REDDY’S LABORATORIES LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) This petition relates to two rebate claims of Rs. 21,18,36,117 and Rs. 1,75,57,537, made on 18.7.2011 and 14.11.2011 respectively, under the Central Excise Act, 1944 ("the Central Excise Act") before the Deputy Commissioner of Customs and Central Excise. The petitioner, Dr. Reddy's Laboratories Ltd. ("Dr. Reddy's"), claimed this rebate for refund of excise duty paid earlier by it on the export of certain pharmaceutical products. The refund was allowed by the Deputy Commissioner (by two orders dated 30.9.2011 and 13.1.2012). Dr. Reddy's was refunded the amounts. Later, proceedings were initiated before the Commissioner of Customs, Central Excise and Service Tax (Appeal II) for recovery of the refunded amount, on the ground that the rebate amounts refunded were in excess. It is in this background that the present petition has come before this Court.

(2.) The brief facts are that during the export period under consideration, Dr. Reddy's was granted the exclusive right to sell the drug Olanzapine, in 5, 10 and 20 mg formulations, in the United States (US) for a limited period of 180 days. Between October 2011 and January 2012, Dr. Reddy's exported the drug to its US subsidiary, Dr. Reddy's Laboratories Inc., New Jersey, USA ("the Jersey subsidiary") at a price of US $ 7, 3.65 and 2.20 for the 20, 10 and 5 mg tablets respectively, amounting to a total of approximately Rs. 411 crores through foreign exchange, which was received in India. According to that valuation, Dr. Reddy's paid excise duty at the applicable rate of about 5% of Rs. 21,18,36,11 on the 20 mg tablets, and Rs. 64,66,041 on the 5 and 10 mg tablets. A rebate application was then made since excise duty on exported products is nil under Rule 18 of the Central Excise Rules, 2002 ("2002 Rules"). The rebate claimed was granted.

(3.) Proceedings were later initiated before the Commissioner (Appeals) for partial recovery of the rebate, after the Commissioner exercised powers of review under Section 35E(2) of the Act and passed orders for the filing of an appeal. In these proceedings, the Appellate Commissioner held by orders dated 20.3.2012 and 28.8.2012 that the refund granted was in excess of the market price of the products exported. Relying on Notification No. 19/2004-CE (NT), dated 6.9.2004 ("Notification 19/2004"), which states that the rebate cannot be in excess of the total market price of the exported goods at the time of export, the rebate amount was thus reduced to Rs. 8,91,295 and Rs. 23,491 based on an independent valuation of the market price on a cost plus basis. Dr. Reddy's filed a revision application, which was dismissed.