Tax Officials Must Stick To Principle Of Fairness

Updated: Dec 23 2002, 05:30am hrs
Consider this. As a matter of policy, government did not intend to impose the burden of excise duty on bulk drugs. Bulk drugs are used as raw materials for making drug formulations. Excise duty on bulk drugs would increase the prices of essential drugs causing hardship to the patients. An exemption notification issued in 1982 reflected this policy decision. The notification also provided a definition of the term bulk drug. Since bulk drugs are basically chemicals (and there was excise duty on chemicals), the exemption notification made it incumbent upon a manufacturer of bulk drugs to satisfy the excise authorities that the chemicals were actually in the nature of bulk drugs. For this, the manufacturer was required to produce a certificate from the Drugs Controller (DC) to the effect that what he claimed for exemption was bulk drug, as defined in the notification, and normally used for the diagnosis, treatment, mitigation or prevention of diseases.

In 1986 a new excise tariff schedule was introduced. As a result, the classification of bulk drugs from erstwhile item no. 68 to Chapter 28 or 29 of the new tariff. However, as a continuing policy intention, the exemption to bulk drugs remained unchanged. A new notification though was issued on 3-4-1986 incorporating the new classification of bulk drugs in the Central Excise Tariff. Be that as it may, what matters is the actual implementation of the policy at the field level. Judicial pronouncements have it that intendment of a fiscal statute (which includes a notification) is to be derived only from the words used by the legislature. The judicial principle is simple. Alas, its application in specific situations has often been difficult. Even the most professionally trained authorities have been found to commit serious errors. Look at how the exemption relating to bulk drugs was interpreted in a given case. Consequent upon the change in classification, a manufacturer filed classification lists for bulk drugs on 3-3-1986 and 3-4-1986. He indicated 15 per cent as the rate of duty payable on bulk drugs. However, subsequently he claimed benefit of exemption under notification issued on 3-4-1986. He also produced requisite certificate from the D C issued on 24-6-86. However, on consideration of all these facts, the Assistant Collector denied the benefit of exemption. On appeal by the manufacturer, the Collector (Appeals) upheld the order of the Assistant Collector. The manufacturer appealed to the tribunal, vehemently claiming that both the departmental officers fell into error that needed to be corrected.

However, on careful consideration of the matter, in Collector of Central Excise Bombay v Unichem Laboratories-1994 (71) ELT 1010, the tribunal confirmed the order of the Collector (Appeals). Reason: The wording of the notification makes it clear that the benefit must be claimed by an assessee at the time of filing of the classification list so as to enable the Assistant Collector to fix a period for production of the certificate from the DC to the effect that the drugs claimed for exemption are bulk drugs within the meaning contained in the Explanation to the notification. The manufacturer appealed to the Supreme Court. The fact that three authorities were concurrently against his claim did not weaken his conviction that as per law he was entitled to the benefit of exemption. And he was right.

In Unichem Laboratories v Collector of Central Excise Bombay-2002 (145) 502 (SC), the apex court upheld his claim for exemption. The Court found serious fault with the approach of the departmental authorities as also with the verdict of the tribunal. The Assistant Collector failed to appreciate the facts in proper perspective. The reason given by the Assistant Collector that the appellant itself indicated the rate of duty payable as 15 per cent cannot be taken as a factor against it, because admittedly, the rate of duty payable in respect of the goods classifiable under sub-heading 2913.00 is 15 per cent. The fact that said notification has exempted payment of duty in respect of bulk drugs falling under the said sub-heading is an admitted fact, observed the Court. As for the tribunals observation that the exemption ought to have been claimed at the time of filing the classification lists to enable the assistant Collector to fix the time for production of the certificate from DC, the Court felt that it had no basis: It is worth noticing that no time limit has been fixed by the proper officer for filing certificate of the Drug Controller of the Government of India by the manufacturer. Nor is it provided that benefit of the exemption should be claimed at the time of filing of the classification lists. The notification squarely applies to the appellant The Court expressed its disapproval of the tribunals decision in these words: The tribunal also erred in holding that the appellant should have claimed the benefit of the notification at the time of filing of classification lists which is extraneous to the claim of exemption under the notification. Not only that, the Court lamented that all the authorities committed grave error on facts: That apart, the classification lists were filed by the appellant on 3-3-1986 and 3-4-1986 whereas, admittedly, the said exemption notification came to be issued only on 3-4-1986. The requirement which was insisted upon by the authorities and confirmed by the tribunal was an impossibility. What is more, they failed to take note of the fact that the exemption notification issued on 3-4-1986 would relate back to 1-3-1986 by virtue of the section 2 of the Central Duties of Excise (Retrospective Exemption) Act, 1986. This provision is self evident, noted the Supreme Court.

The apex court adviced the tax authorities. There can no doubt that the authorities functioning under the Act must, as are in duty bound, protect the interest of the Revenue by levying and collecting the duty in accordance with the law-no less no more. It is no part of their duty to deprive an assessee of the benefit available to him in law with a view to augment the quantum of duty for the benefit of the Revenue, they must act reasonably and fairly.

It is one more reminder that departmental authorities must not appear to be unfair in dealing with tax disputes. Many apprehend that tax officials sacrifice this principle only to appear to be fair to the revenue. That is certainly unfair!