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Citric India Limited Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1986)(6)LC94Tri(Delhi)
AppellantCitric India Limited
RespondentCollector of Central Excise
Excerpt:
1. this order of the collector f. no. tc-955/81/372 dated 26-4-1983 has now been appealed before us by m/s. citric india limited of nasik in their appeal dated 30-5-1983. much arguments were presented before us by the two learned counsels who argued on behalf of the department and on behalf of m/s. citric india ltd. for several days, the last being 7-1-1985. the first arguments were advanced by the learned mr. lahoty on behalf of m/s. citric india. he said that the collector was mistaken to hold that the citric acid manufactured by them could not be classed as a pharmaceutical as its predominant use was mainly in things like beverages, confectionery etc. and that its use as a pharmaceutical was not indicated. we agree with m/s. citric india that the collector was wrong in this.....
Judgment:
1. This order of the Collector F. No. TC-955/81/372 dated 26-4-1983 has now been appealed before us by M/s. Citric India Limited of Nasik in their appeal dated 30-5-1983. Much arguments were presented before us by the two learned Counsels who argued on behalf of the department and on behalf of M/s. Citric India Ltd. for several days, the last being 7-1-1985. The first arguments were advanced by the learned Mr. Lahoty on behalf of M/s. Citric India. He said that the Collector was mistaken to hold that the citric acid manufactured by them could not be classed as a pharmaceutical as its predominant use was mainly in things like beverages, confectionery etc. and that its use as a pharmaceutical was not indicated. We agree with M/s. Citric India that the Collector was wrong in this assessment. It is quite true that the predominant use for citric acid is elsewhere than in pharmaceutical, the substance being widely used as an acidifier; but we cannot agree that this will mean that citric acid is not a pharmaceutical. We have held in various judgments that there is no such thing as a pharmaceutical or a drug-intermediate which does not have many uses totally different from drugs and Pharmaceuticals and which are preponderant over the medicinal use. All pharmaceutical drugs are chemicals which have uses more varied than one can easily list. There is not a single substance that is used only as a drug or a pharmaceutical or even whose predominant use is as a drug or pharmaceutical. To go by the department's argument there would be no drug, drug-intermediate or pharmaceutical. We will show here what an authority like the Kirk-Othmer Encyclopaedia of Chemical Technology has to say.

2. The Kirk-Othmer Encyclopaedia of Chemical Technology, Volume 6, 3rd Edition carries an article on citric acid. We reproduce below a few selected passages from the article Many citrates, especially the neutral sodium salt, are used extensively in food and pharmaceutical products and in detergents.

The citrate ion occurs in all animal tissues and fluids, e.g. in human whole blood, blood plasma, red blood cells, milk, urine, semen, cerebro-spinal fluid, mammary gland, thyroid gland, kidney, bone, amniotic fluid, saliva, sweat, tears, and skeletal muscle, liver and brain. The total circulating citric acid in the serum of man is approximately 1 mg/kg of body weight. Normal daily excretion in the urine of humans is 0.2-1.0 g.

2.1. About the physiological role of citric acid, the book says-Citric acid occurs in the terminal oxidative metabolic system of all but a very few organisms. This system, variously referred to as the Krebs cycle (for its discoverer HA Krebs), the tricarboxylic acid cycle, or the citric acid cycle, is a metabolic intermediate cycle involving the terminal steps in the conversion of carbohydrates, fats or proteins to carbon dioxide and water with concomitant release of energy necessary for growth, movement, luminescence, chemosynthesis and reproduction. This cycle also provides the carbonaceous materials from which amino acids and fats are synthesized by the cell.

2.2. The article testifies that citric acid for pharmaceutical use in the United States must meet certain USP specifications among which are heavy metals limit and arsenic limit. Such citric acid should not contain less than 95.5% of citric acid calculated on the anhydrous basis.

citric acid anhydrous; citric acid hydrous; ammonium citrate, dibasic; calcium citrate; potassium citrate; sodium citrate, dihydrate.

2.4. Under health and safety factors, the book writes that the reasons for the use of citric acid and certain of its salts were citric acid's wide distribution as a natural component of man's diet, its well-established metabolic path way, the fact that citrate ingested by infants and adults is considered to be completely metabolized and the general absence of any adverse effects disclosed in the scientific literature.

