Holding

The exemption was correctly withdrawn as Dextrose is neither a pharmaceutical necessity nor therapeutically inert, but the Revenue failed to prove suppression of fact, so the proviso to Section 11‑A does not apply and the extended demand is set aside.

Summary

T.N. Dadha Pharmaceuticals obtained exemption under Notification No. 116/69 for its drug Darzamol Injection, which contains Metronidazole and Dextrose. The Revenue later alleged that Dextrose, not being a pharmaceutical necessity or therapeutically inert, was suppressed in the classification list, withdrew the exemption and demanded excise duty invoking the proviso to Section 11-A for a five‑year extended period. The Supreme Court examined whether Dextrose qualified as a pharmaceutical necessity and whether the revenue had proved suppression of fact, noting that the burden of proof lies on the Revenue. It held that Dextrose does not meet the statutory criteria, so exemption was rightly withdrawn, but the Revenue failed to produce the original classification list to establish suppression, and therefore the proviso to Section 11‑A was not attracted. Consequently, the demand for duty for the extended period was set aside and the appeal was allowed. The Court also remitted the appeal concerning the Collector (Appeals) jurisdiction for fresh disposal. No costs were awarded.

Issues considered

Whether Dextrose in Darzamol Injection qualifies as a pharmaceutical necessity and is therapeutically inert under Notification No. 116/69.
Whether the Collector (Appeals) had jurisdiction to entertain the assessee's appeal.
Whether the proviso to Section 11‑A of the Central Excise Act is attracted, i.e., whether there was fraud, suppression of fact, or wilful mis‑statement by the assessee.
Whether the Revenue discharged its burden of proving suppression of fact in the classification list.

Legislation cited

Central Excise Act, 1944s. 11-A(1), s. 35-E(2)
Central Excise Rules, 1944s. Rule 8

Subjects

Central Exciseexemptionpharmaceutical necessitytherapeutically inertSection 11-Aprovisoburden of proofsuppression of factjurisdictionCollector (Appeals)CEGA TDextroseMetronidazoleexcise duty

Judgment

T.N. DADHA PHARMACEUTICALS A
v.
COLLECTOR OF CENTRAL EXCISE. MADRAS

FEBRUARY 5, 2003

(SYED SHAH MOHAMMED QUADRI AND ASHOK BHAN. JJ.] B

Central Excise Act, 1944/Central Excise Rules, 1944:

S. II-A (/)!Rules 8(/)-E.temption Notification No. 1/6169-Drug- C
Darza1110/ Injection I. V.-Containing Metronidazole-For assess111ent year
1982-83 classification list No. 7182 filed claiming exemption- Exemption
approved-Ho11 ever, later it transpired that Darzamol Injection I. V. also
1

contained Dextrose, an item not eligible for exemption-Accordingly, shoH'
cause notice issued on 17. 6.1987 that assessee suppressed the fact in
classification list No. 7182-Exemption sought to be withdrawn for the period D
12.7.1982 to 11.10.1984 and demand raised under proviso to s.11-A(/)-
He/d, Dextrose in Darzan1ol Injection is not a phar1naceutica/ necessity, nor
could it be considered as therapeutically inert, therefore, assessee cannot
c/ai111 exe1nption-Withdral1 al of exemption is upheld-However. as regards
1

Revenue in,1oking provisions of proviso to s. I J.A(J) for raising the de1nand
"'ithin ettended period offive years, since Revenue is alleging that there has E
been suppression of fact, burden is on it to sho11• by producing the actual
classification filed by assessee, to show that there is no nJention of 'Dextrose·
under column (4) and there has been suppression offact-Revenue has failed
to discharge the burden, therefore, it can not be said that proviso to s./ J-A(/)
is attracted-Demand relating to extended period set aside-Burden ofproof F
faemption Notification No. 116169-Drug-Darzamol Injection 1. V.-
Containing Metronidazole (IP) and Dextrose-Dextrose not eligible for
exemption-Demand of excise duty raised withdrawing exemptio~Appeal by
assessee-Dismissed by Collector (Appeals) holding thot he had no jurisdiction
to entertain the appeal-Appeal by Assessee before CEGAT-CEGAT disposing G
of the appeal without deciding whether Collector (Appeals) had jurisdiction
lo entertain the appeal or not-Held, mailer remilled to CEGAT for fi'esh
· disposal-Appeal-Jurisdiction of Collector (Appeals).

