http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 13  

CASE NO.: Appeal (civil)  2736-2738 of 1999

PETITIONER: Sarabhai M. Chemicals

RESPONDENT: Commis.of Central Excise,Vadodara.

DATE OF JUDGMENT: 16/12/2004

BENCH: S.N.VARIAVA,Dr.AR.LAKSHMANAN&S.H.KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.

       These appeals under section 35L(b) of Central  Excise Act, 1944 are directed against a majority decision  dated 11.1.1999 passed by the Customs, Excise and Gold  (Control) Appellate Tribunal, New Delhi, by which  common order, the Appeal Nos.E-736/91-C, E-738/91-C  and E/747/91-C filed by the appellant were dismissed.          The facts, briefly, stated are as follows:

       M/s Sarabhai M. Chemicals, the appellant herein,  is a manufacturer of bulk drugs in India.  It manufactures  Ascorbic Acid and Salts of I.P. (Vitamin ’C’) as well as  Sorbitol Solution U.S.P. The said goods fall under  chapter heading 29 of Central Excise Tariff Act, 1985.

       By notification no.234/86 dated 3.4.1986, the  Central Government exempted the bulk drugs as defined  in the said notification from payment of excise duty.  The  appellant submitted its classification list for approval  claiming exemption under the said notification.  By letter  dated 17.4.1986, the Assistant Collector permitted the  appellant to clear the bulk drugs under the above  notification subject to production of a certificate from the  Drugs Controller, Government of India.  The appellant  obtained certificates from the Drugs Controller dated  17.4.1986, 15.5.1986, 21.5.1986 and 6.8.1990, in respect  of their claim for exemption under the aforestated  notification.  In the classification list, exemption was  sought by the appellant under notification no.234/86 on  the basis of certificates received by the appellant from the  Drugs Controller, Government of India.  The  classification lists were scrutinized, verified and  approved by the Assistant Collector.  The appellant  cleared the goods upon submission of the gate passes in  which they disclosed the names of the consignees. The  appellant also submitted its monthly returns on excisable  goods manufactured by it in the prescribed RT-12 forms,  which gave the particulars of the goods removed, gate  passes under which the goods were removed etc.

       Three show-cause notices were received by the  appellant on 30.12.1987, 6.4.1988 and 20.6.1988 from  Collector of Central Excise, Vadodara, denying the  exemption under notification no.234/86.  All the three  show-cause notices alleged that the appellant has  wrongly availed nil rate of duty in respect of its

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 13  

clearances by not bringing to the notice of the department  the fact that certain quantities of sorbitol solution and  vitamin "C" had been sold to non-pharma concerns  knowing fully well that the commodities would not be  normally used as drugs or medicines by its customers. By  the said show-cause notices, the appellant was asked to  show-cause inter alia as to why excise duty should not be  recovered under section 11-A(1) of the said Act read with  rule 9(2) of the Central Excise Rules, 1944.  The said  three show-cause notices related to the period, April 1986  to November 1986, March 1984 to February 1986, and  April 1986 to 30th April, 1987.  The grounds for demand  stated that on verification of the records of the appellant,  it was noticed by the department that the appellant had  cleared sorbitol solution to cigarette manufacturers,  which fact was not brought to the notice of the  department at the time of clearance.

       By its reply dated 2.3.1988, 18.7.1988 and  6.10.1988 respectively, the appellant submitted that the  Drugs Controller to the Government of India had issued a  certificate certifying sorbitol solution etc. as a Bulk Drug  after scrutinizing and examining the product; that the  sorbitol solution manufactured by the appellant met the  requirement of the said notification; and that the word  "normally" used in the notification did not restrict the  exemption based on individual end use.  It was urged that  if the intention was to restrict use of sorbitol solution by  drug manufacturing units only for diagnosis, treatment,  medication or in prevention of diseases or as an  ingredient in any formulation then the Legislature would  have used the word "exclusively" instead of the word  "normally"; that the notification did not require the  appellant to ascertain the end use at the time of clearance  of a bulk drug from the factory and that once the  certificate from the Drugs Controller was issued in terms  of the notification no.234/86, no further requirement  remained to be complied with in the matter of availing  exemption under the notification.  It was argued that the  proviso to the notification did not leave any scope for  further enquiry regarding the end use of the product on  the part of the proper officer to grant exemption to the  product which was certified as ’bulk drug’ by the Drugs  Controller.  It was submitted that the Government did not  intend to put the burden of production of end use  certificate on the appellant; that had the Government  intended to do so, some such provision would have been  made in the notification.  It was further submitted that the  certificate granted by the Drugs Controller was final for  all clearances of bulk drugs for exemption.    It was  submitted that the demand of duty by the department on  sorbitol solution was without jurisdiction and without any  authority of law; that it was based on misinterpretation of  the word "normally" used in the notification and  consequently, the demand notice was bad-in-law and a  nullity.  It was submitted that a conjoint reading of the  proviso and the explanation given in the notification  indicated that when the Drugs Controller issues a  certificate under the notification to the effect that the  goods in question were bulk drugs as given in the  explanation, the goods were entitled to exemption.  On  the point of limitation, it was submitted that the appellant  had filed their classification list to which the department  had never objected. It had filed RT-12 assessments and  the same were approved by the department from time to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 13  

