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CASE NO.: Appeal (civil)  922 of 1998

PETITIONER: M/s Mentha & Allied Products Ltd.

RESPONDENT: Collector of Central Excise, Meerut

DATE OF JUDGMENT: 05/05/2004

BENCH: CJI & G.P. MATHUR.

JUDGMENT: JUDGMENT

RAJENDRA BABU,  CJI.  :

       The appellant before us is a company engaged in the  manufacture of Menthol IP, Menthol BP, Menthol U.S.P. and  Mentha Oil IP.   The appellant was carrying on its activities  under a licence granted by the drug control authorities  constituted under the Drugs and Cosmetic Act, 1940.    The  licence enabled the appellant to manufacture Menthol IP,  Menthol BP, Menthol U.S.P. and Mentha Oil IP.   

       On 1.3.1988 a notification No. 31/88-CE was issued  by the Department which reads as under :-

"In exercise of the powers conferred by sub- rule (1) of rule 8 of the Central Excise Rules,  1944, the Central Government hereby  exempts goods of the description specified in  column (2) of the Table thereto annexed and  falling under Chapter 28, 29 or 30 as the  case may be, of the Schedule to the Central  Excise Tariff Act, 1985  (5 of 1985),  from so  much of the duty of excise leviable thereon  under the said Schedule as is in excess of the  amount calculated at the rate specified in the  corresponding entry in column (3)  of the  said Table.                           THE TABLE S N      Description of the Goods Rate  of  Duty 1 Bulk drugs (including salts,  easters and derivatives, if  any) specified under the First  Schedule to the Drugs (Price  Control) Order, 1987, as  amended from time to time NIL 2 Other bulk drugs 5% ad  valorem 3 Medicinal grade oxygen

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NIL 4 Medicinal grade Hydroxgen  Peroxide NIL 5 Anaesthetics NIL

Explanation -  In this notification, the  expression "bulk drugs"  shall have the same  meaning assigned to it in the Drugs (Prices  Control) Order, 1987.

The Notification provides that the expression  "Bulk drugs" shall have the same meaning  assigned to it in the Drugs (Prices Control)  Order, 1987.  The Drugs (Prices Control)  Order, 1987 defines ’bulk drug’ as under :-

"Bulk Drug"  means any substance  including pharmaceutical, chemical,  biological or plant product or  medicinal gas conforming to  pharmacopoeial or other standards  accepted under the Drugs and  Cosmetics Act, 1940 (23 of 1940),  which is used as such, or as an  ingredient in any formulation."

The appellant claimed that he had been manufacturing  and supplying Menthol as falling under the expression   "bulk drugs" as set out in the Notification referred to  above and filed classification list.  Returns also were  filed in appropriate forms and goods were also cleared.   The appellant was availing of the exemption till  27.6.1990.  On 27.6.1990 the Assistant Collector,  Central Excise, Rampur proposed that the appellant  should pay the excise duty without availing of the  benefit of the exemption referred to earlier and issued  a show cause notice proposing imposition of penalty.    Objections were raised by the appellant that the  Assistant Collector was not competent to issue a show  cause notice claiming excise duty for the past period  exceeding six months.  Thereafter,  the Collector,  Central Excise, Meerut,  issued a show cause notice  alleging that the appellant had wrongly availed of the  benefit of the Notification No. 31/88 dated 1.3.1988  during the period from April 1988 to December 1988  and January 1990 to 5 April 1990.   After hearing the  appellant and examining the replies filed by the  appellant to the show cause notice, the Collector  ultimately decided that the appellant was liable to pay  differential demand of excise duty and also imposed  penalty of Rs. 2 lakhs.     

       The matter was carried in appeal to the Custom,  Excise & Gold (Control) Appellate Tribunal (hereinafter  referred to as  the Tribunal) which dismissed the appeal  on the basis that Menthol cleared by the appellant is  not used as such, or as an ingredient in any formulation  as provided under the Drugs and Cosmetics Act, 1940  and, therefore,  the appellant was not entitled for the  benefit of Notification No. 31/88-CE dated 1.3.1988

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       The basis upon which the Tribunal proceeded is  that as per the definition of "bulk drug",  the substance  mentioned in the definition must be used as such,  or  as an ingredient in any formulation and the expression   "formulation"  means a medicine processed out of, or  containing one or more bulk drugs.  The Tribunal,  therefore,  took the view that Menthol IP cleared by the  appellant is not being used as such, or as an ingredient  in any of the formulation mentioned under the Drugs  (Prices Control)  Order, 1987 and thus the appellant  was not entitled for the benefit of Notification No.  31/88-CE dated 1.3.1988.    

       It is urged on behalf of the appellants before us  that this Court in Union of India   vs.  Citric India  Ltd.,  2002 (146) ELT 259 (SC), held that for the  purpose of  similar notification the question of  ascertaining end use of the product is irrelevant. This  Court in an appeal arising out of an order of the   Tribunal in Calibre Chemicals vs.  Commissioner of  Central Excise, Surat,  1998 (98) ELT 755, held in  Civil Appeal No. 4790 disposed of on 8.12.1997 that for  the purpose of exemption Notification No. 8/95-CE an  end use certificate is not necessary for potassium  iodate so as to exempt it from duty as bulk drug in  terms of the notification and that potassium iodate had  been used in the manufacture of iodized salt and there  was no dispute that potassium iodate possessed  therapeutic properties.     

       All these decisions turn only on the basis of the  notification which was put forth before the Courts.  It is  not very clear from the judgments in any of these cases  as to whether any expressions are used or the  attention of the Court was drawn to the same as is set  out in the notification No. 31/88-CE dated 1.3.1988 or  not.             In the present cases, we will have to consider the  expression "bulk drug" as specified under First  Schedule to the Drugs (Prices Control) Order, 1987.    In Explanation after the Table in the Notification No.  31/88-CE dated 1.3.1988 it is clearly set out that the  expression  "bulk drugs"  shall have the same meaning  assigned  to it in the Drugs (Prices Control) Order,  1987.  It is clear that substance has to be used as  such, or as an ingredient in any formulation in terms of  the Drugs (Prices Control) Order, 1987.  Further, the  expression "formulation"  has also been defined in the  following terms "- "a medicine processed out of, or containing  one or more bulk drugs or drugs with or  without the use of any pharmaceutical aids, or  internal or external use for \005\005\005."

       Hence, expression "formulation"  is only with  reference to a medicine processed out of bulk drug.          Therefore,  when the ingredient used by the  appellant, namely,  Menthol IP, in the manufacture of  tooth paste, powder and shaving cream is not in the  use of any formulation which is a medicine processed  out of, or containing one or more bulk drugs,  the view  taken by the Tribunal cannot be assailed.

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       However, so far as the application of Section 11  for the purpose of levy of penalty is concerned,  we  must take note of the fact that different views have  been expressed at different stages both by the Tribunal  and the High Court of Bombay in Citric India Ltd.    vs.  Union of India,  1993 (66) ELT 566 (Bom.),  and  by this Court also in one of the decisions cited above, it  is not clear as to whether the law is absolutely clear on  the matter or not and the authorities also had to issue  clarifications from time to time.  In the circumstances,   we think,  invoking of Section 11-A is not called for and   levy of penalty in the present case would not be  appropriate and the application of extended period of  limitation is not justified.  The order of the Tribunal is  modified to this extent. In other respects the order of  the Tribunal stands maintained.

       Accordingly,  the appeal is partly allowed.