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2123- H
897
898 SUPREME COURT REPORTS [2003] I S.C.R.

A 2124 of 1994.

From the Judgment and Order dated 2.' 12/1993 of the Customs. Excise +-
and Gold (Control) Appellate Tribunal. New Delhi passed in Appeal Numbers
E-331/88-C and E/1329/89-C.

B S. Muralidhar, for the Appellant.

Jaideep Gupta and Mrs. Rekha Pandey for Mr. B.K. ·Prasad, for the -f'.
Respondents.

C The following Order of the Court was delivered :

These two appeals, by the assessee, arise from the order of the Customs,
Excise and Gold (Control) Appellate Tribunal (CEGA T), New Delhi in Appeal '-1.
Nos.E/331188-C and E/1329/89-C made on December 2, 1993~

D The assessee manufactures, among other pharmaceutical formulations,
Darzamol Injection J.V. under a licence granted to it by the Drug Controller,
Tamil Nadu. Each millilitre of Darzamol contains Metronidazole (IP) 50 mg.
in water for injection, JP made isotonic with Dextrose. The assessment years
in question are 1982-1983 to 1984-1985. Jn the Assessment Year 1982-83,
E the assessee filed classification list 7/1982 claiming exemption under
Notification No. I 16/69, dated 3.5.1969, in respect of the said drug. The
classification list was approved and exemption was allowed.

On the ground that during the course of verification it was noticed that
Darzamol Injection J.V. contained Dextrose apart from Metronidazole and
F that the ingredient Dextrose was not a pharmaceutical necessity and also not
therapeutically inert and, therefore, the assessee was not eligible for the benefit
of exemption Notification I I 6/69, a show cause notice was issued to it on
February 26, 1985. The notice, inter alia, stated that the assessee suppressed
the fact that Darzamol Injection contained Dextrose and that it was not declared
G to the department with deliberate intention to evade the payment of duty by
claiming exemption under Notification 116/69. The assessee was called upon
to show cause why the exemption should not be withdrawn and the duty,
paiticulars of which were given in the notice, should not be demanded; it
was asked to produce along with the cause all evidence on which it intended
to rely. The assessee replied to the said notice stating that Dextrose was a
H nutrient and it had no therapeutic properties and that it was used in the
T.N. DADHA PHARMACEUTICALS v. C.C.E. 899
vehicle for injectables to make the solution isotonic; dextrose would not react A
with Metronidazole which was the only therapeutic agent in Darzamole
Injection l.V. The assessee filed various documents in support of its contention.
The Assistant Collector, having been satisfied with the reply given to the
show cause notice, dropped the proceedings by order dated May 23, 1985.

It appears that the Superintendent, Central Excise, Madras sent a sample B
of Darzamol Injection 1.V. to the Chief Chemist, Central Revenue Control
Laboratory. New Delhi for examination and for technical opinion whether
Dextrose in the formulation is pharmaceutical necessity and whether it is
therapeutically inert. While the matter stood thus, the Principle Collector of
Customs and Central Excise suo motu initiated proceedings and passed an C
order under Section 35-E (2) of the Central Excise Act. The proceedings
noted that the statutory audit report which pointed out that from the label to
. the Darzamol Injection, in addition to Metronidazole listed in the Schedule,
Dextrose had also been used which was not one of the ingredients specified
in the Notification No. 116/69 and, therefore, grant of exemption was not in
order. The said Collector directed the Assistant Collector, to apply to the D
Collector, Central Excise (Appeals) for determination of the issue involved
in granting exemption to Darzamol Injection l.V. under Notification No.116/
69, dated 3.5.1969. On an appeal filed pursuant to the said direction, the
- ~
Collector of Central Excise (Appeals), Madras, by his order dated October
23, 1986, set aside the order of the Assistant Collector, dated May 23, 1985, E
and directed that adjudication be made afresh after receipt of necessary report
from the Chief Chemist, C.H.C.L., New Delhi of Central Drug Laboratory.