time.  The appellant bonafide believed that the goods in  question fell under the said notification.  The appellant  was allowed to clear the goods by the department and  consequently, invocation of rule 9(2) of the Central  Excise Rules by the department was not warranted, as  there was no violation of rule 9(1).  It was argued that the  normal trade pattern of putting sorbitol solution in the  market was through distributors and consequently it was  impossible to get an end use certificate at the time of  clearance of the consignments at the factory gate.   

       By orders dated 23.11.1990, 22.11.1990 and  23.11.1990, the Collector rejected the contentions of the  appellant and confirmed the demands in all the three  notices.

       Being aggrieved by the three orders passed by the  Collector, the appellant filed three separate appeals,  referred to above, before the Customs, Excise Gold  (Control) Appellate Tribunal, New Delhi (hereinafter  referred to as "the Tribunal").  The appellant argued the  matter before the Tribunal on the point of limitation as  well as on merits.  The Judicial Member (J.M.) took the  view that the above show-cause notices were time barred  and no case was made out for invoking the extended  period of limitation as the demands mentioned in the  three show-cause notices have been worked out from the  gate passes without further investigation by the  department with the consignees mentioned in the gate  passes.  According to the J.M., the matter was squarely  covered by the judgment of the Madhya Pradesh High  Court in Jayant Vitamins Ltd. v. Union of India reported  in [(1991) 53 ELT 278].  The J.M. observed that crucial  point was \026 whether the appellant has suppressed any  facts or had cleared the goods by misrepresentation, fraud  or collusion?  According to the J.M., the appellant  bonafide believed that their product was covered by the  exemption notification and on the strength of the  certificate from the Drugs Controller and their  classification list, duly approved by the department, they  had cleared the goods and, therefore, the department was  precluded from invoking the proviso to section 11A(1) of  the said Act, 1944.  In the circumstances, the J.M. set  aside the show-cause notices-cum-demands as time  barred and allowed all the three appeals filed by the  appellant.  However, in his concluding paragraph, the  J.M. clarified that the appeals stood allowed only on the  question of limitation and that he was not recording any  order on the merits of the case.

       The Technical Member (T.M.) disagreed with the  J.M. holding that the product cleared to a pharmaceutical  factory alone became "bulk drugs"; that "bulk drugs"  cleared to a pharmaceutical factory alone could be  manufactured and sold for diagnosis or treatment or  prevention of diseases in human beings and animals; that  the appellant was well aware that if they sold their  product to a non-pharmaceutical company (consumer), it  was evidently intended for non-medicinal use and,  therefore, would not be covered by the exemption  notification.  It was observed that mere obtaining a  certificate from the Drugs Controller by itself would not  absolve the appellant, when they knowingly sold a  specified quantity to non-pharmaceutical concerns being  fully aware that those customers are not going to use the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 13  

product as drugs or medicines.  The T.M. further  observed that since the language of the notification was  clear and since it did not admit any ambiguity, there was  no merit in the plea of the appellant that they bonafide  believed that the items were covered by the exemption  notification.  It was further held that in the present case,  the department did not demand duty from the appellant in  respect of the quantity sold to pharmaceutical concerns,  but the department had demanded duty only in respect of  the quantity of sorbitol solution and vitamin ’C’ sold to  non-pharmaceutical concerns.  On facts, the T.M. came  to the conclusion that the appellant had deliberately  continued to take benefit of the exemption notification  even in respect of the quantity about which they were  aware would not constitute a drug or medicine in the  normal course.  That it was evidently done with the  intention to sell to the non-pharmaceutical concerns,  which fact was withheld from the department. It was  further held that indication of names of the consignees on  the gate passes was by itself not sufficient to exclude the  extended period of time available to the department.   Accordingly, the T.M. dismissed the appeals.   

