Whether duty on Glyoxal manufactured and captively consumed is required to be paid when used in the manufacture of exempted drug intermediates.

PJ/Case Law/2014-15/2164

Case:- M/s MANISH ORGANICS INDIA LTD Vs COMMISSIONER OF CENTRAL EXCISE, SURAT-II

Citation:- 2014-TIOL-652-CESTAT-AHM

Brief facts:- This appeal has been filed by the appellant against OIO No.38/BRC/MP/96, dt.29.03.1996 passed by Commissioner of Central Excise & Customs, Vadodara. The issue involved in the present proceedings is chargeability of Central Excise duty on captively consumed Glyoxal used in the manufacture of Drug intermediates (2-Methyl Imidazol and 2-Methyl 5 Nitro Imidazol ) exempted under Notification No.147/1984-CE, dt.19.06.1984. It is the case of the Revenue that appellant is using Glyoxal 40% manufactured by the appellant and used in captive consumption which is a stable product capable of being marketed. This is based on the grounds that appellant has given an intimation to the Drug Controller that Glyoxal 40% is used in the manufacture of drug intermediates which are fully exempted. On the other hand, appellant is of the argument that Glyoxal 20% is used in the manufacture of exempted drug intermediate and that Glyoxal 20% is not a stable product capable of being sold, which is based on the test report of Dy.Chief Chemist Vadodara. It is also the case of the appellant that they have subsequently intimated the Drug Control Authorities that they have started using Glyoxal 20% in the manufacture of exempted drug intermediates.

Appellant’s contentions:-Shri Nirav Shah (Advocate) appeared and mentioned that the case may be transferred to Single Member Bench as the issue is not of classification and valuation and also because of the fact that the amount involved in this case is less than Rs.50 lakhs. It is observed from the case records that issue involved is regarding marketability and leviability of a product that comes into existence and also interpretation of Notification No. 147/1984-CE, dt.19.06.1984. Therefore, the case cannot be transferred to SMC. Shri Nirav Shah (Advocate) then requested for a short adjournment. The request made for adjournment is not considered on the ground that the matter pertains to the year 1996 and Advocate of the appellant were earlier granted adjournments on 20.09.2012, 24.07.2013, 21.08.2013.

Respondent’s contentions:- Shri K.J. Kinariwala (A.R.) defended the order passed by the adjudicating authority and emphasized that appellant has manufactured Glyoxal 40% which is a stable marketable product on which duty is correctly demanded when the same is captively consumed in the manufacture of exempted drug intermediates.

Reasoning of judgment:- Appellant in the grounds of appeal and before the adjudicating authority claimed that they are using Crude Glyoxal 37 to 43% in the manufacture of drug intermediates which comes into existence in the manufacture of Glyoxal 40% which only is stable and marketable. It is observed from the statement dt.23.11.1990 of Shri J.R. Bhaghubhai Patel, M.D. of the appellant that Crude Glyoxal (37 to 43%) has impurities of 2.5% Acetic Acid and around 1.5% of Nitro Acid and other acidic impurities. For getting Glyoxal 40% from the crude Glyoxal first impurities are to be removed. This is done by diluting the Crude Glyoxal which is then subjecting to activated carbon treatment to get Glyoxal 19 to 23%. This concentration of Glyoxal 19 to 23% is called Glyoxal plant intermediate stream (GPIS) which is used for manufacture of both Glyoxal 40% and for the manufacture of 2 Methyl 5 Nitro Imidozole which are exempted drug intermediates. It is also observed from the case records that appellant vide letter Sec 130/715A/1990-91, dt.14.05.1990, much before the issue of show cause notice, did write to the Commissioner of Food & Drugs Control Administration, Gandhinagar about the change in the raw materials for the manufacturing of Drugs intermediates. In this letter, it is specifically mentioned that though one of the raw materials for making drug intermediates is Glyoxal 40% but they are using Glyoxal 20%, which is an intermediate stream of their Glyoxal plant. No investigation has been done by the Revenue to argue that unstable Glyoxal 20% cannot be used in the manufacture of exempted drug intermediates manufactured by the appellant. It is also observed from the chemical test report dt . 24.01.1991 from Chemical Examiner, Central Excise, Vadodara, that Glyoxal 20% on storage, deteriorates and cannot be considered as marketable. In the light of the above comprehensive evidences brought on record by the appellant, it cannot be said that drug intermediates are manufactured by the appellant only from the stable Glyoxal 40%. No case can be made against the assessee on presumptions and conjectures. Accordingly, it is held that the appellant was manufacturing exempted drug intermediates from unstable Glyoxal 20% which was not marketable and on which no duty was thus payable.

Decision:- The appeal is allowed.

Comment:- The analogy of the case is that No investigation has been done by the Revenue to argue that unstable Glyoxal 20% cannot be used in the manufacture of exempted drug intermediates manufactured by the appellant. It is also observed from the chemical test report dt. 24.01.1991 from Chemical Examiner, Central Excise, Vadodara, that Glyoxal 20% on storage, deteriorates and cannot be considered as marketable. In the light of the above comprehensive evidences brought on record by the appellant, it cannot be said that drug intermediates are manufactured by the appellant only from the stable Glyoxal 40%.

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PJ/Case Law/2014-15/2164

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