The Supreme Court has admitted the excise department’s plea alleging that pharma major Cipla Ltd is not entitled to refund modvat credit paid on its destroyed expired medicines.

The appeal raises an important question of law as to whether modvat credit availed on import can be reversed when remission of duty on destroyed products was allowed subject to a condition. A Bench headed by Justice SH Kapadia has granted leave after Additional Solicitor General Parag Tripathi pointed out that Cipla had failed to appear in the matter.

Challenging the Bombay High Court judgement that dismissed its appeal, the excise department stated that the high court had erred in equating Cipla’s case with cases where the goods got destroyed by fire or any other natural cause or unavoidable accidents. In the present case, Cipla had destroyed its expired medicines?Ocutim eye drops, ciplox D eye drops and Bedecort 0.5 mg Respulse – as they were unfit for human use.

Stating that there was no provision for refund of credit, according to the revenue, the high court failed to appreciate that under the modvat scheme credit of duty paid on the inputs availed by the assessee can only be utilised towards payment of duty for final products. “The high court failed to appreciate that credit of duty cannot be allowed on inputs of non-existent final products,” the appeal stated.

The intention of the modvat scheme was to provide relief against the cascading effect of excise duty and thus when duty on finished products was being remitted, allowing credit of the duty paid on inputs, would confer a totally unintended benefit, it added. The department had given permission to Cipla to destroy goods on a condition that modvat credit facility availed on these products under Rule 57A and 57Q of the Central Excise Rules 1944 should be reversed. The assessee had debited around Rs 2 lakh under protest in its credit account in 2000. The firm had claimed refund on the ground that modvat credit involved on the inputs used in the manufacturing of destroyed goods was admissible to it.

Both the assistant commissioner and the commissioner had held that Cipla was not entitled to modvat credit as the products were not destroyed by any fire accident or a natural calamity and the remission as requested by the assessee was granted on a condition.