Effervescence is a popular delivery system for oral dosage of some medications. The reaction of citric acid with a bicarbonate-carbonate source in water produces carbon dioxide (effervescence) and a salt of the acid. It provides rapid dissolution of active ingredients, improved palata-bility and solubilizing action for dathartics and analgesics. Blood clotting is dependent upon the presence of ionic calcium. Removal of the calcium further processing or for transfusion purposes. Citric acid and sodium citrate are used in the preparation of anticoagulant solutions.

2.6. The uses of salts of citric acid has been treated in several paragraphs. In pharmaceutical uses under salts, it is said that sodium citrate is used in a broad range of Pharmaceuticals as a buffer to maintain optimum pH for maximum stability of active ingredients. Sodium or potassium citrate is used in pharmaceutical preparations as a blood and urinary alkalizer. In larger doses, sodium citrate is used as a saline cathartic.

2.7. The anticoagulant property of sodium citrate is employed in sodium citrate solutions for plasma and blood fractionation. Sodium citrate- citric acid combinations are also used for this purpose. Ferric ammonium citrates, brown and green, are mild tasting, very soluble deliquescent salts used in syrups and elixirs as iron sources for treatment of anaemia. Calcium citrate is used in prenatal products as a calcium source.

3. The Collector held the term 'pharmaceutical' to refer to drugs manufactured according to a pharmacopoeial standard which are used for diagnosis, treatment, mitigation or prevention of diseases. In view of this, he would not consider citric acid a pharmaceutical as it was only a basic chemical and was not used directly as a drug or drug-intermediate. Its use was only as a vehicle and as an ingredient of a compound just like other chemicals and substances like alcohol, sodium and potassium which though mentioned in various pharmacopoeias were not regarded as drugs. Furthermore, the Collector said that according to Merck Index, the predominant use of citric acid was as an acidulant in beverages, confectionery, effervescent powders and tablets, in processing cheese, to adjust the pH of foods, in the manufacture of alkyd resins, as mordant to brighter colours, in electroplating, in special inks, as sequestering agent to remove trace metals etc. Its use as a pharmaceutical was not indicated. The Collector gave as his opinion that all products specified in the Indian pharmacopoeia are not Pharmaceuticals and the fact that a product is manufactured according to a pharmacopoeial standard does not mean that it was a pharmaceutical. He, of course, accepted that M/s. Citric India Limited manufactured the citric acid under licence issued by the Food and Drug Administration; but this was only to facilitate its use as an ingredient in the manufacture of drugs.

4. We reject the contention of the department and rule that citric acid is a pharmaceutical and should be classed as a pharmaceutical notwithstanding its use as an acidulant, in dye manufactures, food processing, and metal treatment. The Collector was incorrect when he said that citric acid was not used as a pharmaceutical; it has wide uses as a pharmaceutical. It is further used in the formulation of citrates, a salt formed by citric acid with a base; salts are the general form in which medicines are administered in modern medical therapy. The Collector objects because citric acid is not used directly as a drug or drug-intermediate. There are not many substances which are used directly as a drug or a drug-intermediate. Most of them are used in combinations or after modifications or in the form of salts, because their administration, absorption, etc. etc. have to be carefully regulated to obtain the optimum effect. To look for direct use of a chemical or a substance or a drug in modern medicine is futile. If by this, the department means use as a single chemical substance, the answer is the same. A number of substances forming the ingredients of one pharmaceutical prescription are the rule today. And we do not see why a drug or a pharmaceutical must be a single chemical/substance.

There are no such rules in medical science.

5. Having said the above and disposed, of the question whether citric acid is a pharmaceutical or not, we will deal with the other arguments advanced before US. We need to mention here that the department does not challenge the claim that the citric acid manufactured by M/s.

Citric India Limited is a pharmacopoeial standard acid. The learned Counsel Mr. Lahoty submitted before the Tribunal that under Notification No. 55/75-CE, after its amendment by Notification No.62/78-CE, dated 1-3-78, item 19 (of this notification) reads : All drugs, medicines, Pharmaceuticals and drug-intermediates not elsewhere specified.

