1. A consignment of 733 bags of citric acid monohydrate BP weighing 18325 kgs valued at Rs. 1,88,642.00 was imported from China in July, 1982, at the Port of Bombay by M/s. Hareshkumar & Company by ship SS CRISTOBAL MARJE. The importers asked for countervailing duty exemption under Notification No.104/82-CE, dated 28-2-1982. The Assistant Collector rejected the claim by his order dated 15-9-82 saying that citric acid found use in varied industries like soft drinks, food, cosmetics, Pharmaceuticals, paints, etc. etc. Its use in drinks, beverages, and pharmaceutical industries was because of general recognition of safety and its pleasant acid taste, high water solubility and chelating and buffering action. But he also said that in technical literature it was not mentioned as a drug. The Appellate Collector of Customs, Bombay also rejected the claim by his Order No.S/49-1591/82. R dated 31-12-1982. There is a sentence in this order which runs: I regret that this evidence is not sufficient for me to arrive at a conclusion that the goods which are subject matter of the present proceeding, will be used for the purposes laid down in the notification.
2. The meaning of this sentence is not clear. If the Collector was looking for ways for determining whether the goods had been used in the particular way, we presume in Pharmaceuticals, there were certain tried methods. In any event, he rejected the appeal and the claim for exemption.
3. We would like to record here that the two lower authorities dealt with the claim in terms of Notification No. 55/75-CE, the correct notification should have been 104/82-CE, dated 28-2-1982 amended by Notification No. 197/82-CE, dated 22-6-1982. The notification under which the Assistant Collector and the Collector (Appeals) dealt with the claim had already been abrogated when the goods were imported in July, 1982. For out; purpose, the terms of Notification No. 197/82-CE are the terms which will determine this dispute. This notification allowed free assessment of goods falling under item 68 of the central excise tariff of the following description : "All bulk drugs, medicines, and drug-intermediates not elsewhere specified." "Any chemical or biological or plant product, conforming to pharma-copoeial standard used for the diagnosis, treatment, mitigation or prevention of diseases in human beings or animals, and used as such or as an ingredient in any formulation." 5. The first dispute is whether the citric acid monohydrate BP is a drug, drug-intermediate medicine, that is, whether it is used in the diagnosis, treatment, mitigation or prevention of diseases in human beings. We rule that it is. In our Order No. 154/85-C, dated 14-2-1985 Citric India Limited, Nasik v. CCE, Pune, we gave a ruling that citric acid and its citrates would class as a drug, a medicine, drug-intermediate and pharmaceutical. We have no hesitation in holding that citric acid monohydrate is a medicine and drug-intermediate. It was imported in 733 bags, and therefore, would qualify as a bulk drug.
It is used in medicinal formulations ; therefore, it qualifies under the explanation of bulk drugs. It is a BP product, and is a chemical that is used as an ingredient in several formulations. It qualifies in every way but one to be classed as a bulk drug to earn the exemption.
6. There remains one last question whether actual use of the monohydrate in medicines or medicinal formulations is necessary for its exemption. It was argued by the learned counsel for M/s. Hareshkumar & Company that the explanation "used for" and "used as such" which appear in the explanation must not be taken in the narrow sense of the citric acid monohydrate (CAM) being actually and physically an ingredient in a formulation identifiable to the taxing officer. The explanation does not require this, but only that the substance, in this case CAM, be capable of being used as such or as an ingredient in a medicinal formulation. The explanation does not require that it should form part of a medicine because in the nature of their importation, such use or utilisation is almost impossible to be proved because the goods are sold after importation and may change hands two or three times. What the explanation requires is only that such products which are known to be used as drugs or medicines or in medicinal preparations must earn the exemption. This is the only logical and reasonable way of interpreting this notification.
7. The learned counsel for the department resisted the arguments of the importer saying that the language of the notification is clear and unambiguous. There can be no unconditional exemption as claimed by the appellants. The words "used for" and "used as such" mean only that the substance in question, must be actually and physically utilized in a medicinal formulation. If the substance is not used in such a formulation but is used in some other ways in which citric acid is capable of being used, we cannot say that the drug has been used for the diagnosis, treatment, etc. of diseases in human being and that it has been used as such or as an ingredient in a medicinal formulation.
8. We are unable to agree with the submissions of the appellants for reasons that are very simple and clear. The law requires that the bulk drug should be used for the treatment, mitigation, prevention of diseases in human beings. If the CAM is utilized in ways other than these, we cannot say that it has been used for the treatment, mitigation, etc., of diseases in human being ; still less could it be said to have been used as such or as ingredient in a medicinal formulation.