       In view of difference of opinion, the matter was  referred by the President of the Tribunal to a Third  Member to decide \026 whether the demand was time  barred? By the impugned judgment dated 11.1.1999, the  Third Member, concurring with the T.M., came to the  conclusion that the appellant had wrongly taken the  benefit of exemption notification to the extent of sorbitol  solution being removed to those, who were not the  manufacturers of medicines and who had nothing to do  with the diagnosis, treatment, mitigation or prevention of  diseases.  It was held that when the appellant diverted  their consignments of bulk drugs to non-pharmaceutical  concerns, they were not complying with the statutory  requirements of the exemption notification.  According to  the Third Member, "bulk drugs" were products which  were normally used for diagnosis, treatment, mitigation  or prevention of diseases in human beings or animals;  that they were to be normally used for specified purposes  and that they had to be actually used as bulk drug or as an  ingredient in any formulation.  It was observed by the  Third Member that the appellant had admitted that  certain quantity of sorbitol solution, in respect of which  duty has been demanded, was cleared in favour of non- pharmaceutical concerns and in the circumstances, the  Third Member agreed with the T.M. and accordingly  dismissed the appeals.   

       Being aggrieved by the majority decision, the  assessee has come to this Court by way of appeal under  section 35L(b) of the Central Excise Act, 1944.

       Two points arise for determination, one is on  merits and other is on limitation.

       Mr. Ravindra Narain, learned advocate appearing  on behalf of the appellant submitted, at the outset, that,  the impugned majority decision was patently erroneous.   In this connection, it was urged that the J.M. had decided  the question of limitation in favour of the appellant  holding the demands to be time barred and, therefore, he  did not decide the question of the applicability of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 13  

exemption notification.  It was urged that when the T.M.  disagreed with the J.M. on the question of limitation, the  matter was referred to the Third Member, who while  concurring with the T.M., on the question of limitation,  erroneously dismissed the appeals instead of referring  them back to the Division Bench to decide the question  on merits.  In the circumstances, it was urged that the  impugned majority decision dated 11.1.1999 dismissing  the appeals, without going into merits, was patently  erroneous.  

       On the question of applicability of the exemption  notification, Mr. Ravindra Narain, learned advocate  appearing on behalf of the appellant, submitted that the  appellant had obtained a certificate from the Drugs  Controller to the effect that the sorbitol solution was a  bulk drug within the meaning of "bulk drug" given in the  explanation to the notification as they were normally  used for diagnosis, treatment, medication or prevention  of diseases in human beings. They were normally usable  as "bulk drug" or as an ingredient in any formulation.   Since the Drugs Controller had issued the certificate in  favour of the appellant certifying sorbitol solution as a  bulk drug, the appellant’s product met the requirement  laid down in the exemption notification.  According to  the learned advocate, the word "normally" as used in the  notification has to be assigned a dictionary meaning to  mean "under normal circumstances" or "ordinarily".  The  word "normal", according to the learned advocate, is to  be read as opposed to the word "exceptional".  According  to the learned advocate, in using the word "normally",  one is referring to something which is opposed to  abnormal or exceptional.  According to the learned  advocate, the word "normally" used in the notification  cannot restrict the exemption.  That the word "normally"  would rule out individual end use of the product.   According to the appellant, if it was the intention of the  Legislature to restrict use of sorbitol solution by drug  manufacturing units only for diagnosis, treatment,  medication etc., nothing prevented the Legislature from  using the word "exclusively" instead of the word  "normally".  According to the appellant, the exemption  notification did not require the manufacturers to ascertain  the end use at the time of clearance of bulk drug from the  factory.  It was urged that once the certificate from the  Drugs Controller was issued in terms of the notification  no.234/86, no further requirement remained to be  complied with in the matter of taking exemption in the  notification.  There was no requirement of production of  end use certificate by the assessee in the said exemption  notification and in the absence of such provision, the  department was not entitled to insist on production of the  end use certificate.  In the circumstances, it was  submitted that the demand of duty made by the  department on the bulk drug, manufactured by the  appellant, sorbitol solution was without jurisdiction and  without authority of law.  The authority had wrongly  denied legitimate exemption to the appellant and,  therefore, the demand notices were bad-in-law and  nullity.

