MEDOPHARM Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) BY this appeal M/s. Medopharm, the appellants herein challenge the order -in -Original No. 8/2001, dated nil of April, 2001 passed by the Commissioner of Central Excise, Chennai by which the Commissioner has confirmed a duty demand of Rs. 96,85,876/ - (Rupees Ninety -six lakhs, eighty -five thousand, eight hundred and seventy -six) under Rules 12(1)(a), 52A read with provision to Section 11A(1) of the CE Act, 1944 and imposed penalty of Rs. 20,00,000/ - (Rupees Twenty lakhs) under Rule 173Q of the CE Rules, 1944 in addition to imposition of mandatory penalty of Rs. 53,79,611/ - (Rupees Fifty -three lakhs, seventy -nine thousand, six hundred and eleven) under Section 11AC of the Act. He has also demanded interest under Section 11AB of the Act. He has also ordered for adjustment of Rs. 15,00,000/ - (Rupees Fifteen lakhs) paid by the appellants towards the above duty demand.

(2.) THE brief facts of the case are that the appellants herein are manufacturer of patent and proprietary (P or P) medicaments falling under Chapter heading 3003.10 attracting duty @ 15% and general medicaments falling under Chapter sub -heading 3003.20 attracting nil rate of duty. The appellants availed the benefit of Modvat Credit of duty paid on the inputs used in the manufacture of finished products. The department on specific intelligence gathered came to know that the appellants were claiming fraudulently rebate under Rule 12(1)(a) on the export of generic medicines. On a visit to the unit by the officers it was found that the appellants were indulging in tampering with documents and had made wilful misstatement with a view to claiming rebate of duty paid on generic items which attracted nil rate of duty and by doing so, the appellants wrongly encashed the Modvat Credit lying unutilized in the RG 23A account. The department alleged that the appellants submitted two different sets of documents, one to Central Excise Department and another to Customs Department and bank authorities. In the documents submitted to the Central Excise department, AR4, invoice, packing list etc. in addition to the generic name, branded item is incorporated whereas in the documents submitted to the Customs department and the Bank, only the name of the generic item is mentioned and the name of the branded item is omitted. The department took the view that this has been done to give an impression to the Central Excise department that only branded items are being exported on payment of duty whereas the items exported were only generic ones. Thus the appellants were alleged to have indulged in falsification of documents like the AR4 and hence violated Rules 52A of the Rules ibid. In token of admitting the guilt the appellants paid an amount of Rs. 9 lakhs vide TR 6 Challan dated 29 -1 -98 with the mention of "pre -deposit of rebate claims amount sanctioned and received from the department". In terms of Rule 57F(13), refund of unutilized Modvat Credit is available provided this credit cannot be adjusted for payment towards clearances for home consumption or legitimate export under rebate. In the present case, the assessee -appellants however, had domestic sales of P or P medicines for utilizing such credit but chose to avail of Rule 12(1)(a) to en -cash the Modvat Credit. Further, having availed of the benefit of Modvat Credit on the inputs in the manufacture of export medicines, the department took the view that the assessee is ineligible for rebate under Rule 12(1)(b) and so also under Rule 12(1)(a). Statement was recorded from A. Balachandar, Manager, (Imports and Exports) on 16 -4 -98 wherein inter alia he has admitted that names of products have been tampered with while submitting documents to the Central Excise department. Statement was also recorded from Ms. K. Chandra, Executive M/s. Medopharm in which she has stated inter alia that the addition of brand name in the documents submitted to the Central Excise department was done as claim or rebate can be made only if brand name is used and that no rebate can be obtained for the items cleared for export unless brand name is used since the generic name attracts 'nil' rate of duty. Statement was also recorded from Shri A. Balachander, Manager (Imports) wherein he has stated inter alia that names of products have been tampered with while submitting the documents to the Central Excise Department. He has also stated that if the description in the Shipping Bill speaks about generic product being exported, only generic drugs have been exported. Shri Bhaskar, Executive Assistant, of the appellants also corroborated the statements given by other employees as noted above. Shri Sardarmul Chordia, Managing Director of the appellants stated that whatever the procedure the appellants having been adopting towards claim of rebate has been accepted by the department and hence they were under the impression that there was nothing wrong in claiming rebate in respect of generic medicines. It was in the above circumstances that show cause notice was issued to the appellants which culminated in the order impugned against which the appellants have come in appeal. The appellants assail the order of the lower authority inter alia on the following grounds :

(3.) THE learned Counsel appearing for the appellants while reiterating the grounds taken in the appeal has also submitted that in this case the proviso to Section 11A(1) cannot be invoked inasmuch as the show cause notice does not bring out sufficient evidence that the appellants had deliberately suppressed and misstated the fact of exporting generic medicines as branded medicaments with intend to en -cash the unutilized Modvat credit lying in their account. Further, the department had also full knowledge of the case which is clearly evident from the fact that the shipping bill on which total reliance had been placed by the department had been made available to the rebate sanctioning authority along with the AR4 and other connected documents. He has submitted that commercial invoice is not a statutory document and hence it was not submitted. He has further submitted that over 91% of the goods produced by them are exported and only an insignificant quantum of about 9% is sold in the domestic market. He has further pleaded that while P and P medicines classifiable under sub -heading 3003.10 attracts duty @ 15%, for generic medicines falling under sub -heading 3003.20 there is NIL rate of duty. He has further pleaded that Maritime Commissioner has granted refund for the year 1995 -96, 1996 -97 and for 1997 -98 and having been convinced of the eligibility of the appellants to the rebate. He has also invited our attention to page 9 of the paper book where copy of the labelling instructions of the foreign buyer has been filed. He has submitted that it can be seen from the instructions at Sl. No. 4 wherein it is clearly indicated that the label for each pharmaceutical and vaccine products shall meet W210 GMP Standard and shall include the INN or generic name prominently displayed over and above the brand name, where a brand name has been given. The instructions further stipulate that brand name should not be bolder or larger than the generic name. It would thus be clear that the Generic name was prominently shown because of the specific requirement of the foreign buyer to meet their requirement. He has also invited our attention to the decision of the Tribunal in the case of ACE Laboratories Ltd. v. CCE, New Delhi, reported in 2001 (128) E.L.T. 376 wherein it was held that when the goods were classified and assessed at the time of removal for export as P and P medicines, the department cannot allege later goods exported are not P and P medicines. It was also held therein that Modvat Credit is admissible in respect of inputs utilized in the manufacture of goods exported. He in the circumstances prayed for allowing the appeal.