Full Judgment
2. Ld. Counsel stated that the appellants are engaged in the manufacture of organic chemicals and were securing the same in the shape of bulk drugs at concessional rate under Notification No. 31/88.
3. The main question involved in this case is as to whether they had rightly availed the benefit of this notification and whether in this connection they were required to produce End-use Certificate.
4. The proceedings against the appellants have been initiated in view of the Circular No. 8/90-CX-III dated 6-3-1990 issued by CBEC which prescribed at that End-use Certificate was required for the purpose of availing the benefit of this notification.
5. However, CBEC itself has in a recent circular No. 26/94-CX VI dated 30-3-1994 reported in 1994 (70) E.L.T. T-28 to T-30 has referred to the above circular and clarified that the End-use Certificate may be insisted upon only in respect of other bulk drugs mentioned in the list annexed to the circular. The bulk drugs in question in the present appeal are not figuring in this list.
6. The Notification No. 31/88-C has described the goods at Serial No.01 as bulk drugs and in Sr. No. 02 as other bulk drugs and the explanation indicates that the expression 'bulk drugs' shall have the same meaning assigned to it as in the Drugs Order 1987.
7. In this order '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." 8. It was their submission that their drugs in question namely Amoxycillin Trihydrate, Cloxacillin Sodium, Nalidixic Acid, Norfloxacin, Ampicillin Trihydrate, Ciprofloxacin hydro and O-floxacin were allowed the concessional rate by the A.C. AS THEY HAD BEEN ACCEPTED AND LICENSED BY THE DRUG CONTROL AUTHORITIES as bulk drugs.
9. These have no other alternative use except to be used for the formulation purpose and have been sold to their customers only for this purpose and as certified by the State Drug Controller, Punjab.
10. The Drug Control Authorities are the proper authorities for determining whether a drug was a bulk drug and the Central Excise Department ought to have accepted the certificates issued by the State Drug Controller as such.
11. Any enquiry whether such drugs are actually used in the formulation is unwarranted and not contemplated in the notification.
12. In fact this notification does not stipulate production of End-use Certificate in order to earn the concession. It is a settled legal position that a condition which is not mentioned in the Notification cannot be imported in it to deny the benefit. It was also his submission that the scope of notification could not be enlarged or abridged by a trade notice.
13. In any eventuality the appellants have actually produced the End-Use Certificate for each of the bulk drug in question. These were examined and accepted by the A.C.14. The Ld. Counsel also stated that they had cleared these drugs on the basis of final approved classification list and had produced the certificate issued by the Drug Controller and that is why the A.C. had dropped the demand and rightly so. Ld. Collector (Appeals) had therefore erred in setting aside the order of the A.C. on the ground that End-Use Certificate was required.
15. Ld. D.R. stated that the Ld. Collector (Appeals) was justified in setting aside the A.Cs order because the language of the notification clearly shows that satisfaction regarding end use was contemplated therein.
16. This notification exempts bulk drugs (including salts, esters and derivatives (if any) specified under the First Schedule to the Drugs (Price Control) Order, 1987 as amended from time to time as mentioned at serial No. 1 prescribing NIL rate of duty as well as other bulk drugs mentioned at serial No. 2 prescribing duty as 5% ad valorem.
Therefore, it is necessary first to determine whether the products in question fall under serial No. 01 or 02.
17. Further the explanation to this notification describes that bulk drug shall have the same meaning assigned to it as in the Drugs Control Order, 1987.
"BULK DRUGS" 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." Therefore the opinion of the Dy. Chief Chemist was obtained which shows that these could be considered as bulk drugs subject to their being of pharmacopoeial standard (IP, BP or USP) as per the letter of the Dy.
Chief Chemist dated 1st Jan. 1993.
19. It was also his submission that the Board has of course issued the circular dated 6-3-1989 modifying its earlier circular and confining the requirement of End-Use Certificate to other bulk drugs but it was upto the Tribunal to take its own view in the matter.