It is stated that, in the meanwhile, there was re-allocation of jurisdiction
of work Thereupon, the Collector, Central Excise, issued a fresh show-cause
notice on June I7, 1987 to the assessee in regard to: (i) Darzamol Injection F
has the ingredient Dextrose, in addition to Metronidazole; the ingredient
Dextrose contained in the product was not a pharmaceutical necessity and
also not therapeutically inert; and in view of the report of the State Drug
Controller, the assessee was not entitled to the benefit of exemption under
Notification No. 116/69; (ii) that the assessee suppressed t.he fact in G
classification list no. 7/82 that the Darzamol Injection contained Dextrose as
an ingredient which was not specified in the Schedule to the Notification No.
I 16/69, with deliberate intention to avert payment of duty by claiming
exemption under Notification No. I 16/69, dated 3.5.1969, in their classification
list no. 7/82. The assessee was called upon to show cause why exemption
granted under Notification No. 116/69 should not be withdrawn for the period H
900 SUPREME COURT REPORTS [2003] I S.C.R.

A from 12. 7.82 to 11.10.84 and why the duty amount of Rs . 4, 84, 191.40
should not be demanded under proviso to sub-section (I) of Section 11-A of
the Central Excise Act, 1944.

The assessee filed its reply to the said show-cause notice stating, inter
B alia, that the product Darzamol Injection l.V. had the following composition:

"Each ml, contains Metronidazole l.P. 5 m.g. in water for injection ~
J.P. made isotonic with Dextrose, Metronidazole l.P. is covered under
Notification No. 116/69 and the product Darzamol Injection l.V. was
cleared without payment of excise duty."
c
It was denied that there was suppression of fact in regard to Dextrose;
it was also denied that Dextrose was not declared to the department with
deliberate intention to evade the payment of duty. The Collector however, by
his order dated October 28, 1987, withdrew the exemption granted to the
assessee and upheld the demand. That order was challenged by the assessee
-D in Appeal No. E./331/88-C before the CEGA T.

It may also be noted here that in respect of the period from 1985 to
1988, demand of excise duty was raised, withdrawing the exemption, on
March 7, 1988. The assessee preferred an appeal against the said demand
E before the Collector (Appeals) who, by his order dated November 30, 1988,
dismissed the appeal taking the view that he had no jurisdiction to entertain
the appeal. Dissatisfied with the said order of the Collector (Appeals), the
assessee filed Appeal No. E/I 329/89-C before the CEGA T. This appeal and
the appeal arising out of the show-cause proceedings, being Appeal No. El
331 /88-C, were disposed of by common order dated December 2, I 993,
F which is the subject matter of these appeals.

Insofar as the appeal arising out of the order of the CEGA T passed in
Appeal No. I 329/89 is concerned, it must be pointed out that there has been
no adjudication of the grievance of the appellant-assessee. The CEGA T did
G not advert to the question whether the Collector (Appeals) had jurisdiction to
entertain the appeal or not. We are, therefore, of the view that the order of
the CEGA T under challenge, insofar as it relates to Appeal No. 1329/89 is
concerned, is liable to be set aside and, we, accordingly, do so. We remit that
appeal (No. Ell 329/89-C) to the CEGA T for fresh disposal in accordance
\Vith Jaw, after giving opportunity to the parties of being heard. ·
H
T.N. DADHA PHARMACEUTICALS v. C.C.E. 901

Insofar as the appeal arising out of the show cause proceedings is A
.~ concerned, the main thrust of the argument of the appellant has been with
regard to invoking of proviso to section 11-A (I) of the Central Excise Act.
But before we deal with that contention. we deem it necessary to dispose of
the contention that the withdrawal of exemption was unjustified. To appreciate
this contention , it would be necessary to quote Notification No. 116/69,
dated 3.5.1969. B