6. The Collector has not disputed that the appellants' products are in accordance with pharmacopoeial standard. He rejects the claim because he held that predominant use of citric acid is in uses other than drug or pharmaceutical preparations. By doing this, the exemption notification has been arbitrarily modified and restricted. The Supreme Court said in Porrits & Spencer (Asia) Ltd. v. State of Haryana (1979 I SCC 82).

A product may have diverse uses and it is not the use which determines its character. It is, therefore, no argument against assessee that a product is put to a particular use. If otherwise the product satisfies the description a particular use cannot militate against its falling within the category which otherwise it should fall.Dunlop India v. Union of India (AIR 1977 SC 597) the Hon'ble Supreme Court ruled that end use was irrelevant and cannot be put as a condition precedent in interpretation of a notification until and unless the notification speaks categorically about the requirement of the end use.

8. The learned Counsel said that the notification was clear in its terms and has no ambiguity that would lend itself to the interpretation given by the department. It is not correct to import the principle of predominant use into it when its meaning is otherwise plain. When the Central Government issued the notification, it clearly wanted to give the benefit of the exemption notification to all products used in the preparations of drugs and Pharmaceuticals, and that the criterion of predominant use is unwarranted and uncalled for the determine whether a substance is drug-intermediate or not. In Hansraj Gordhandas v. H.N.Dave (AIR 1970 SC 755) the court obseverd it is well established in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the taxpayer is within the plain terms of the exemption, it cannot be denied its benefit by calling in aid any supposed intention of the exemption authority.

9. The learned Counsel said that the words and clauses of the exemption notification must be given their full scope as long as violence is not done to the language of the notification. No violence is done to the language of Notification 55/75-CE if citric acid of pharmacopoeial grade is regarded as a pharmaceutical, drug or a drug-intermediate. The Collector's mind appears to have been influenced by a Tariff conference in November, 1980, in Bombay which decided that citric acid was not a pharmaceutical, and should not be given the benefit of the exemption.

This action was in disregard of the Supreme Court's pronouncement in Orient Paper Mills v. Union of India No authority however high can control the decision of a judicial or a quasi-judicial authority. While functioning as quasi-judicial officers, they should not allow their judgments be influenced by administrative considerations or by the instructions or directions given by their superiors. Any such direction from above is invalid and will only vitiate the quasi-judicial proceedings.

9.1. Against these facts, the impugned order of the Collector is patently illegal.

10. The statute has not defined drug or drug-intermediate. The explanation inserted by Notification No. 197/82-CE describes what bulk drug means. Their citric acid meets the test of the explanation of the notification. Therefore, the meaning of the word drug and drug-intermediate and pharmaceutical must be understood by referring to authoritative and standard works of reference. All such references and authorities agree that citric acid is a drug, pharmaceutical and a drug-intermediate. The quality of the product which has the purity of a pharmaceutical ingredient is evidence that their citric acid is nothing but a drug and is used as a medicine or in medicinal formulation. It can have no other uses. It may be true that citric acid may have many other uses; but citric acid used in food and beverages processing do not have to be pharmaco-poeial grade. Citric acid used in industrial processes are even less pure; but whatever the nature of the other uses of citric acid, their citric acid is prepared and manufactured under a licence from the Drugs Control Administration of the State Government and is of the required grade for use in pharmaceuti-cals and pharmaceutical preparations. Their product was sold to manufacturers of medicines and medicinal formulations and there can be no good reason to deny them the exemption they asked for.

11. The fact that citric acid deserves to be given total exemption is proved by the fact that the Government of India has now totally exempted citric acid by name in exemption Notification No. 172/83-CE dated 30-6-1983. The goods listed under this notification are all drugs and drug-intermediates and medicinal ingredients. The only reason why citric acid is placed in the same list as these substances is because the Government of India recognizes that citric acid is a drug and drug-intermediate and should be given full exemption without any condition whatever.

