Sun Pharma granted exemption from excise duty on Danazol

The decision was pronounced in open court on October 19, 2023 by Members M Ajit Kumar and Sulekha Beevi C S, wherein, the panel was examining the appeal filed by Sun Pharma against the Order in Appeal No. 8 to 12/2014 (P) dated 6th January 2014 passed by the Commissioner of Central Excise (Appeals), Puducherry.

Sun Pharmaceuticals Industries, the appellant/assessee, had been releasing 'Danazol' without paying duty, claiming exemption under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006. However, the department asserted that the goods should be categorized under Sl. No. 47B of the same Notification. According to Sl. No. 47B, when goods are utilized elsewhere apart from the production factory, exemption is granted only if the procedure outlined in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, is adhered to.

As Sun Pharma had supplied 'Danazol' to other manufacturers like Arvind Remedies without adhering to these Rules, it seemed that the appellant was ineligible for the exemption provided by Notification No. 4/2006-CE.

Two show cause notices covering the period from April 2009 to March 2010 were issued to the appellant, rejecting the exemption. After due legal proceedings, the adjudicating authority upheld the duty demands and imposed penalties equivalent to the duty demands. The appellant appealed to the Commissioner (Appeals), who affirmed the duty while waiving the penalties.

The drugmaker argued that they cleared 'Danazol' to Arvind Remedies Silvassa without duty payment, citing exemption under Notification No. 04/2006, under Sl. No. 47 (A) of Notification 4/2006-CE, with a NIL duty rate and without fulfilling any condition. However, the Commissioner (Appeals) denied them the benefit of the notification, asserting that 'Danazol' being a 'bulk drug' would fall under Sl. No. 47B instead of Sl. No. 47A claimed by the appellants. Sl. No. 47A exempts goods unconditionally from duty, while Sl. No. 47B grants exemption subject to specific conditions, which the appellant did not meet. Thus, the order confirmed the duty demand while voiding the penalties.

The department argued that 'bulk drugs' are covered under Sl. No. 47B of Notification No.4/2006-CE dated 1.3.2006. The exemption is subject to specific procedures that the appellant failed to comply with, justifying the rejection of the appeal by the Commissioner (Appeals).

The central issue was whether 'Danazol', categorized as a 'bulk drug', should be considered under Sl. No. 47A or Sl. No. 47B of Notification No. 4/2006-CE dated 1.3.2006. After going through the submissions, the tribunal ruled that the appellant is entitled to unconditional tax exemption under Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006. It observed;

"We find that the issue at Sl. No. (i) as to whether 'Danazol' is eligible for the exemption under Sl. No. 47A of Notification No.4/2006- CE is no longer res integra as has been decided by host of judgments of this Tribunal stated by the appellant and listed above. The judgments have held that since the term 'bulk drugs' and 'drug and medicines' have not been defined in the Notification, the definition as per Drugs (Price Control) Order, 1995 is relevant. As per Drugs (Price Control) Order, 1995, the term 'drug' have been defined to include 'bulk drug' and formulations. Thus, the said judgments put in mathematical terms could be understood as meaning that while 'drug' is a superset, 'bulk drugs' is the subset, whereby 'bulk drugs' are covered by the term 'drugs'. Hence, it is for the appellant to choose which ever Sl no of the exemption is more favourable to him. Judicial discipline requires us to follow the ratio of the above judgments. We hence find that the appellant is entitled to the benefit of unconditional exemption from tax as per Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006."

Regarding the reversal of credit/payment under Rule 6(3) of CENVAT Credit Rules, 2004, the Tribunal noted confusion in the department's stance. However, since the appellant had already reversed the CENVAT credit as per para 18 of the impugned order, the Tribunal allowed the benefit of Sl. No. 47A for 'Danazol,' subject to departmental verification of the credit reversal claims.

Subsequently, the Tribunal set aside the impugned order and granted Sun Pharmaceuticals Industries Ltd. the benefit of Sl. No. 47A for 'Danazol,' while allowing the department to verify the mathematical accuracy of the credit reversal. The appeals were disposed of accordingly. It noted;

"We accordingly set aside the impugned order and allow the appellant the benefit of Sl. No. 47A of Notification No. 4/2006-CE dated 1.3.2006 for the product 'Danazol'. Credit reversed by the appellant under Rule 6(3) of CENVAT Credit Rules, 2004 is subject to verification by the department as mentioned above. Appeals are disposed of on the above terms."

To view the original order, click on the link below: