. The joint venture or collaboration was with the company registered in Malaysia known as Barket Pharma Sandirian Gerhad. The petitioner company held certain shares in the collaborators company. It is not in dispute that the collaboration agreement came to an end in March 1981. We are unable to accede to the submission of Shri Deodhar that in view of the collaboration agreement which the petitioner company had entered with the Malaysian company in pursuance of the encouragement given by the Central Government, the benefit of exemption notification should be denied under the explanation (a) (i) on the ground that the petitioner company held shares in the capital of the foreignare unable to accede to the submission of the learned counsel. The vested interest in favour of custodian under the Evacuee Property Act was by operation of law and merely because the holders of equity and preference shares holding 3. 09% of the issued capital had left the country after partition in the year 1948 that cannot lead to the conclusion that the petitioner company is not entitled to the benefit of exemption notification. It is incorrect on the part of the department to overlook the object of issuance of the notification and deny the advantage on such technical grounds. Same is the case in respect of 14 equity shares of face value of Rs. 100/each held by a British national prior to his demise. In our judgment, the percentage of issued capital held by the custodian and Shri Parkar is negligible that the denial of advantage of exemption notification would defeat the object with which the Government issued the notification. The object of encouraging indigenous industries in respect of manufacture of patent and proprietary medicines would stand defeated if advantage of exemption notification is denied to the petitioner company on the facts and circumstances of the case. In our judgment, the Assistant Collector was in error in passing the impugned order dated March 17,1982, copy of which is annexed at Exh n to the petition. The company is entitled to advantage of the benefit of exemption notification which is still in operation.