The Supreme Court has prescribed a bitter pill for pharmaceutical companies manufacturing vitamins for either marketing or use in other drugs. If a product is “marketable” and has a shelf value, it is liable to excise duty, the apex court ruled while dismissing an appeal filed by Nicholas Piramal India Ltd (NPIL) against a ruling passed by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), West Zonal Bench at Mumbai. “Crude Vitamin A” is marketable and hence liable to duty, the court ruled.
The excise duty on bulk drugs such as Vitamin A is 4%.
NPIL manufactures Vitamin A in a finished and marketable form. This is cleared on payment of excise duties under the Central Excise Tariff Act, 1985.
Crude forms of the vitamin—- Vitamin A acetate and Vitamin A palmitate—- emerge during the intermediate stage of its manufacture. The crude Vitamin A acetate is subjected to further process of crystallization using methanol and the crystals centrifuged and dried to obtain finished Vitamin A, which is then marketed by NPIL.
The CEGAT, which considered the facts and the materials, observed that nobody would manufacture a pharmaceutical of such purity unless the manufacturer was interested in its sale. NPIL’s lawyer said that crude Vitamin A, on which duty was being demanded by the tax authorities, is an “intermediary” and that such demand is “untenable and unjustified.” This product cannot be termed as “goods” and is incapable of being marketed, particularly in view of the fact that the life of the item would not be more than two days, he said.
The lawyer also submitted that the burden to prove the “marketability” of a product would always rest on the revenue. But the department failed to lead any evidence indicating its capability of being marketed, particularly owing to the fact that it is unstable unless stored at a sub-zero degree centigrade temperature.
On the other hand, the counsel for the revenue department contended that the product in question admittedly retains its properties for a period of 1-2 days and therefore it is a marketable product. He also submitted that marketability of the product is a finding of fact.
The judgment, which could be of enormous concern for the drug manufacturers, holds that “the taxable event for the levy of excise duty is the manufacture of goods.”
The term “manufacture” is of wide import and may include various activities and processes “which may not be termed as ‘manufacture’ in the common parlance,” a bench of Justices Markandey Katju and Anil R Dave said on Monday.
But manufacture of goods alone is not enough. In order to attract excise duty, the goods should not only be manufactured or come into existence, but also should be articles or products that are “known to the market” and must be “capable of being bought and sold.”
Therefore, the question of marketability, being a question of fact, has to be determined in the facts of each case and “cannot be strait-jacketed into pigeon holes,” the Supreme Court bench said while dismissing the NPIL’s appeal.