"Partial exemption to medicines containing specified ingredients.-
-- In exercise of the powers conferred by sub-rule (I) of rule 8 of the
Ce)ltral Excise Rules, 1944, and in supersession of the notification of
the Government of India in M.F.(D.R.&I.) No. 160/66-C.E., dated C
8th October, 1966, the Central Government hereby exempts patent or
proprietary medicines falling under Item No.14E of the First Schedule
to the Central Excise and Salt Act, 1944 (I of 1944 ), and containing
one or more of the ingredients specified in the Schedule hereto
annexed, from the whole of the duty of excise leviable thereon:---
D
Nothing contained in paragraph I shall apply to any medicine
which contains any ingredient not specified in the said Schedule unless
the ingredients in the medicine are phannaceutical necessities such as
diluents, disintegrating agents, moistening agents, lubricants, buffering
agents, stabilisers and preservatives:
E
Provided that such pharmaceutical necessities are therapeutically
inert and do not interfere with therapeutic or prophylactic activity of
the ingredient or ingredients specified in the schedule.

SCHEDULE F
....
I to 20 xxxxxxxxx

21. Metronidazole

22 to 30 xxxxxxxx G
From a perusal of the notification, extracted above, it is clear that the
exemption granted under the notification is in respect of patent or proprietary
medicines falling under item no.14E of the First Schedule to the Central
Excise Act and containing one or more ingredients specified in the Schedule H
902 SUPREME COURT REPORTS [2003) I S.C.R.

A to the notification.
There can be no dispute that without any further drug Metronidazole is
one of the ingredients of the drug which is entitled to the exemption under
the said notification. But the notification qualifies the exemption by adding
that if any medicine contains any ingredient not specified in the Schedule
B then the exemption will not apply unless the ingredients in the medicine are
pharmaceutical necessities such as diluents, disintegrating agents, moistening
agents, etc. The provisio to the notification says that such pharmaceutical Jr
>-
necessity must be therapeutically inert and they should not interfere with the
therapeutic or prophylactic activity of the ingredient or ingredients specified
c in the Schedule. The effect of this notification with regard to the drug in
question, namely, Dextrose which is not specified in the Schedule, would be
that if as an ingredient it is pharmaceutical necessity and therapeutically
inert, it would satisfy the requirement of the exemption and, consequently,
Metronidazole, which is one of the schedule drugs, would be entitled to
exemption. But, if dextrose does not have any of those properties above
D stated, then ;t being one of the ingredients of Metronidazole the exemption
under the notification will not be available.

In view of the technical report of the Drugs Controller of India
confirming the view of the Drugs Controller, Tamil Nadu that "Dextrose in .-J., _.,,.

Darzamole Injection is not a pharmaceutical necessity and Dextrose cannot
E be considered as therapeutically inert, we do not think that the assessee has
any case to place before us in support of the claim for exemption. In this
view of the matter, withdrawal of exemption by the Collector as confirmed
by the CEGA T deserves to be confinned and we, accordingly, do so.

F The main point that remains to be considered is whether the CEGA T
Al ,..
erred in confirming the order of the Collector, Central Excise invoking the
proviso to sub-section (I) of Section 11-A of the Central Excise Act.

It will be apt to read the proviso which runs as follows :

G "11-A. Recovery of duties not levied or not paid or short-levies
or short-paid or erroneously refunded.------
+-
xxx xxx xxx xxx

H Provided that where any duty of excise has not been levied or
T.N. DADHA PHARMACEUTICALS,._ C.C.E. 903
paid or has been short-levied or ;hort-paid or erroneously refunded A
by reason of fraud, collusion or any wilful mis-statement.or suppression
of facts, or contravention of any of the provisions of this Act or of
the rules made thereunder with intent to evade payment of duty, by
such person or his agent, the provisions of this sub-section shall have
effect, as if for the words "one year", the \Vords "five years" were
substituted." B

