PUNCHHI - (1.) THIS is an appeal under S. 35-L of the Central Excises and Salt Act, 1944 against the judgment and order of the Customs, Excise and Gold (Control) Appellate Tribunal, Special Bench, New Delhi, dated 29-5-90 whereby the appeal of the Revenue stands allowed and the appellate order of the Collector (Appeals), Bombay, in favour of the appellant- company set aside.
(2.) THE case of the appellant is that under a licence to manufacture drugs obtained on 27-7-82 from the Food and Drugs Administration, Maharashtra, it manufactured thenceforth medicinal Silicone products named Dimethicone of the description Dimethicon 20, Dimethicon-350, Dimethicon -2000 , Dimethicon -1000 and Dimethicon-100, and Simethicon. These products were stated to be manufactured strictly in accordance with pharmaceutical standards, requirements and specifications. Between August 198 2/01/1983, the appellant filed classification lists in respect of Dimethicone and Simethicone, terming them as drugs and pharmaceutical preparations classifiable under the residuary Tariff Item 68 of the Central Excise tariff but exempt otherwise from levy under some government notifications starting from 22-2-82 onwards reference to which would be made later. On 24-9-83, the superintendent of Central Excise informed the appellant that the drugs on the contrary were classifiable under Tariff Item 15A and not under Tariff Item 68 and that the benefit of exemption under the last of notifications being No. 234 /82 dt. 1-11-82 was not available to the appellant in respect of the said products. As directed by the Superintendent of Central Excise, the appellant filed the revised classification, but under protest, in respect of those products under Tariff Item 15A. The appellant thereafter successfully persuaded the Assistant Collector of Central Excise to obtain a report of the Deputy Chief Chemist Bombay as to whether or not the products conformed to pharmaceutical standards. The report received stated that Dimethicone of the varieties were poly silozane compounds (silicone oils) stated to have defoaming properties and Simethicon a form of jelly like mass composing of silicon oil and silicon. Beforehand on 22-11-83, a notice had been issued by the Department to the appellant to show cause why the products be not classified under Tariff Item 15A. The appellant in reply pointed out that the products were " bulk drugs" as defined in the up-to- dated Notification No. 234/82 dt. 1-11-82. The Department did not relent and on receipt of the report of the Deputy Chief Chemist, Bombay, issued a second show cause notice to the appellant. Finally on contest, the Assistant Collector passed an order on 4-1-85 rejecting the contention of the appellant holding that the products were classifiable under Tariff Item 15A. The Collector of Central Excise, Bombay, on appeal by the appellant set aside the order of the Assistant Collector. He took the view that both the products were drugs and pharmaceutical preparations and conforming to pharmacopoeial standards, classifiable under Tariff Item 68 and exempt from Excise Duty. Further appeal of the Revenue before the Tribunal was allowed and the order of the Assistant Collector was restored. The Tribunal's view was that both the products were silicone and it was immaterial whether they were conforming as drugs, hence the classification under Tariff Item 15A. Therefore, this appeal. Before we go on to deal with the diverse contentions raised by Mr. S. Ganesh, learned counsel for the appellant, we deem it prudent to give a broad outline of the interplaying of the charging S. 3 of the aforesaid Act and its Schedule I embodying the tariff items. Sec. 3 mandates that there shall be levied and collected, in such manner as may be prescribed, duties of excise on all excisable goods other than salt produced or manufactured in India, and a duty on salt manufactured in, or imported by land into, any part of India as. and at the rates set forth in the First Schedule. Sub-section (2) allows the Central Government, by means of a notification to fix for the purpose of levying the said duties, tariff values of any articles enumerated either specifically or under general headings, in the First Schedule, as chargeable with duty ad valorem and to alter any tariff values for the time being in force. Schedule 1 has three columns, first containing item numbers, the second containing description of goods and the third containing rate of duty. A quick glance through Items 1 to 67 shows that under each item certain goods are specified for levy of duty and to the goods which have not been so specified or have been left out Item 68 is attracted, the latter known as the residuary item. Rule 8 of the Central Excise Rules, 1944, as it then stood, empowered the Central Government from time to time , by notification in the Official Gazette, to exempt, subject to such conditions as specified in the notification , any excisable goods from the whole or any part of the duty leviable on such goods. Such exemption by means of notification issued under Rule 8 does not take away the levy or have the effect of erasing levy of duty. The object of the exemption notification is to forgo due duty and confer certain benefits upon the manufacturer or the buyer, or the consumer through the manufacturer, as the case may be. We must also bear in mind that the period with which we are concerned relates to the period prior to the introduction of the Central Excise and Tariff Act, 1985, which came into force on 1/03/1986. Leaving aside the case of salt, with which we are presently not concerned, Section 3 of the Act authorises levy and collection of excise duty on all goods produced or manufactured in India. If the goods are specified in one or the other item contained in Items 1 to 67, the duty payable is referable to the concerned item. Should any goods be not specified in any of those Items 1 to 67 , excise duty would be leviable on those remaining goods under the residuary Item 68. When by an exemption notification under Rule 8 of the afore referred to Rules, any excisable goods get exempted from payment of duty under a particular Item it only implies that the levy and collection of excise duty on those goods would have been there under the said Item but for the exemption. The case of the appellant is that its products aforementioned being 'bulk drugs' have been exempted by notifications reference to which shall presently be made. The argument presupposes that but for the exemption excise duty was leviable.