       On the question of limitation, it was submitted on  behalf of the appellant that they were manufacturing bulk  drugs for which they have filed classification list from  time to time under Chapter 29 (Tariff Item 29.42).  The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 13  

department had approved the classification lists.  On  approval, the appellant had cleared the goods. The  department had never objected to such clearances.  The  appellant was not asked to clear the goods under  provisional assessment.  The appellant has been filing  RT-12 forms from time to time.  These forms were  approved by the department from time to time.   According to the appellant, as per the proviso to the  exemption notification, the manufacturer who sought to  take exemption was required to furnish a certificate from  the Drugs Controller, to the effect that the drug for which  exemption was claimed was a bulk product within the  meaning of "bulk drugs" given in the explanation to the  notification.  It was submitted that on conjoint reading of  the proviso and the explanation, once a certificate of the  Drugs Controller was produced in connection with the  goods in question, they were entitled to exemption.  It  was urged that where two interpretations of the  notification exist, the benefit should accrue to the  assessee.  It was urged that in the present case, the  appellant believed that sorbitol solution and vitamin ’C’  stood covered under the exemption notification  no.234/86 and the appellant was allowed to clear the said  goods by the department.  Therefore, it was not open to  the department to raise the dispute at a belated stage, by  invoking rule 9(2) of the Central Excise Rules, 1944,  particularly, when there was no violation of rule 9(1).  It  was further contended that the normal trade pattern of  putting sorbitol solution I.P. in the market was through  the distributors and, therefore, it was difficult for the  appellant to obtain an end use certificate at the time of  clearance of the said goods at the factory gate.  Lastly, it  was urged that out of quantity, on which duty has been  demanded, only 29850 Kgs. have been cleared to non- pharmaceutical units, namely, soaps, ceramics, rubber  and cigarette units which represented 3.87% of the total  clearances during the period in dispute and, therefore,  96% of the total clearances was to the pharmaceutical  concerns and in the circumstances, the department was  not right in invoking the extended period of limitation.

       Mr. R. Venkataramani, learned senior advocate  appearing on behalf of the department submitted that the  Third Member to whom the reference was made has  recorded a finding that the appellant has not contested the  matter on merits.  He pointed out that the Third Member  to whom the reference was made concluded that the  appellant had availed of the benefit of the exemption  notification in respect of the quantities of sorbitol  solution cleared in favour of non-pharmaceutical  companies.  Learned senior advocate submitted on behalf  of the department that they were not demanding duty in  respect of the quantity sold to pharmaceutical concerns  for pharmaceutical or medicinal purposes.  The  department was demanding duty only in respect of that  quantity of sorbitol solution which admittedly has been  sold to non-pharmaceutical companies, knowing fully  well that they would not be used as drugs or medicines.   In the circumstances, it was urged that both the questions,  of limitation and applicability of exemption notification,  have been decided by the impugned decision and in the  circumstances, there was no merit in the contention  advanced on behalf of the appellant that the Third  Member should have referred back the matter to the  Division Bench for deciding the question on merits.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 13  

