IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4944 OF 2004

Commnr. of Central Excise & Customs, Indore ...Appellant(s)

Versus

M/s. Parenteral Drugs (I) Ltd. ...Respondent(s)

W I T H

CIVIL APPEAL NOS.6519/2005, 1152/2006, 2127/2006, 2628/2006, 2630/2006 & 4059/2006

O R D E R

Delay condoned.

In this batch of Civil Appeals, the main issue which arose for determination

before  the  Adjudicating  Authority  was  whether  Intravenous  Fluids  having  a

therapeutic value stood covered under Exemption Notification No.3/2001.

In the lead matter – M/s. Parenteral Drugs (I) Ltd. - the respondents were

engaged  in  the  manufacture  of  various  types  of  Intravenous  Fluids.   They  were

availing the benefits of Notification No.6/2000, dated 1.3.2000.  The said Notification

was amended by Notification No.36/2000,  dated 4.5.2000,  whereby Entry No.47-A

was added  thereby exempting  “Intravenous Fluids” from payment  of excise duty.

However,  from  1.3.2001,  the  earlier  notifications  were  replaced  by  Notification

No.3/2001 which defined “Intravenous Fluids” as those which  are used for sugar,

electrolyte  or  fluid  replenishment.   In  other  words,  open-ended  exemption  stood

restricted by the above three qualifications.

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Accordingly, show cause notices were issued in which it was alleged that

the respondents were engaged in the manufacture of intravenous infusions of various

kinds  which  becides  the  fluids  included  certain  medicines  having  anti-bacterial,

antibiotic and antimicrobial properties.  It was alleged in the show cause notice that

by addition of the following items to the Intravenous Fluids,  the product attained

therapeutic  value  and,  consequently,  it  fell  outside  Notification  No.3/2001  which

defined 'IV Fluids' as those used for sugar, electrolyte or fluid replenishment.   

The items added to the fluids are as follows:

(a) Ciprofloxacin I.P.

(b) Metronidazole I.P.

(c) PDZOLE-D

(d) Ciprodex

(e) Tinipidi Isotonic Infusion, and

(f) Mannitol I.P.

The most important aspect to be noted is that in the 2001-2002 Budget, an

explanation  was  inserted  in  Notification  No.36/2000,  clarifying that  only  such  IV

fluids which  were used for sugar,  electrolyte or fluid replenishment,  were exempt

from duty and not other IV fluids.  This provision in the Budget was relied upon by

the Department in the show cause notice(s) to deny the benefit of exemption claimed

by the  respondents  under Notification  No.3/2001.   Unfortunately,  despite  detailed

analysis of the notification in question by the Commissioner, the Tribunal has not

examined this aspect and, therefore, the matter needs to be remitted to the Tribunal

to give its finding as to what is the effect of the 2001-2002 Budget which restricts the

definition of 'IV Fluids' in terms of the above three qualifications.

There is one more aspect which the Tribunal is required to consider.  In the

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labels  of  the  respondent-Company,  there  is  a  warning  stating  that  IV  fluid

manufactured by the assessee is Schedule-H Drug.  What is argued on behalf of the

assessee(s) is that because of addition to the IV Fluid of one of the above-mentioned

six items, the product manufactured is required to be sold as a Schedule-H drug.  On

the other hand,  the Department has  placed reliance on the  Drugs and Cosmetics

Rules,  1945  read with  Schedule-H to  indicate  that  when IV Fluid  has  dominant

therapeutic value, it will not come within the exemption because it has to be treated

as a Schedule-H drug.  We do wish to express any opinion on this point.  Suffice it to

state that on the above two questions/issues, the matter needs to be remitted to the

Tribunal for consideration in accordance with law.   

We may add that exemption notifications have to be read strictly.  We may

also add that the burden is on the assessee to prove that the item falls within the four

corners of the exemption notification.

Before concluding,  we  may state  that  if  on  the  second issue,  regarding

Schedule-H Drug,  as spelt  out  hereinabove,   if  the  Tribunal feels that  the matter

requires  further  evidence,  it  may  either  itself  decide  that  point  after  giving

opportunity to the parties or it may remit the matter to the Adjudicating Authority

for its decision on factual aspect in accordance with law.

Subject to what is stated above, the Department's Appeals are allowed, the

impugned judgment is set aside and the matters are remitted to the Tribunal for fresh

consideration in accordance with law.  In the facts and circumstances, there will be

no order as to costs.

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                                       ..................J.              (S.H. KAPADIA)

                             ...................J.

                                       (AFTAB ALAM) New Delhi, March 31, 2009.

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