DABUR INDIA LTD Vs. CCE

JUDGEMENT

(1.) THIS is an appeal filed by M/s Dabur India Ltd. (hereinafter referred to as 'M/s. Dabur'), being aggrieved with the Order -in -Original dated 26.11.1997 passed by the Commissioner of Central Excise, Meerut -I. The matter relates to the classification and the liability to pay central excise duty in respect of the vegetable extracts manufactured and consumed for manufacturing exempted Ayurvedic Medicaments. Vegetable extracts were obtained in three different forms (i) liquid, (ii) semi -solid - -paste, and (iii) dry - -powder. It was mentioned in the show cause notice dated 30.8.1995 that such vegetable extracts classifiable under sub -heading No. 1301.90 of the Central Excise Tariff were stored and could be stored for a time. They could also be marketed and were actually marketed by other manufacturer of similar vegetable extracts, in different forms - -liquid, semi -solid and dry forms. The appellants were getting such vegetable extracts also from outside and some of the vegetable extracts manufactured by them were sent to outside manufacturers for manufacturing Ayurvedic Medicaments on job work basis, where they were used after a time, without noticing any deterioration during storage and transit. It was alleged in that show cause notice dated 30.8.1995 that M/s. Dabur had suppressed the fact of manufacturing vegetable extracts falling under sub -heading No. 1301.90 of the Central Excise Tariff, in their factory, and did not knowingly and wilfully declare these excisable and dutiable products in any of the classification lists filed with the Central Excise Department during the period from 1.8.1990 to 28.2.1994. As a part of 1994 Budget, exemption from excise duty on all patent or propriety medicines of Homoeopathic, Unani, Siddha, Ayurvedic and Biochemic was withdrawn; however, unbranded products continued to be exempted vide Notification No. 8/94 -CE dated 1.3.1994. Contraventions of the various provisions of Central Excise Rules, 1944 (hereinafter referred to as the 'Rules') were alleged with intent to evade payment of Central Excise duty of Rs. 3,85,96,927.42 for the period 1.8.1990 to 28.2.1994. For demanding the aforesaid duty, extended period of limitation was invoked. The penal provisions for imposition of penalty were also referred to. The matter was adjudicated by the Commissioner of Central Excise, Meerut -I who under his Order -in -Original dated 26.11.1997 observed that M/s. Dabur had already admitted their duty liability in respect of some of the vegetable extracts, derived from a single plant referred to as 'Simple Extracts'. The adjudicating authority addressed himself to the various issues involved in the proceedings before him. He held the 34 vegetable extracts containing self -generating alcohol and not subjected to fermentation or other preservative processes, as not classifiable under the provisions of the Central Excise Act. The demand of Rs. 87,40,477.64 was dropped on this account. The mixed (compound) vegetable extracts were found to be in different forms, such as, liquid, paste and powder. It was also found that such extracts were incapable of being put to therapeutic or prophylatic use in the form in which they emerged after their extraction. As regards the marketability, he noted that the assessee had sought classification of these mixed (compound) vegetable extracts under Chapter 30 of the Central Excise Tariff. Similar products were being marketed by other manufacturer; they were stored for considerable time without any deterioration; in some products preservatives were added to increase their shelf -life. Similar goods in some cases were also procured from outside and were stored by the assessee. He came to a decision that the vegetable extracts were 'goods' for Central Excise duty purposes, were marketable and satisfied the test of marketability. On limitation, he noted that the goods were not declared in any of the classification lists filed by M/s. Dabur. The appellants had not observed prescribed Central Excise formalities with regard to the items in question. They were also purchasing similar goods from outside on payment of duty. After analysing the facts and the relevant case law, he concluded that M/s Dabur had wilfully suppressed the facts and that the extended period of limitation was rightly invocable. He upheld the classification of vegetable extracts under sub -heading No. 1301.90 of the Central Excise Tariff, and confirmed the demand of Rs. 2,98,56,449.73. A penalty of Rs. 2,98,56,450 was imposed under Rules 9(2), 52(A), 173(Q) and 210 of the Rules.

