INDICA LABORATORIES PRIVATE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) In this group of petitions under Art. 226 of the Constitution the petitioners have brought in challenge the action of the Authorities functioning under the provisions of the Central Excises and Salt Act 1944 (the Act for short) refusing benefit of the exemption Notification No. 175 of 1986 CE dated 1-3-1986 to the concerned petitioners. They have also brought in challenge the show cause notices issued to them under Sec. 11A of Act and have further challenged consequential orders confirming the demands contained in the impugned show cause notices. The petitioners have also challenged the vires of paras 2 and 3 of the exemption Notification No. 175 of 1986 dated 1-3-1986 as amended by Notification No. 223 of 1937 dated 22-9-1987.

(2.) As these petitions involve common questions of law and facts they were beard together and are being disposed of by this common judgment. Introductory facts: Before highlighting the nature of controversy posed for our consideration in this group of petitions it is necessary to note a few relevant facts. All these petitioners are engaged in manufacturing patent and propritery medicines falling under Chapter 13 of the First Schedule to the Central Excise Tariff Act 1985 All of them have got necessary Small Scale Industry Registration numbers and licence in Form L-IV under the Act for the purpose of manufacturing Patent and Proprietary medicines (PP medicines for short).

(3.) It is the case of the petitioners that in their factories PP medicines are also being manufactured by these persons who do not have their own facilities to manufacture the same. They therefore hire shift or shifts at the petitioners factories for manufacturing under their own control and supervision and out of their own raw material PP medicines. Those persons who hire such shift or shifts are known as loan licensees who are given these licence under the provisions of Drugs and Cosmetics Act 1940 read with Drugs and Cosmetics Rules 1945 The petitioners contend that such practice is prevalent on large scale in pharmaceutical industry. That this practice helps these who are small manufacturers and who have no capacity or financial strength to have their own factories for manufacturing their own goods. Such loan licensees are therefore permitted to get their PP medicines manufactured at the shifts hired at factories owned by persons like the petitioners. Such type of practice is permitted and contemplated under Rules 69A and 74B of the Drugs and Cosmetics Rules 1945 The petitioners case is that when such loan licensees manufacture their own PP medicines at the factory premises of the petitioners by hiring necessary shifts at their factories the manufacturers of the concerned PP medicines sro those loan licensees and not the petitioners. In exercise of the powers of exemption under Rule 8 of the Central Excise Rules the Central Government issued exemption Notification No. 175 of 1986 CE dated 1-3-1986 whereunder exemption was granted to get clearance of the specified goods upto value of Rs. 16 lakhs and concession rate of subsequent clearance in case of manufacturers having clearance not exceeding Rs. 1 crore 50 lakhs in the preceding year. The petitioners contend that under the scheme of this notification they were entitled to clear their own manufactured PP medicines from their own story premises which are SSI units by availing of concession regarding payment of excise duties as contemplated by sub-paras (a) and (b) of para 1 of the exemption Notification. That so for as PP medicines manufactured by loan licensees at the petitioners factories are concerned according to the petitioners these loan licensees are also entitled to exemption and payment of concessional rate of excise as per the aforesaid sub-paras of para 1 of the Notification. However according to the petitioners excise authorities are wrongly denying the benefit of this exemption Notification to loan licensees who manufacture their goods as aforesaid at the petitioners factories ant on the contrary by wrongly applying sub-paras (2) and (3) of the exemption Notification they are clubbing the goods manufactured by the petitioners with the goods manufactured by loan licensees at the petitioners factories and accordingly slab of cleared goods for the purpose of exemption from payment of excise duty is wrongly indited and on that wrong basics the impugned show cause notices are issued to the petitioners which are liable to the quashed. The petitioners also challenge the vires of paras (2) and (3) of exemption Notification No. 175 of 1986 on the ground that they are ultra vires provisions of the Act and they are also ultra vires Art. 14 of the Constitution.