       On the question of applicability of the notification,  learned senior advocate appearing on behalf of the  department submitted that the word "bulk drug" is  defined under section 2(a) of the Drugs (Prices Control)  Order, 1979, enacted in exercise of the powers conferred  under section 3 of the Essential Commodities Act, 1955.   It was urged that the explanation to the exemption  notification no.234/86 has borrowed the definition of  ’bulk drug’ from section 2(a) of the Drugs (Prices  Control) Order, 1979 to mean any substance including  pharmaceutical, chemical, biological or plant product  conforming to pharmacopoeial standards accepted under  the Drugs & Cosmetics Act, 1940, which is used as such  or as an ingredient in any formulation.   It was submitted  that the certificate issued by the Drugs Controller, in the  present case, was a reproduction of the explanation to the  notification.  The said certificate did not deal with the  uses other than the "normal uses" of such bulk drugs.  It  was urged that there are distinct categories of bulk drugs,  namely, the class of drugs, which are normally used for  diagnosis, prevention and mitigation of diseases and  "used as such", as opposed to other classes which are not  normally used but which are  also capable of being used  for the diagnosis, treatment etc.  In the circumstances, it  was urged that there was no need for using the word  "exclusive" as is canvassed on behalf of the appellant.   It  was submitted that the key expression in the notification,  namely, "normally used" and "used as such" should be  given their purposive meaning in order to facilitate the  taking of the benefit of exemption as also to prevent the  abuse of the exemption.  The words "normally used"  indicated ’bulk drugs’ whose predominant use is for the  diagnosis, treatment etc. and which were otherwise  capable of being used for other purposes.  These bulk  drugs stood apart from drugs which may not be normally  used in diagnosis, treatment, prevention or mitigation of  diseases.  The latter class of drugs did not fall within the  scope of exemption notification.  Similarly, the first  category of drugs referred to above, if and when diverted  for other uses, would also get excluded.  In the  circumstances, the department was right in raising the  demand on the appellant.

       On the question of limitation, it was urged on  behalf of the department that under the Self Removal  Procedure, unlike the physical control procedure, the gate  passes were not required to be endorsed at the time of  removal.  The gate passes used by the appellant were pre- authenticated by the proper officer.  The gate passes were  required to be supported by the RT-12 returns (monthly  returns) to be submitted in terms of rule 173G (3).  It was  submitted that rule 173B required filing of classification  list and rule 173C required filing of a price list.  All that  the proper officer was required to do, when RT-12  returns were filed, was to endorse, approve or disapprove   the above list.  Therefore, the completion of assessment  under the Self Removal Procedure did not relieve the  assessee, where exemption was claimed, from giving all  details relevant for the purpose of endorsing the contents  of the gate passes.  It was submitted that clearance to a  non-pharmaceutical user without giving further details,  except the name of the consignee, would amount to  suppression of facts.  In the alternative, it was submitted  that even assuming for the sake of arguments that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 13  

proper officer was either remiss, negligent or in default in  not asking for further information, at the time of  endorsing the RT-12 returns every month, the omission  on the part of the assessee in not disclosing the end use  cannot be condoned.   The law allows a period of five  years to trace the wrong in any manner.  In this  connection, reliance was also placed on section 11A of  the Act.  In any event, the satisfaction of the proper  officer, even when there is no full disclosure, cannot be  said to be final and beyond review.  It cannot debar the  department from reopening the approvals and  assessments.  The assessee cannot be permitted to take  advantage of its own illegal act.  In the circumstances, it  was urged that no inference is called for in the present  case.

       We do not find any merit in the preliminary  submission made on behalf of the appellant.  In the  present case, we are concerned with exemption  notification.  It is well settled that an exemption  notification has to be strictly interpreted.  The conditions  for taking the benefit of the exemption have to be strictly  interpreted.  In the present case, the Third Member has  rightly rejected the contention advanced on behalf of the  appellant that more than one view was possible on  interpretation of exemption notification no.234/86.  The  Third Member has recorded a finding that the appellant  has not disputed that a certain quantity of sorbitol  solution and vitamin ’C’ stood cleared to non- pharmaceutical units, namely, soaps, ceramics, rubber  and cigarette units.  The appellant had conceded before  the Tribunal of having cleared 3.87% of the total  clearances to non-pharmaceutical companies who could  not have used the said solution as drugs or medicines.   Moreover, in the present case, the department has not  demanded the duty in respect of quantity sold to  pharmaceutical concerns for pharmaceuticals or  medicinal purposes.  In the present case, the dispute was  not whether the appellant was entitled to the benefit of  the exemption notification in respect of the entirety of  goods manufactured and cleared during the period in  question, but the dispute was regarding the taking of  exemption benefit under the notification in respect of the  quantum of bulk drugs cleared to consumers other than  the pharmaceutical concerns.  In the circumstances, the  Third Member was right in deciding the question of  limitation as well as the question of applicability of  exemption notification no.234/86.  In any event, the said  two questions are interlinked and, therefore, we do not  find any merit in the preliminary objection raised on  behalf of the appellant.