12. The learned Counsel for the department Mr. Sundar Rajan referred to the order in which the Collector said On the basis of the above, it is clear that the term pharmaceutical refers to drugs manufactured according to a pharmacopoeial standard which are used for diagnosis, treatment, mitigation or prevention of diseases. In view of this, the citric acid could not be considered as a pharmaceutical as it is only a basic chemical and is not used directly as a drug or drug-intermediate; its use is only as a vehicle and as an ingredient of a compound just like other chemicals and substances like alcohol, sodium and potassium which though mentioned in various pharmacopoeias are not regarded as drugs.

13. This, said the learned Counsel, is a very important passage and shows that citric acid is not used or known as a drug. In the paragraph above this passage, the Collector has quoted 5 or 6 authorities which have defined Pharmaceuticals. None of these definitions can be met by citric acid because, as observed by the Collector, it is not used directly as a drug or drug-intermediate. He referred to the article 'Citric Acid' in the Pharmacopoeia of India. There is a list of pharmaceutical parties at page 105 of the paperbook prepared by the appellants. This list does not contain the name of M/s. Spencers, to whom M/s. Citric India Ltd. sold some of their citric acid. M/s.

Spencers are not manufacturers of drugs; they are manufacturers of bottled drinks and beverages. The learned Counsel referred to Mc-Graw Hill Encyclopaedia on 'Citric Acid' and Dorland's Medical Dictionary where citric acid is shown as anti-scorbutic. This might show that it has some uses as a drug, but that will not make it a drug-intermediate.

The fact that it is manufactured under the licence issued by the State Government Drugs Control Authorities is only to prevent use of sub-standard qualities in food processing since citric acid is widely used as a flavouring agent in bottled drinks, sweets etc. He even showed a sample of citric acid which could be bought in a grocery shop.

A drug, a drug-intermediate or a pharmaceutical should be sold by dealers of drugs, medical stores and chemist's shops.

14. He referred to the Pharmacopoeia of India, and the articles on caffeine citrate, reserpine injection and piperazine citrate. In these articles, it will be seen that the active ingredient is not the citric acid but the caffeine or the reserpine or the piperazine. It is only the active ingredient in these preparations that can be considered to be a drug and not the citric acid. Citric acid is a diuretic. It has no other use.

15. The test reports given by the National Test House, Calcutta, the Department of Chemical Technology, University of Bombay, and the Italab Pvt. Ltd. record the level of substances like arsenic, copper heavy metals, iron, lead, sulphates and so on. They do not establish that citric acid is a drug but only that the citric acid tested passes the pharmacopoeial limit tests for those foreign substances. A letter dated 6-11-1982 written by M/s. Uralab to M/s. Citric India may appear at first sight as a certificate that citric acid is a drug and drug-intermediate. But this letter has a note that it was issued subject to acceptance of certain conditions; we do not know what those conditions were, said the learned Counsel. The learned Counsel referred to various other documents produced by M/s. Citric India that citric acid is a drug or a drug-intermediate and pharmaceutical. It is not necessary for us to go into all these. We will only record here that the learned Counsel said if the Tribunal came to the conclusion that citric acid was a drug/drug-intermediate/pharmaceutical, only the citric acid that may have been actually used in the manufacture of medicines and Pharmaceuticals should be given the exemption, in view of the fact that citric acid has so many uses and since the most common use of citric acid is in food and food products industry and since M/s.

Citric India sold some acid to makers of bottled beverages.

16. The learned Counsel for M/s. Citric India Ltd. strongly opposed the suggestion made by the learned Shri Sundar Rajan saying that it would not be correct to allow the exemption only to citric acid used in the preparation of Pharmaceuticals and medicines. He drew attention to the notification and said that the exemption had no condition that it was subject to actual use in the manufacture of pharmaceuticals and medicines. The only thing that the Tribunal can do is to see if citric acid is a drug/drug-intermediate and pharmaceutical. If it is, and he has shown conclusively that it is, it is entitled to the exemption without going into the end use. He also countered the argument of the learned Counsel for the department that its sales to IDPL had been on duty by saying that that was because they had been denied the exemption. Certain sales by a firm called M/s. Citrugia were of citric acid below pharmacopoeial standard. Only M/s. Citric India Ltd. produced pharmacopoeial grade citric acid in India. Their product fully satisfied even the explanation inserted by Notification No. 104/82-CE though this came only on 24-2-1982.

