Case: Citric India Limited Vs. Union of India

( 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 subrule (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 drugintermediate, 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 theof the product manufactured.

Court's reasoning:
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.