(3.) NOW the dispute between the Revenue and the appellant has diametrically opposite dimensions. Mr. S. Ganesh, learned counsel for the appellant, in the first instance urged that though Silicone was a product specified in Tariff Item 15A the product meant to be covered therein was industrial Silicone, and since the products in question were in contrast medicinal Silicone bearing the names Dimethicone and Simethicon, those were not covered under Tariff Item 15A. Pursuant thereto it was urged that medicinal Silicone fell in the residuary Item 68 attracting a lesser ad valorem duty and having found its place there stood exempted from payment of excise duty under the notifications. The case of the Revenue on the other hand is that Silicone, be it termed medicinal or industrial, in all forms was covered in Tariff Item 15A and it having been specified there got stuck up in that Item and thus in no event could it slide down to the residuary Item 68. Sequally it was urged that when the products in question could never come to the residuary Item 68, the question of exemption notifications applying to the products did not arise. Thus the question which primarily falls for consideration is how do we interpret the exemption notifications. But before we do that we take note of Tariff Items 15A and 68, reproduced one after the other:- JUDGEMENT_578_4_1994Html1.htm Explanation I - Sub- item (1) does not include :- (i) polyurethane foam ; (ii) artificial waxes; (iii) starches (including dextrin and other forms of modified starches). Explanation II - In sub-item(1), "condensation, polycondensation, polyaddition, polymerisation and copolymerisation products" are to be taken to apply only to goods of a kind produced by chemical synthesis answering to one of the following description :- (a) Artificial plastics, including artificial resins. (b) silicones; (c) resols, liquid polyisobutylene, and similar artificial polycondensation or polymerisation products. Explanation III - Sub-item (1) is to be taken to apply to materials in the following forms only :- (a) liquid or pasty (including emulsion, dispersion and solutions); (b) blocks, lumps, powders (including moulding powders), granules, flankes and similar bulk forms; (c) waste and scrap: Item No. 68All Other Goods, N.E.S. JUDGEMENT_578_4_1994Html2.htm Explanation - For the purposes of this Item, goods which are referred to in any preceding Item in this Schedule for the purposes of excluding such goods from the description of goods in that Item (whether such exclusion is by means of an Explanation to such Item or by words of exclusion in the description itself or in any other manner) shall be deemed to be goods not specified in that Item. The explanation occurring in Item 68 is significant. It is the key to understand the nature of the exclusion of goods from the description of goods in any particular item within Items 1 to 67. The Explanation clarifies that such exclusions could be demonstrated either by clear exclusion, or by explanation, or in any other manner. Once such exclusion of goods is manifest from the description of goods, then the goods excluded shall be deemed to be goods not specified in that item. By this deeming provision the excluded goods are taken for the purposes as if not specified in that item and have, for the purposes of Item 68 to be treated to be goods not specified elsewhere falling under Item 68. So such of those specified goods which get excluded from the description of goods in a particular tariff item in whatever manner, those goods shall be deemed to be goods not specified in that item and thus becoming goods not specified elsewhere for the purposes of Item 68.;