9. It is, perhaps, true that a manufacturer who is not the actual user cannot get the exemption, but the way the law is framed we can see no help for it. To earn the exemption, the manufacturer would have to ensure that his product is used in ways that would earn the exemption for it. It may also be true that excise duty is payable at the time of goods leave the manufacturer's factory and that the use can only come after that. This is not, in our view, the insuperable obstacle that M/s. Hareshkumar think it is. There are such things as actual-use certificate obtained from the user with verification by proper authorities of the actual use when the goods are sold or disposed in a way that would ensure it is used for the entitled purposes. It may be that the goods are put to use by medical practitioners and physicians and that such goods cannot qualify when they leave the manufacturer's factory. We are not able to see any difficulty in this because, generally, it is not the prescription of the doctor or physician that would determine the use but the use of the drug in a formulation or as a medicine. We must not carry arguments to the stage of reductio ad absurdum.
10. Excise duty, indeed, is a duty on the manufacturer of goods and not on their use, as pointed out by M/s. Hareshkumar. But this is not a simple matter of taxation but the more complicated exercise of abstaining from taxation. We are dealing with an exemption which is given on certain qualifications. The exemption is given to bulk drugs used in medicinal formulations or as medicines, for the treatment, cure and mitigation of human diseases. The claimant must do more than this to establish his title and not merely say that he is not required to establish his title as he cannot do so, or that the process of establishment is too complicated or difficult or impracticable.
11. The appellants say that medicines as well as drug-intermediates manufactured in India are exempt from excise duty. The Tribunal has held in many judgments that for a substance to be classed as a drug and drug-intermediate and pharmaceutical for the purpose of giving it the exemption as the one asked for now by M/s. Hareshkumar, it must be put to that use. The substance or chemical must act as a drug and be seen to act as such drug or pharmaceutical and that such action must be verifiable. The substance or chemical must also be incorporated into the medicinal and pharmaceutical formulation. We have not acquiesced or concurred in only constructive or potential utilization as a drug or a pharmaceutical but have always insisted on actual use and utilization because substances and chemicals which are used as drugs/drug-intermediates always have many other uses, uses quite different from their uses as medicines and therapeutic agents. No substance or chemical that we know of has uses only as a medicine or therapeutic agent and no other. In all cases, the non-medicinal and non-pharmaceutical uses are more and account for a greater part of the consumption of such substances and chemicals, the so-called predominance factor. While we have rejected the doctrine of predominant use which the department has applied to such substances as a test for the exemption, we have dismissed the importer's/manufacturer's demand that absolute exemption should be given to any substance that is used or is capable of being used as a medicine or pharmaceutical even if it may not be put to such use in reality. We consider these two extreme positions impracticable. Since the notification talks of drugs/drug-intermediates, medicines, Pharmaceuticals, etc. etc., we understand the exemption to be meant only for medicines/pharmaceuticals/drugs and not to specified chemicals.
Therefore, when a chemical is not used as a medicine or in a medicinal formulation, it is not entitled to the exemption because by giving exemption to citric acid monohydrate which is used in applications unconnected with the diagnosis, treatment or prevention of diseases, we would be giving the exemption to a substance that has not earned it.
The substance or chemical does not earn the exemption by being that particular substance or chemical, but by functioning as a drug or a medicine, when it assumes the role of a drug, medicine or therapeutic agent, either by itself or as an ingredient in a curative preparation.
12. If the appellants have sold goods similar to these goods to manufacturers of medicines and Pharmaceuticals, there should have been no trouble in satisfying the proper authorities that their CAM can be used in the entitled purposes. That the CAM conforms to pharmacopoeial standard is not enough in our opinion. This conformity is only one factor that will regulate the exemption. It is equally essential that the product should be used as a medicine or an ingredient in a medicine.
13. We declare that the action of the lower authorities in denying the exemption was not incorrect. However, they should have gone a little further to see if the importer can establish his title to the exemption. This can be done by enquiring or requiring the importer to produce evidence of use of the citric acid or any part of it in such a way that it can be said to have been put to the uses for which citric acid can earn the exemption. We direct that the custom house suitably make enquiries to this end. The importers also should cooperate and help the customs authorities in any enquiries that they might institute in order to achieve this objective. Wherever it is established that the consignment of CAM or any part of it had been used in the manner designated by the exemption notification 104/82-CE amended by 197/82-CE, the exemption shall be extended to the CAM and refund shall be given of the appropriate sums of duty.