. A perusal of the proviso, extracted above, makes it clear that where
duty of excise has not been levied or paid or has been short-levied or short-
paid or erroneously refunded by reason of fraud, collusion or any wilful mis-
statement or suppression of facts, or contravention of any of the provisions C
of the Central Excise Act or of the rules made thereunder with intent to evade
payment of duty by such person or agent, the period of limitation of one year
in the main section is substituted by the words "five years". In other words,
where the said proviso is attracted the duty etc. can be claimed even after
expiry of one year for an extended period of five years from the date of the
demand. To invoke the proviso three requirements have to be satisfied, namely, D
· (I) that any duty of excise has not been levied or paid or has been short-
levied or short-paid or erroneously refunded; (2) that such a short-levy or
short-payment or erroneous refund is by reason of fraud, collusion or wilful
mis·statement or suppression of facts or contravention of any provisions of
the Central Excise Act or the rules made thereunder; and (3) that the same E
has been done with intent to evade payment of duty by such person or agent.
These requirements are cumulative and not alternative. To make out a case
un~er the proviso, all the three essentials must exist.

.'In the instant case, in regard to the first requirement, we have held
.
above that the assessee is not entitled to the exemption under the said
notification and, therefore, the duty of excise was not paid. On the second
F

essential, the demand of duty for an extended period of five years is sought
to be justified on the ground of suppression of fact in the classification list
7182 on the allegation that Dextrose as one of the ingredients was not disclosed.

The assessee has placed before us copies of the classification lists, not G
of 1982 but of a subsequent period, to show that in column (3) under the
heading "Name of specified ingredients(s) used" Metronidazole is mentioned,
and under columns (4) and (5) under the heading of"other ingredients used",
dextrose, water for injection and water for washing were indicated as
pharmaceutical necessity for adjustment of isotonicity, diluent and washing H

-
904 SUPREME COURT REPORTS [2003] I S.C.R.

A of bottles respectively. Inasmuch as the material placed by the assessee before
us does not relate to the classification list in question, namely 7/82, and as
~
the Revenue is alleging that there has been suppression of fact. the burden
is-on the Revenue to show, by producing the actual classification list filed by
the assessee, that there is no mention of 'dextrose' under column (4) and
there has been suppression ·of fact. The original records received from the
B authorities which were placed before us did not contain the said classification
list. We, therefore, passed an order on September 11, 2002 directing the
Commissioner, Central excise, Nungambakkam High Court, Madras to send,
by special messenger, all the original ret.:ords relating t~ these appeals,
including the classification lists from 1982-83 to 1985 and the audit report
)r

-
c which formed the basis for issuing the show cause notice within two weeks
from that day.

When the case was taken up on 23.1.2003, records were received in
part from the Additional Commissioner (Legal), Chennai Ill, Commissionerate
which did contain the documents called for. It was brought to our notice that
D the other records were sent to CEGA T and they had to be received from the
CEGA T. The case was again adjourned, when the matter is taken up today,
some records are received but the classification lists and. the aduit report,
which were specifically called for, were not sent. l~ a m~tter like the one
under consideration, it was the duty of the concerned authorities, particularly, ~-'"
the Commissioner/Collector, Central Excise, Madras to have pursued the
E
matter diligently and place the record before us to support the allegation in
the show cause notice that there has been suppression of the fact and that
dextrose was not mentioned in the classification list 7/82. In the absence of
production of such record, the burden cast on the Revenue to establish
suppression of fact is not discharged. Consequently, it will not only be unfair
F and unsafe but also illegal to infer that there was suppression of fact. For ...
these reasons, we are unable to approve the view taken by the Collector as
well as the CEGA T that there has been such a suppression of material fact.

However, we asked the learned counsel appearing for the Revenue to
point out from the record any finding by any authority that on verification of
G the original classification list, in column 4 thereof dextrose is not mentioned.
He was unable to do so and, in deed, he could not have done so. Our perusal
of the records also did not yield any fruitfu I result. +
In this view of the matter, we are unable to uphold the finding that
H proviso to Section 11-A( I) of the Central Excise Act is attracted. The order
T.N. DADHA PHARMACEUTlCALS v. C.C.E. 905

under challenge is set aside. The demand, insofar as it relates to the extended A
period, is also set aside. However, the authorities will be at liberty to raise
a fresh demand of excise duty falling within the period of limitation under
Section 11-A of the Act.

The Appeals are accordingly allowed.
B
i There shall be no order as to costs.

R. P. Appeals allowed.