17. To go by end use or to accept the suggestion of the learned Counsel for the department would import into the notification an ingredient that is not in it. The exemption was to a drug or a drug-intermediate or a pharmaceutical: their product, being a drug/pharmaceutical, should be given the exemption unconditionally no matter how it is used. There is justification for this because the Government by its Notification No. 172/83-CE, dated 30th June, 1983, has exempted a large number of drugs and chemicals falling under Item 68 from duty. All these chemicals are drugs and pharmaceuticals; the list includes citric acid.

This notification of exemption is without any condition, and therefore, the intention of the Government has always been to exempt citric acid unconditionally because it is a drug/drug-intermediate/ pharmaceutical.

18. Very many more arguments were presented before us by the two learned Counsels, but it is unnecessary to deal with them because they do not have much direct effect. Nor do they help us in the resolution of the dispute. We have already stated that citric acid finds use as a drug and pharmaceutical even though it has more uses in the food preparation industry and other processes. It may be true that its predominant use is in the food processing industry, food preservation processes; but it does find use also in the preparation of medicines and pharmaceuticals. The learned Counsel for the department says that the Pharmacopoeia of India shows citric acid only as a pharmaceutical aid. He appears to have understood this as meaning that it is not a pharmaceutical. This is not a correct understanding. Citric acid as we have already observed is used in the preparations of citrates of different drugs. A citrate being a salt helps in the quicker and better physiological absorption of the drug and helps the system to contain and eventually eliminate the drug. We have already seen that citric acid is itself a diuretic and this is a useful aid in treatment where free and copious passage of urine is indicated in the patient. The monohydrate of citric acid is used as an antioxidant synergist. The citrate of sodium is an anticoagulant. It is, indeed, impossible to list the medicinal uses to which citric acid can be put.

19. Since a good part of the dispute revolved around whether citric acid can be classed as a drug/drug-intermediate/pharmaceutical and since we have come to the conclusion that it is a substance than can be classed as a drug/drug-intermediate/pharmaceutical, we will not deal with all the arguments for or against this. There are not very many arguments against this conclusion. The only one that has been presented with seriousness by the department is that its predominant use is in the preparation of bottled drinks, confectionery, in the preparations of preserved foods etc. But the Collector himself says that - Its use is only as a vehicle and as an ingredient of a compound just as other chemicals and substances like alcohol, sodium, and potassium, which though mentioned in pharmacopoeias are not regarded as drugs.

19.1. If the citric acid is used as a vehicle and as an ingredient of a compound, we cannot understand why it should not be a pharmaceutical.

We are doubtful, furthermore, whether citric acid of IP grade is used as an acidifier in beverages because less expensive grades would do just as well. However, the fact to be borne in mind is that citric acid does find uses in the preparation of medicines and pharmaceuticals and there is no basis for saying that it is not a drug or pharmaceutical.

20. The learned Counsel for the department referred to the Tribunal's Order No. 482/84-C, dated 24-7-84 holding that lithium aluminium hydride was not in the class of drug, drug-intermediate or pharmaceutical. The difference is that lithium aluminium hydride is only a reducing agent in a reaction to arrive at a particular product.

It is not a substance that is integrated in the final medicine or pharmaceutical preparation, like citric acid is.

21. He also quoted the Bombay High Court judgment in Glaxo Laboratories v. Union of India regarding polyvinyl pyrrolidone of pharmaceutical grade. The court rejected the importer's demand to classify the polymer under item 28, Customs Tariff for chemicals, drugs and medicines, and adjudged item 82(3) for synthetic resins to be the most appropriate.

But this case started with Glaxo asking for assessment under item 87 ICT the residuary item under the repealed customs tariff. The same petitioner later asked for item 28. The court held that the polymer was not a "drug" but only a binding agent. We have shown above that citric acid is used as a drug, forms an ingredient in medicinal/pharmaceutical preparations. It is used as a medicine.