20. The Ld. Collector (Appeals) is right in stating that the Drug Control Authority can only certify that the bulk drugs can be used for formulation purposes but whether they have been actually was utilised can only be verified on the basis of End-Use Certificates issued by the actual users.
21. The Ld. Counsel stated that they have also produced Merck Index which shows that all their products in question are included in this index and this index shows that they have no alternative use except for manufacture of drugs, and he would rely on the decision of the Tribunal in the case of Kanti Lal Mani Lal and Co., 1989 (39) E.L.T. 684 to show that evidence of actual use was not necessary when goods reported were listed in the Merck Index showing no alternative use except for the manufacture of the drugs.
22. In any eventuality three of the products namely Amoxycillin Trihydrate, Cloxacillin Sodium and Nalidixic Acid are covered by the Second Schedule to the Drug (Price Control) Order and hence the filing of End-Use Certificates was not necessary in view of the subsequent instructions of the Board.
23. We have considered the above submissions. We observe that first and foremost it was required to be determined whether the products in question were bulk drugs falling under Sr. No. 1 or 2 of the notification.
24. As per the definition of the bulk drug, only the drugs of pharmacopoeial standard could be considered as bulk drugs. The Chief Chemist has also emphasised that these products could be considered as bulk drugs subject to the verification that they were of pharmacopoeial standard. However, no evidence in the form of a chemical test or otherwise has been placed before us in this respect.
25. The Asstt. Collector had obviously erred in dealing with this notification without indicating the basis of his satisfaction that they were drugs of pharmacopoeial standard. Neither inclusion in the Merk Index nor the certificate of the Drug Controller could help the cause unless this essential requirement was first satisfied. The Collector (Appeals) has also not noticed this aspect; And both the lower authorities have proceeded on the assumption that the items in question were bulk drugs.
26. The appellants have also filed before the Tribunal some 'End Use Certificates' issued by the customers but those which were not produced before the Collector (Appeals) (who specifically refers to non-production of such certificates) were in the nature of the new evidence and in the absence of any application under Rule 23 and the permission of the Tribunal to allow them to be taken on record for consideration, they cannot be considered at this stage.
27. The Ld. Counsel has emphasised that the only issue at this stage was as to whether End-Use Certificate was required in respect of the drugs in question; as the fact of their being bulk drugs has not been questioned before. We also notice that the department has not produced any evidence to the contrary and inspite of the Chief Chemist's opinion they have not taken care to show whether they were or were not of pharmacopoeial standard. This is rather strange but at this stage, we cannot but take notice thereof.
28. Admittedly, three of the items namely Amoxycillin Trihydrate, Cloxacillin Sodium and Nalidixic Acid are covered by Second Schedule to the Drug (Price Control) Order, hence, as per department's own instructions, the End-Use Certificate was not necessary.
29. Regarding the remaining items Counsel's claim that they figure in the Merck Index and have no alternative use has not been contradicted by the department. In the absence of any evidence of alternative use the ratio of the Tribunal's order in the case of Kanti Lal Mani Lal & Co. (supra) would normally be attracted. However, only a few pages of Merck Index have been filed before us and the pages/entries relating to two of the items namely Ciprofloxacin Hydro and O-F and O-Floxacin do not appear to have been filed.
30. That apart, in the Drug Controller's permission produced by the appellants the pharmacopoeial standard has been prescribed for only some of the items (such as Ampicillin) whereas for others the 'in-house specifications' have been allowed. This is significant in as much as it would go to show that they were free to manufacture such drugs according to their own specifications.
31. Therefore, the benefit of the exemption notification would be admissible only in respect of these drugs subject to their being shown in the Merk Index with no alternative use and also subject to their 'In-house specifications' being the same as the pharmacopoeial standard.
32. With these observations, the appeal is allowed as already announced in the open court.