(2.) THE matter was heard on 5.9.2000, when Shri V. Lakshmikumaran, Advocate, appeared for M/s. Dabur, and submitted that prior to 1.3.1994 no duty was leviable on Ayurvedic Medicaments including patent or proprietary Ayurvedic Medicaments. The appellants were engaged in the manufacture of patent or proprietary Ayurvedic Medicaments, and at intermediate stage vegetable extracts were manufactured by them. He explained that there were two types of vegetable extracts (i) Simple Vegetable Extracts obtained from single ingredients; and (ii) Compound Vegetable Extracts obtained from two or more ingredients. The duty liability with regard to simple vegetable extracts was submitted. With regard to compound vegetable extracts, however, it was argued that they were not marketable. According to the learned Advocate, they had limited shelf -life and were not stable. He submitted that as there was no process of manufacture, no excise duty could be levied. He referred to the Supreme Court decision in the case of Hyderabad Indus. Ltd. v. UOI . It was also his submission that the goods were not marketable and were not capable of being marketed and relied upon the Supreme Court decision in the case of Moti Laminates Ltd. v. CCE, Ahmedabad . It was his submission that no duty was leviable on compound vegetable extracts. Reference was also made to the Supreme Court decision in the case of UOI v. Delhi Cloth and General Mills Co. Ltd. , wherein the Apex Court had laid down that the marketability was a must for levy of excise duty. He also referred to the Board's Circular No. 334/50/97 -CX dated 16.9.1997 wherein it has been clarified that the mixed or compound vegetable extracts which have therapeutic or prophylatic value were appropriately classifiable under Heading No. 30.03 of the Central Excise Tariff. He referred to the Supreme Court decision in the case of Ranadey Micro Nutrients v. CCE , wherein it has been held that the circulars issued by the Central Board of Excise and Customs were binding on the officers of the Revenue Department. He also referred to the Tribunal's decision in the case of CCE, Chandigarh v. Oswal Woollen Mills Ltd. 2000 (39) RLT 283 (Tribunal), wherein the Tribunal had taken a view that the Department was bound by its Trade Notices. It was also submitted that the demand was hit by time -bar. In reply, Dr. Ravinder Babu, JDR, submitted that the vegetable extracts were not medicaments; the facts have been suppressed by the appellants and the vegetable extracts were 'goods' for excise purposes, were marketable and were actually marketed as per the facts on record. He submitted that a correct view has been taken by the adjudicating authority. The adjudicating authority had already extended the benefit in respect of vegetable extracts with self -generating alcohol. The appellants have already admitted their duty liability in respect of 'Simple Extracts' and the same criteria was to be adopted for the compound extracts. He reiterated the findings recorded in the impugned Order -in -Original by the adjudicating authority.

(3.) WE have carefully considered the matter. M/s. Dabur were, inter alia, engaged in the manufacture of medicaments including those used in Ayurvedic, Unani, Siddha, Homoeopathic or Biochemic systems classifiable under sub -heading No. 3003.30 of the Central Excise Tariff. For manufacturing medicaments used in Ayurvedic systems, they were procuring different herbs from outside. The herbs were in dry or semi -dried form. These herbs in dried or semi -dried form were further dried, grounded and crushed. Different herbs, so dried, grounded and crushed were mixed depending upon the medicaments to be prepared, in different proportions, and such herbs mixed in given proportions were subjected to the further process of grinding in the grounding mill. This grinded mixed material was then processed to obtain vegetable extracts. Depending upon the requirement, the vegetable extracts obtained after processing of herbs, either taken as a single herb or after mixing different herbs, were also dried. The vegetable extracts whether liquid, semi -solid or dried were used for preparing different medicaments after adding certain other necessary ingredients to the vegetable extracts, as per manufacturing formula for the medicaments to be prepared. The vegetable extracts were not usable as medicaments as such. Shri Bhuvanesh Kumar Dwivedi, Senior Production Officer, Ayurvedic Medicine Department, in the appellants' factory, in his statement dated 26.7.1995 recorded under Section 14 of the Central Excise Act, 1944 (hereinafter referred to as the 'Act') before the Superintendent of Central Excise, Ghaziabad, had stated that the herbs were mixed in dried condition as per formula and then they were grinded. The coarse powder was taken for decoction by adding ester in required quantity and then were boiled to get the required concentration. He clarified that the vegetable extracts manufactured by M/s. Dabur at intermediate stage by decoction method were not usable as medicaments. He explained that the vegetable extracts had no therapeutic or prophylatic uses of its own unless other ingredients were added and processed as per the formula given in the authoritative text books or patent formula as approved by the Drug Control Authorities. For manufacturing vegetable extracts, drug licence from the prescribed authorities was required. M/s Lucky Laboratories Ltd. were engaged in the production of vegetable extracts. In his statement dated 21.7.1995 recorded under Section 14 of the Act before the Superintendent of Central Excise, Ghaziabad, Shri R.K. Agarwal, Asstt. Manager of M/s. Lucky Laboratories Ltd., Sikandrabad, had referred to the drug licence for vegetable extracts issued to their unit by licensing authority and the Director, Ayurvedic/Unani Services, Uttar Pradesh, Lucknow, as per letter No. 3993/ D -2318/86 dated 8.6.1995 for 86 additional products as per authoritative books on Ayurveda. Shri R.K. Agarwal was earlier working with M/s. Dabur in their packing section. He explained that the vegetable extracts as per the approved list were manufactured in dried powder form, semi -solid (paste) form and liquid form as per the requirements of their buyers. He confirmed that these vegetable extracts were not usable for therapeutic or prophylactic use as medicines as these were mere ingredients which could be used for manufacture of medicaments. He also clarified that even without use of preservatives, these vegetable extracts could be stored. In their case, liquid extracts without preservatives were supplied to their customers within a week's time. In some cases, preservatives were used while some extracts had self -preservative properties. In their case the whole of the production of the vegetable extracts was for outside sale. They were supplying mixed/compounded vegetable extracts to M/s. Dabur also. Shri R.K. Agarwal was cross -examined by the counsel for M/s. Dabur on 4.6.1996 when he confirmed that the extracts were not taken as medicaments as such. He also clarified that the extracts arising at the final stage having gone through the multi stage evaporation stage when the concentration had been increased to about 70% could be stored without deterioration even upto six months.