Fresenius Kabi Oncology Ltd. vs Union of India

Sanjib Banerjee, J.—The petitioner challenges an order of December 15, 2015 passed in revision under Section 35EE of the Central Excise Act, 1944.

The petitioner has a licence as a manufacturer of bulk drugs. Among the drugs that the petitioner manufactures are Paclitaxel, Docetaxel and Irinotecan, which are all, apparently, indispensable drugs in the treatment of cancer. The petitioner exported such drugs in bulk quantities to foreign buyers and paid Excise duty thereon by claiming against the Cenvat credit enjoyed by the petitioner at the relevant time. The petitioner subsequently applied under Rule 18 of the Central Excise Rules, 2002 for rebate of the duty paid. At the lowest level, the petitioner succeeded. The department went up in appeal and the relevant Commissioner reversed the order on the ground that the drugs exported by the petitioner in bulk quantities were exempted from duty and the petitioner ought not to have been paid any duty thereon to claim rebate thereof. It is such order of the appellate authority, which has been affirmed in the revisional jurisdiction under Section 35EE of the said Act by the Central Government, that has been assailed herein.

The petitioner refers to a notification of March 1, 2006 that granted exemption from duty in respect of certain goods. The relevant Notification No. 4/2006 made out a table specifying the chapter or heading or sub-heading of the tariff items of the First Schedule to the Act; the description of the excisable goods; the exemption or reduced rate of duty payable thereon; and, the condition attached to obtaining the benefit of reduced duty or exemption. There is no dispute that Serial No. 47 of the table under Notification No. 4/2006 is applicable in this case. However, there is considerable disagreement between the petitioner and the department whether clause (A) or clause (B) under the column of description of excisable goods pertaining to the relevant entry would be applicable in this case. It is necessary to extract the table pertaining to the relevant serial number in the present context :

S. 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)

(B) Bulk drugs used in the manufacture of the drugs or medicines at (A) above

Nil

Nil

-

2

The petitioner contends that since the petitioner had a licence to manufacture bulk drugs and the petitioner only deals in bulk drugs, the goods exported by the petitioner were covered under the description of clause (B) pertaining to the relevant entry in the table. The petitioner says that since there was a condition attached to the exemption of duty in such case, the petitioner could not have allowed the goods to be removed from the petitioner�s manufacturing facility without the payment of duty thereon. The petitioner claims that since the duty could not have been passed on to the petitioner�s foreign buyers, in accordance with Rule 18 of the said Rules of 2002, the petitioner applied for a rebate and the petitioner is entitled thereto.

According to the petitioner, the goods exported by the petitioner do not match to the description under clause (A) pertaining to the relevant entry in the description column of Notification 4/2006. The petitioner makes a distinction on the basis of definition of "bulk drugs" appearing in Serial No. 43 of the same table under the relevant notification. The petitioner says that a drug can be used directly as a medicine or for the purpose that it is meant; whereas a bulk drug may be a concentrate that requires dilution or mixing with some other compound for the purpose of its end use or application.

It appears from the order of the appellate authority and the order impugned passed under Section 35EE of the said Act that the authorities are of the opinion that since the drugs in question were already covered by List 3 or List 4 referred to in the relevant notification, such drugs were unconditionally exempted from duty and there was no occasion for the petitioner to pay any duty thereon by using the petitioner�s Cenvat credit and seeking rebate in cash thereafter. The relevant orders insinuate an element of mischief on the part of the petitioner in needlessly availing of the Cenvat credit to subsequently seek to encash the same, almost by a subterfuge.

The petitioner refers to a Gujarat High Court�s judgment reported in 2014 (300) E.L.T. 481 where a view was taken that notwithstanding Section 5A(1A) of the said Act, when duty had been paid at the time of export, the exporter was entitled to claim a rebate therefor under Rule 18 of the said Rules. However, the Court did not consider in that case whether duty paid by an exporter in a case where duty was clearly not payable would entitle the exporter to claim a subsequent rebate and, thereby, encash the Cenvat credit that may have been built up by such exporter.

The petitioner has referred to the rule making authority under Section 37(2)(xvi) of the said Act and to the two limbs of Rule 18 of the said Rules. According to the petitioner, if an exporter has a choice of not paying the duty payable on any excisable goods at the time of export, merely because it is an export transaction, the first limb of Rule 18 would be otiose. The two limbs that Rule 18 of the said Rules straddles are the rebate on the duty that the exporter may have paid and the rebate on account of the duty that the exporter paid in purchasing the raw material going into the making of the finished product.

