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Judgment
The instant is an appeal preferred by the appellant - Department under Section 35(G) of the Central Excise Act, 1944 assailing the Final Order No.432/2009, dated 17.03.2009, arising out of Appeal No.E/158/2008, dated 17.03.2009, passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (for short, ‘the impugned order’).
Heard Mr. A. Rama Krishna Reddy, learned Standing Counsel for the appellant – Department and Mr. Challa Gunaranjan, learned counsel for the sole respondent.
Vide the impugned order, the appeal preferred by the respondent-assessee herein, viz., Appeal No.E/158/2008, was allowed by setting aside the Orders-in-Original No.11/2007-CE, dated 30.11.2007, passed by the Commissioner of Customs and Central Excise, Hyderabad I Commissionerate.
The question of law for consideration is whether the Tribunal was justified in setting aside the order passed by the Commissioner of Customs and Central Excise, Hyderabad I Commissionerate when the respondent-assessee failed to pay the amount @ 10% on the value of the exempted final product in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004.
The brief facts leading to filing of the present appeal revolves around two products which are manufactured by the respondent-assessee : one is the bulk drugs, and the other is formulations. Among other products manufactured by the respondent-assessee, certain bulk drugs and certain formulations stand exempted from payment of central excise duty as per Notification dated 01.03.2006. The respondent is said to have availed Cenvat credit on the commodity of inputs used in the manufacture of bulk drugs and formulations. Certain goods were cleared partly on payment of duty and partly at “nil” rate of duty. The “nil” rate was on claiming exemption under Notification dated 01.03.2006.
The respondent is a holder of central excise registration and are manufactures of bulk drugs and POP medicaments falling under Chapter – Heading No.2942.00 and Chapter – Heading No.3003.10 under the Central Excise Tariff Act, 1985. The products which are involved in the present appeal can be classified into two groups, viz.,
Bulk Drugs (Ch. No.2942.00)
Formulations (Ch.No.3003.10)
(i) Gemcitabine Hydrochloride
(ii) Irinotecan Hydrochloride
(iii) Disodium Pamidronate
(i) Cytogem Injection
(ii) Irnocam Injection
(iii) Pamired Injection
Show-cause notices dated 13.12.2005, 28.08.2006 and 09.03.2007 were issued by the appellant to the respondent alleging that the respondent availed credit on duty paid on inputs commonly used in manufacture of both dutiable as well as exempted bulk drugs which in turn is being captively used in their plant for manufacture of the exempted formulations as well. According to the learned Standing Counsel for the appellant –Department, during the course of scrutiny it was observed that the respondent had cleared formulations worth Rs.2,45,22,438/- for home consumption. Therefore, the respondent was required to pay an amount of Rs.24,52,244/- being 10% of the aforesaid value of the product cleared from the respondent-assessee payable under the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2004.
After the above proceedings were drawn, the Commissioner, Customs and Central Excise issued show-cause notice dated 09.03.2007 calling upon the respondent to submit explanation as to why an amount of Rs.71,96,591/- along with interest was not paid. The said notice was also responded by the respondent and thereafter the Order-in-Original was passed by the Commissioner, Customs & Central Excise on 30.11.2007 forcing the respondent to pay an amount of Rs.1,16,73,020/-. In addition, a penalty amount of Rs.10 lakhs was also imposed on the respondent under 15A(1) of the Cenvat Credit Rules, 2004. It was this order which was subjected to challenge before the CESTAT, South Zone Bench, at Bangalore by the respondent vide Appeal No.E/158/2007. However, the said appeal finally stood decided by the impugned order dated 17.03.2009 where the appeal preferred by the respondent stood allowed reversing the Order-in-Original passed by the Commissioner, Customs & Excise, Hyderabad-I Commissionerate, at Hyderabad.
Aggrieved, the present appeal is preferred by the appellant-Department.
Learned Standing Counsel for the appellant-Department contended that the Tribunal had erroneously relied upon the decision in Texmo Industries vs. C.C.E., Coimbatore 2007 (208) ELT 338 (Tribunal) contending that the issue involved was entirely different and therefore the same could not have been relied on by the Tribunal.
He further contended that Rule 6(3)(b) of Cenvat Credit Rules, 2004 makes it crystal clear that for application of Rule 6(3)(b), four ingredients would be necessary, viz., (i) final product to be exempt; (ii) 10% amount to be worked out on the total price of final product excluding taxes; (iii) there has to be sale of such goods, and (iv) such goods should be cleared from the factory. He therefore contended that the facts of the present case are not exactly identical to that of Texmo Industries (2007 (208) ELT 338 (Tribunal) supra), and the mechanism provided under Rule 6(3)(b) of Cenvat Credit Rules, 2004 is required to be followed in the present case for the following reasons. There are material differences between the facts of the case in Texmo Industries (2007 (208) ELT 338 (Tribunal) supra) and in the instant case. In the case of Texmo Industries (2007 (208) ELT 338 (Tribunal) supra), the manufacture of PD pumps required assembling of various components of which castings was one. Clearly the metal castings and PD Pump did not belong to the same category of goods. Further, mere 10% of the castings were being used for manufacture of PD Pump and rest of the castings was moved to outside consignees.