       Before going into the question of applicability of  the exemption notification and in order to understand the  arguments advanced before us, we quote herein below  the notification no.234/86-CE dated 3.4.1986:         "G.S.R. 593(E):\027In exercise of the  powers conferred by sub-rule (1) of rule 8 of  the Central Excise Rules, 1944, the Central  Government hereby exempts bulk drugs,  falling under Chapter 28 or Chapter 29 of  the Schedule to the Central Excise Tariff  Act, 1985 (5 of 1986), from the whole of the  duty of excise leviable thereon under section  3 of the Central Excises and Salt Act, 1944:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 13  

       Provided that the manufacturer  furnishes to the proper officer, a certificate  from the Drugs Controller to the  Government of India, within such period as  the said officer may allow, to the effect that  the drugs or chemicals which are claimed  for exemption under this notification are the  bulk drugs within the meaning of the bulk  drugs given in the Explanation to this  notification, and are normally used for the  diagnosis, treatment, mitigation or  prevention of diseases in human beings or  animals, and used as such or as an ingredient  in any formulation.

       Explanation:\027 In this notification,  "bulk drugs" means any chemical or  biological or plant product, conforming to  pharmacopoeial standards, normally used  for the diagnosis, treatment, mitigation or  prevention of diseases in human beings or  animals, and used as such or as ingredient  in any formulation." (Emphasis supplied by us)

       To understand the controversy, we also quote  hereinbelow the certificate dated 17.4.1986 issued by the  Drugs Controller: "This is to certify that the undermentioned  Bulk Drugs manufactured by M/s Sarabhai  M. Chemicals, a Divn. of Ambalal Sarabhai  Enterprises Ltd., Baroda, under the Drug  Licence number as shown against each are  the bulk drugs which can be used in the  manufacturer of formulation i.e. drugs  which are used for the diagnosis, treatment,  mitigation or prevention of diseases in  human beings or animals, and used as such  or as an ingredient in formulations.

Sr. No.    Name of Bulk Drugs           Licence No. 1.      Ascorbic acid I.P.              Form 28 No.G/22                 (Vitamin C)                     dated 17.3.1981 2.      Vitamin C ’coated’                        - do -         (Ascorbic acid ’coated’) 3.      Sodium ascorbate U.S.P.         - do -  

4.      Sorbitol Solution U.S.P.       Form 25 No.G-55                                            on 17.3.1981"         A bare reading of the notification no.234/86  indicates that the exemption in favour of bulk drugs  falling under chapter 28 or chapter 29 of the schedule  annexed to the Central Excise Tariff Act, 1985 is not an  unconditional exemption.  The said notification had a  proviso.  Under the proviso, the manufacturer was  required to furnish to the Competent Authority a  certificate from the Drugs Controller to the effect that the  drug for which exemption was claimed was a "bulk drug"  within the meaning of the expression "bulk drug" given  in the explanation to the notification and, which was  normally used for diagnosis, treatment etc. in human

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 13  

beings or animals and used as such or as an ingredient in  any formulation.  The explanation to the notification  defines "bulk drugs" to mean any chemical, biological or  plant product, normally used for diagnosis, treatment etc.  in human beings or animals and used as such or as an  ingredient in any formulation.   The question is \026 whether  in the said exemption notification, end use of the bulk  drug was made imperative.  According to the appellant,  mere production of the certificate from the Drugs  Controller was sufficient to attract the benefit of the  exemption notification.  We do not find any merit in this  argument.  The bulk drug is defined under section 2(a) of  the Drugs (Prices Control) Order, 1979 to mean any  substance including pharmaceutical, chemical, biological  or plant product which is used as such or as an ingredient  in any formulation.  A substance may have several uses  other than in drugs/pharmaceuticals.  The eligibility for  exemption under notification no.234/86-CE dated  3.4.1986 requires the substance (sorbitol solution) to be  actually used in manufacture of drugs / medicines /  pharmaceuticals.  In other words, sorbitol solution may  have different uses.  However, sorbitol solution got the  benefit of exemption only when it was used actually in  manufacture of drugs/medicines/pharmaceuticals.  The  exemption was given to a drug.  It was not given to a  sorbitol solution, which has uses other than in  pharmaceuticals.  A sorbitol solution could be called a  drug for the purposes of exemption only when it was  actually used as drug or as an ingredient in any  formulation.  The notification no.234/86 gave exemption  to only those substances, which are, in reality, drugs and  not to the substances, which are not drugs even though  they are capable of acting as drugs.  Therefore, the  exemption was extendable to sorbitol solution, cleared by  the appellant, when used in the manufacture of drugs,  medicines, pharmaceuticals.  By diverting a specified  quantity of sorbitol solution etc. to liquor units, cigarettes  units, soap units etc., the appellant lost the benefit of  exemption and in the circumstances, the department was  right in raising the aforestated demand.   