The petitioner has also referred to a judgment reported in 2015 (324) E.L.T. 686 where the Supreme Court considered the effect of the misleading "or" between the two limbs of Rule 18 of the said Rules. The opinion of the Supreme Court was that if an exporter was entitled to any rebate under both limbs, the rule did not mandate that the claim of rebate had to be confined to one of the two limbs only. In other words, the word "or", in the context, was read as "and". However, the judgment is not relevant in the present milieu as it did not cover an export transaction in respect whereof duty was unconditionally exempted.

The petitioner has finally relied on a judgment reported in 2010 (260) E.L.T. 3 where, again, a domestic transaction was involved and not an export transaction.

There is an element of latitude that may be allowed to the petitioner if the petitioner can demonstrate that the goods exported by the petitioner were covered by clause (B) of the description in Serial No. 47 of Notification 4/2006. As would be evident from the description of the two categories of goods under the relevant entry, all drugs specified in List 3 or List 4 appended to the notification referred to in the description would be exempted from duty. The drugs of the kind that were exported by the petitioner were drugs which were identified in Lists 3 and 4 of the applicable notification. By virtue of the names of such drugs figuring in the lists, they were exempted from duty.

Goods under clause (B) of the relevant column pertaining to the applicable entry would be bulk drugs which are used in the manufacture of drugs or medicines or salts or esters covered by clause (A) of the same entry, subject to certificates being issued by the users thereof of such use. In other words, drugs which are already recognised in Lists 3 and 4 have to be regarded as completely exempted from payment of duty and such drugs, merely because they were sold in bulk quantities, could not be regarded as bulk drugs attracting the description under clause (B) of the same entry.

The expression "Bulk drugs", in clause (B) under the column of description of goods in the relevant entry of the said notification would mean such drugs as are used as ingredients for the manufacture of the drugs or medicines covered by clause (A) thereof. There could be a pharmaceutical product which conforms to the pharmacopoeial and other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 which is used as an ingredient in the manufacture of any drug or medicine covered by clause (A) of the description of goods under the relevant entry. To the extent such pharmaceutical product is a bulk drug and is used in the manufacture of the drugs or medicines covered by clause (A), the same would be exempted from duty, subject to the condition that the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 is followed. In the context of the expression as used in the relevant entry in the said notification, bulk drugs cannot be seen to be drugs covered by clause (A) of the description sold in bulk quantities. In such context, bulk drugs would be such drugs, other than those covered by clause (A), that conform to the pharmacopoeial and other standards specified in the Second Schedule to the said Act of 1940 and which go into the manufacture of drugs or medicines covered by clause (A) of the description of goods in the relevant entry.

It is apposite, in the context, to notice the essence of the revisional authority�s order at Paragraph 10 thereof :

"10. From a plain reading of the above provisions, it is seen that a bulk drug can be used as such or as an ingredient in any formulation. Any bulk drug which features in List 3 or List 4 appended to Notification No. 21/2002-Cus., dated 17-3-2002 will be exempted unconditionally. However, any other bulk drug if used further in manufacture of any drugs or medicines listed in List 3 or List 4 is exempted only subject to fulfilment of prescribed condition."

There is no doubt that the drugs that the petitioner exported in huge quantities were drugs which were specified in Lists 3 and 4 of the relevant notification. In such circumstances, there was no question of the petitioner being under any doubt as to whether the petitioner could claim exemption therefor or any duty had to be paid in such regard.

Section 5A(1A) of the Act provides as follows :

"5A. Power to grant exemption from duty of excise. - ...

(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods."

If the goods exported by the petitioner were covered by the description under clause (A) of the relevant entry, such goods were absolutely exempted from any duty of excise leviable thereon. As a consequence, there was no occasion for the petitioner to pay any duty for removing the goods from the petitioner�s manufacturing facility for the export thereof.

The matter may have been considered liberally if there was no possibility of mischief being involved. If it was possible for the petitioner to have made a mistake and claim a refund, the payment of the Excise duty at the time of exports in this case could have been regarded as a mistake with a subsequent application for undoing the same. However, as it appears, the payment of the duty was not made in cash, whereas the rebate is payable in cash. The payment was made by using the Cenvat credit built up by the petitioner; which becomes relevant and whether there may have been some mischief afoot, cannot be answered merely on the basis of the adjudication conducted in course of the proceedings under Rule 18 of the said Rules of 2002.

It appears that both the appellate and the revisional authorities have taken a view possible on the set of facts. In exercise of the limited superintendence under judicial review at this level, the Court will not supplant its view for that of the administrative authority that is challenged in this jurisdiction. As long as the decision making exercise is found to be reasonable and fair and the opinion expressed appears to be plausible, the Court will refrain from interfering with the order. In the present case, the view taken by the appellate and the revisional authorities appear to be eminently justified on the basis of Notification No. 4/2006 and there is no occasion for the petitioner to feel aggrieved thereby.

WP 6516 (W) of 2016 is dismissed.

There will, however, be no order as to costs.

Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance of the requisite formalities.