He further submitted that unlike in the instant case as regards castings and PD Pumps, the bulk drugs as well as the drug formulations definitely belong to the same group of goods and formulations and they were not as diverse in character vis-à-vis bulk drugs, as castings and PD pump. In other words, manufacture of bulk drugs and their formulations comes in direct stream of production. For example, the formulations mentioned at para no.5 on the right side (supra) are the brand names of the formulations and the drugs contained in the said medicines are Gemcitabine Hydrochloride, Irinotecan Hydrochloride and Disodium Pamidronate respectively, which are bulk drugs manufactured by using the Cenvat availed common inputs. Further, the bulk drugs cannot be administered directly without converting into formulations, i.e., tablet / capsule / injection, etc. For conversion into formulations, the bulk drugs are mixed with other ingredients like anti-adherents, binders, coatings, fillers, diluents, preservatives, etc., in required quantities. Hence, the bulk drugs are definitely intermediates in the manufacture of formulations. He therefore, contended that in the instant case the bulk drugs were used as intermediates in the manufacture of formulations such as tablets, capsules, etc. Administration of Bulk Drugs cannot be done directly and Bulk Drug shall be converted into formulations which are only to be considered as final product. Hence, it is to state that entire Bulk Drug is used in the manufacture of formulations during direct stream of production.
Per contra, learned counsel for the sole respondent contended that there is not much substance in the argument raised by the learned Standing Counsel for the appellant-Department. According to learned counsel for the sole respondent, the Tribunal, as it is, has extensively considered the contentions put forth on either side and relied upon the decision in Texmo Industries (1 supra) delivered by a larger Bench of the said Tribunal, and therefore, the order of the Tribunal cannot be found fault with. He further contended that the contentions put forth by the appellant would not constitute a substantial question of law calling for this Court to interfere with the findings given by the Tribunal based on facts and record.
Learned counsel for the sole respondent further contended that as per the notification issued by the Government there were certain bulk drugs and certain formulations, both of which, being exempted from payment of central excise tariff. The notification still holds good and therefore the finding of the Tribunal based upon the decision in Texmo Industries (2007 (208) ELT 338 (Tribunal) supra) as also the exemption notification issued by the Government to be valid. Therefore, the impugned order passed by the Tribunal does not warrant any interference and the appeal being devoid of merits deserves to be rejected.
Having heard the contentions put forth on either side and on a perusal of the record, what is necessary at this juncture to take note of is the Notification No.6/2003-CE, dated 01.03.2003, wherein vide the said notification the Schedule-IV of the table therein prescribes the rate at which the central excise tariff was to be collected. The relevant heading is extracted below for ready reference :
Sl.No.
Chapter or heading or sub-heading or tariff item of the First
Schedule
Description of excisable goods
Rate
Condition No.
…
…
…
…
…
47.
28, 29, 30 or
38
The following goods, namely :
(A) Drugs or medicines including their salts and esters and diagnostic test kits, specified in List 3 or List 4 appended to the notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue), No.21/2002- Customs, dated the 1st March, 2002, (G.S.R.118(E), dated
the 1st March, 2002).
-Nil-
-
(B) Bulk drugs used in the manufacture of the drugs or medicines at (A) above
-Nil-
2
In this context, it would be relevant to look into the Chapter Heading or the Sub-Heading of Tariff Item of the I Schedule. The appellant, at paragraph No.3 of the Grounds of Appeal, has accepted the fact that item Nos.(i) to (iii) are bulk drugs which fall under Chapter : Heading - 2942.00 and Item Nos.(iv) to (vi) fall under Chapter : Heading - 3003.10. There does not seem to be any conflict or dispute so far as Notification No.6/2003-CE, dated 01.03.2003, prescribing the products shown in the table which is reproduced in the preceding paragraph falling under the exempted category from payment of excise duty w.e.f. 01.03.2003. To add with it, the rate of tariff as is reflected at Serial No.47 which again is reproduced in the preceding paragraph would reflect that the rate of tariffs to be collected is shown as “nil”. This substantiates the fact that these goods are one which stand exempted from payment of central excise tariff. If we look into the findings given by the Tribunal so far as their reference to the larger Bench in the case of Texmo Industries (2007 (208) ELT 338 (Tribunal) supra) which deals with the issue that has been raised in the instant case and also so far as the decision of the Hon’ble Apex Court in the case of Commissioner of Central Excise, Nagpur vs. Ballarpur Industries Ltd. (2007) 8 S.C.C. 89, the said decisions has been rendered in an entirely different contextual background and where it was the question of absence of “sale” and Rule 57(CC) of the Central Excise Rules, 1944 would have any application or not. Secondly, it was a case of stock transfer and not “sale” as was contended by the assessee unlike the facts in the present case where the products on which exemption is claimed for both, the bulk drugs and formulations both stand exempted vide Notification No.6/2003-CE, dated 01.03.2003. Therefore, the decision in Ballarpur Industries Ltd. ((2007) 8 S.C.C. 89 supra) becomes distinguishable on facts itself. Once when there is a specific notification exempting payment of central excise tariff on certain specified items both in the form of bulk drugs and also in the form of formulations where in the course of manufacturing formulations bulk drugs becomes the raw material and the same would stand exempted from payment of central excise tariff.
In view of the above, we are of the opinion that no strong case has been made out by the appellant calling for interference of the Final Order No.432/2009, dated 17.03.2009, arising out of Appeal No.E/158/2008, dated 17.03.2009, passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore.
Accordingly, the appeal fails and the same is accordingly dismissed.
No costs.
As a sequel, miscellaneous applications pending if any, shall stand closed.