       Our interpretation is supported by the language of  the notification.  Under the proviso read with the  explanation to the said notification, there were three  conditions required to be satisfied by way of certification  by the Drugs Controller.  Firstly, that the bulk drugs  should have the same meaning as mentioned in the  explanation to the notification.  Secondly, that such bulk  drugs should be normally used for the specified purposes;  and, thirdly, that the "bulk drugs" are used as such or as  an ingredient in any formulation.  Plainly read, the third  condition has to mean that the goods, for which  exemption was sought, were actually used as such or as  an ingredient in any formulation.  If the arguments  advanced on behalf of the appellant is accepted then the  second and third condition would have the same meaning  and there would be no point in specifying them as  separate conditions.  In the explanation to the  notification, we have two expressions, namely,  "normally used" and "used as such".  We have to read  both these expressions in juxta position.  If so read, it  becomes clear that the expression "used as such" in the  proviso qualifies the actual use and not the capability of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 13  

use.  These words are by way of emphasis.  They are a  condition to be actually satisfied before the exemption  can be availed and granted.  Consequently, every  manufacturer of a bulk drug cannot seek the benefit of  exemption under the said notification merely by reason  of "normal use" of the drug.  The words "normal use"  indicate the possible use whereas the expression "used as  such" indicates the actual use.  The certificates issued by  the Drugs Controller, quoted above, shows that they did  not deal with uses other than "normal uses" of such bulk  drugs.  In the circumstances, the Tribunal was right in  holding that the benefit of the exemption was available  only to those drugs which went into the stream of  diagnosis, treatment etc. and not to the use of any other  profit making activity.  In the circumstances, on the  question of applicability of the notification, we do not  find any infirmity in the impugned decision of the  Tribunal.  

       Now coming to the question of limitation, at the  outset, we wish to clarify that there are two concepts  which are required to be kept in mind for the purposes of  deciding this case.  Reopening of approvals/assessments  is different from raising of demand in relation to the  extended period of limitation.  Under section 11A(1) of  the Central Excise Act, 1944, a proper officer can reopen  the approvals/assessments in cases of escapement of duty  on account of  non-levy, non-payment, short-levy, short- payment or erroneous refund, subject to it being done  within one year from the relevant date.  On the other  hand, the demand for duty in relation to extended period  is mentioned in the proviso to section 11A(1).  Under that  proviso, in cases where excise duty has not been levied or  paid or has been short-levied or short-paid or erroneously  refunded on account of fraud, collusion or wilful mis- statement or suppression of facts, or in contravention of  any provision of the Act or Rules with intent to evade  payment of duty, demand can be made within five years  from the relevant date.  In the present case, we are  concerned with the proviso to section 11A(1).   

       In the case of Cosmic Dye Chemical v. Collector  of Central Excise, Bombay reported in [1995 (75) ELT  721], this Court held that intention to evade duty must be  proved for invoking the proviso to section 11A(1) for  extended period of limitation. It has been further held  that intent to evade duty is built into the expression  "fraud and collusion" but mis-statement and suppression  is qualified by the preceding word "wilful".  Therefore, it  is not correct to say that there can be suppression or  misstatement of fact, which is not wilful and yet  constitutes a permissible ground for invoking the proviso  to section 11A.

       In case of Pushpam Pharmaceuticals Company v.  Collector of Central Excise, Bombay reported in [1995  (78) ELT 401], this Court has held that the extended  period of five years under the proviso to section 11A(1)  is not applicable just for any omission on the part of the  assessee, unless it is a deliberate attempt to escape from  payment of duty.  Where facts are known to both the  parties, the omission by one to do what he might have  done and not that he must have done does not constitute  suppression of fact.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 13  

       Applying the tests in the aforestated judgments to  the facts of the present case, we find that the demands  raised by the department in the impugned three show- cause notices were time-barred.  The first show-cause  notice was dated 30.12.1987. It was in respect of period  1.4.1986 to 30.11.1986.  The second show cause notice  was dated 6.4.1988. Under the said notice, the  department has demanded duty for the period 1.3.1984 to  28.2.1986.  The last show-cause notice was dated  20.6.1988, for the period 1.4.1986 to 30.4.1987.   Therefore, section 11A(1) was not applicable.   