22. On the other hand, we are unable to agree with the learned Mr.

Lahoty's demand that the exemption to citric acid should be given totally and unconditionally because it is a drug and a medicine. The exemption is to a drug, a drug-intermediate, a pharmaceutical, and not to citric acid. To accede to Mr. Lahoty's claim is equal to saying that the citric acid which is used as an acidifier in beverages or confectioneries is a drug. It is well to remember that citric acid is not always used as drug. It has more uses in other fields than in Pharmaceuticals. There is no chemical or substance which is used as a drug, which does not have a score of other uses totally incompatible with its drug use. We have seen that citric acid itself is used as a mordant; it is used in metal treatment. Hawley's Condensed Chemical Dictionary records the uses of citric acid as sequestering agent, dispersing agent, water conditioning and detergent builder, cleaning and polishing stainless steels, in addition to uses in medicines and as an acidifier. It would be inadmissible, in the terms of the notification, to say as Mr. Lahoty does, that the citric acid should be given total and unconditional exemption under the notification on the ground that the notification prescribes no use to which the substance should be put. It is only a drug or a pharmaceutical that is exempted; not citric acid. Therefore, we can call citric acid a drug/a pharmaceutical only when it assumes this role and when we see it assuming this role. When we give the exemption to citric acid which we do not see playing the part of a drug or a pharmaceutical, we are giving exemption not to a drug or a pharmaceutical, but only to a chemical-and that is not what the exemption permits. We, therefore, can interpret the exemption notification only by giving it to those substances which are, in reality drugs and not substances which are not drugs even though they are capable of acting as drugs.

23. The learned Counsel for M/s. Citric India argued that the end use was irrelevant because a product may have diverse uses. Therefore, the description of the goods alone should govern its classification, quoting the Supreme Court decisions in Porrits & Spencer [1983 ELT 1607 (S.C.)] and in M/s. Dunlop India. [1983 ELT 1566 (S.C.)]. He overlooks the fact that those decisions are true only in situations where the goods are described by name. In such a case, it is clear that use cannot be relevant for determination of the assessment. In the case before us, no description has been given of the goods but a general categorization by use and function. We have said that there is no such thing as a drug or pharmaceutical; it is only a chemical and other substance which is put to such use. The term drug/drug-intermediate and pharma-ceuticals are not descriptions of a product identifiable as such, but only a class or category within which many chemicals and substances can be grouped. At the same time, those same chemicals are not always used as drugs or Pharmaceuticals therefore, we cannot say that citric acid which is not used as a pharmaceutical or a medicine can be described as medicine or pharmaceutical.

24. In the Dunlop India [1983 E.L.T. 1566 (S.C.)] decision, the Supreme Court said that the end use was irrelevant and cannot be put as a condition precedent in interpretation of a notification unless the notification requires end use. This was an interpretation in the background of a known and definitive description; drug/pharmaceutical are not descriptions at all but only categorization within which countless disparate substances can be placed.

25. The Hansraj Gordhandas (AIR 1970 S.C. 755) decision of the Supreme Court quoted by the learned Counsel held that in a taxing statute there was no room for intendment but that regard must be had to the clear meaning of the words and if the taxpayer was within the plain terms of the exemption, he should not be denied its benefit by calling in aid any supposed intention. First of all, there will have to be a clear meaning. When such a meaning is available, the interpreter of the statute should not bring into his interpretation any supposed intendment in the words. The words we are interpretting do not have this clarity but are befogged by thousands upon thousands of chemicals and substances, some organic, some inorganic in origin, which can answer the description of drug/medicine, and pharmaceuti-cals. This decision will not help M/s. Citric India. Nor is M/s. Citric India within the plain terms of the exemption because the citric acid is not only a drug or pharmaceutical but is a chemical that has many more uses and employment than as a drug or a medicine.

26. We, accordingly order that the exemption should be extended to all citric acid cleared by M/s. Citric India Ltd. and used in the manufacture of drug medicines/pharmaceuticals. The central excise may make enquiries and satisfy itself about the uses and M/s. Citric India Ltd. should, to this end, furnish all help and aid to the central excise department so that the concession can be extended to all the deserving clearances, in accordance with the law. But the citric acid not so used must be denied the exemption, and we reject the appeal in regard to such clearances.


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