       The question is, whether in the present case, there  was any wilful suppression of facts.  On facts, as stated  above, we find that the appellant had filed a classification  list indicating notification no.234/86 dated 3.4.1986 as  well as the chapter under which the goods fell.  We have  gone through the classification list.  It indicates the claim  for exemption.  The classification list was duly approved  by the department.  So also monthly returns were filed by  the appellant in the form of RT-12, in which there was a  complete disclosure regarding the nature of the goods.   These returns were regularly assessed by the department.   The material placed on record shows filing of gate  passes, invoices, classification list.  They indicated the  names of the consignees.  A mere reading of these names  would indicate that sorbitol solution was sold to non- pharmaceutical  companies like, M/s Golden Tobacco  Co. Ltd.  Despite such disclosure, the department  approved the classification list as well as RT-12 returns.   There was no reopening of the approvals and assessments  within the stipulated period.  In the circumstances, the  Judicial Member of the Tribunal was right in holding that  no case was made out for invoking the extended period  of limitation.  As stated above, the end use was built in  the exemption notification.  Therefore, the department  could have demanded duty within one year from the  relevant date under section 11A(1).  However, this was  not done.  In the absence of evidence of suppression of  facts, the J.M. was right in setting aside the show-cause  notices.

       In the case of Jayant Vitamins Limited v. Union  of India reported in [1991 (53) ELT 278], show-cause  notice-cum-demand was issued by the department  alleging non-user of bulk drugs for specified purpose.  In  that matter, goods were cleared without payment of duty,  as in the present case, on the basis of certificate from  Drugs Controller.  In that case, same notification  no.234/86 was relied upon by the assessee.  However, on  facts, the High Court found that the assessee had  disclosed the relevant facts in the gate passes and,  therefore, it was held that the department was not entitled  to invoke the proviso to section 11A(1).  In our view, the  judgment of the Madhya Pradesh High Court in Jayant  Vitamins Ltd. (supra), is not on the applicability of the  notification no.234/86, as it is sought to be urged on  behalf of the appellant.  The said judgment is only on the  point of limitation.  It only states that the department was  not entitled to invoke the proviso to section 11A(1) as the  assessee had indicated in the gate passes the material  facts.  On this point, before concluding, we may mention  that in the present case, we have come to the conclusion  that there was no wilful suppression of facts on the part  of the appellant as the appellant had filed the gate passes,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 13  

invoices and monthly returns, which were all duly  approved by the department from time to time.  The  invoices, gate passes and the monthly returns indicated  the names of the consignees from which it was possible  for the department to infer sale of sorbitol solution to  non-pharmaceutical companies and yet no steps were  taken by the department to raise the demand in time and,  therefore, we hold that there was no wilful suppression of  material facts for invoking the proviso to section 11A(1).   The facts of the present case are not confined only to gate  passes clearances.  In such cases, it would not be proper  to Courts to rely on the evidence furnished only by gate  passes.   

       In the circumstances, although on merits the  department succeeds, these appeals need to be allowed as  the impugned show-cause notices-cum-demands were  time barred and as no case is made out by the department  for invocation of the proviso to section 11A(1) of the said  Act.                  Before concluding, we may point out that  numerous judgments were cited on behalf of the  appellant under the Food Adulteration Act, the Essential  Commodities Act and the matters concerning  classification dispute.  It is not necessary for us to burden  this judgment with those cases, particularly, in view of  the fact that in the present case, we are concerned with  interpretation of an exemption notification.

       Subject to above, these civil appeals stand allowed.  The majority decision dated 11.1.1999 passed in Appeal  Nos.E-736/91-C, E-738/91-C and E/747/91-C by the  Customs, Excise and Gold (Control) Appellate Tribunal,  New Delhi is hereby set aside.  Consequently, the three  show-cause-cum-demand notices dated 30.12.1987,  6.4.1988 and 20.6.1988 are hereby set aside as time  barred.  In the facts and circumstances of the case, there  will be no order as to costs.