caselaws
Supreme Court of India
M/S. B.P.L. Ltd vs Commnr. Of Central Excise, … on 5 May, 2015Author: A Sikri
Bench: A.K. Sikri, Rohinton Fali Nariman
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5523 OF 2004
|M/S. B.P.L. LIMITED |…..APPELLANT(S) |
|VERSUS | |
|COMMISSIONER OF CENTRAL EXCISE, | |
|COCHIN-II COMMISSIONERATE |…..RESPONDENT(S) |
W I T H
CIVIL APPEAL NO. 6037 OF 2004
J U D G M E N T
A.K. SIKRI, J.
The issue, which arises for consideration in the present
appeals is whether the Central Excise and Service Tax Appellate Tribunal
(for short, ‘CESTAT’), Bangalore erred in disallowing the benefit of the
Notification No.8/96 dated 23.07.1996 and Notification No.4/97 dated
01.03.97 respectively to the appellant.
The appellant herein is engaged in the manufacture of excisable goods
falling under Chapter 85 and 90. From January 1997 onwards the appellant
had been manufacturing and clearing two models of D.C. Defibrillators which
are known as Model No. DF2389R with recorder and Model 2389 without
recorder. The appellant had filed classification declaration from time to
time and classified the items under C.E.T. heading 9018 and claimed
exemption under Notification No.8/96 dated 23.09.1996 and Notification
No.4/97 dated 01.03.97 respectively. The Revenue, however, took a view that
the said Defibrillators were not eligible to the benefit of the aforesaid
exemption Notifications. Therefore, by letter dated 17.02.98 it directed
the appellant to modify its classifications declaration as only
miniaturized implantable defibrillators were eligible to the benefit of the
Notification. The appellant protested by giving reply and maintaining that
the Notification in question encompassed the aforesaid goods manufactured
by the appellant as well. The department was not amused by the reply given
by the appellant. It resulted in issuance of show-cause notice dated
23.09.1998 whereunder demand duty with respect to Defibrillators
manufactured during the period January 1997 to March 1998 was proposed as
duty in the said show-cause notice.
We may point out at this stage that a defibrillator is a device that
delivers electrical shock through paddles placed either directly across the
heart or on the surface of the body during cardiac emergency resulting from
ventricular fibrillation. The meaning of Cardiac Defibrillator is
explained in Medicine and Clinical Engineering Physiological and Clinical
Medicine by Bertil Jacobson Karolinska Institute, Stockholm, Sweden, Jhon
G. Webster, University of Wisconsin, Medison. It reads as follows:-
“Some cardiac arrhyhmias can be treated by passing a brief electric shock
through heart. Ventricular fibrillation can often be stopped before
circulatory arrest has caused irreversible brain damage due to oxygen
deficiency. Likewise, atrial fibrillation and atrial flutter can often be
stopped by defibrillator.”
Ventricular fibrillation may be caused by an external electric shock, which
occurs near the peak of the T wave- the vulnerable period when the
ventricle is re polarizing. It may also be caused when a PVC occurs during
this same vulnerable period; in this case the heart electrocutes itself.
Fibrillation has been likened to a dog chasing its tail, with continuous
travel of the waves of depolarization and repolarization. During
defibrillator, a large electric shock causes simultaneous depolarization of
all cardiac muscle fibres. When they recover, normal packing resumes. An
energy 50-500 ws (joules) has been found most effective, with the current
passing through the heart along the longitudinal axis. Defibrillator can be
performed externally via two electrodes placed on the chest or internally
on the exposed heart during an operation. With an electrode about 50 cm in
area, the resistance through the thorax is about 100 ft. For internal
defibrillator on an exposed heart the resistance is lower, about 50 ft.
As per the department, Defibrillators manufactured by the appellant were
designed to provide external counter shock and the apparatus for which nil
rate of duty had been prescribed was for defibrillators meant for internal
use only and not for conventional Defibrillators manufactured and cleared
by the appellant. The department had also invoked the longer period of
limitation under Section 11A of the Excise Act by alleging suppression. The
appellant filed their reply to the show-cause notice contending mainly that
the Defibrillators were meant both for internal and external use and that
the allegation of suppression of fact was totally incorrect and therefore
the demand was time barred. The appellant attended personal hearing and
thereafter the Commissioner by order dated 19.11.1999 confirmed the demand
of Rs. 27,71,326/- and imposed equivalent penalty under Section 11AC as
well as further penalty of Rs.1 lakh.
Thereafter, the appellant filed an appeal before the CEGAT, Madras (now
Chennai) against the order of the Commissioner mainly impressing upon the
CEGAT that the Commissioner in the impugned order had relied upon
extraneous grounds to come to the conclusion that the Defibrillators
manufactured by the appellant were only for external use and, therefore,
the benefit of Notification could not be extended. The appellant produced
evidence in the form of certificates from the Department of Electronics,
hospitals, invoices for clearance of the equipment with internal paddles
and other technical literature to substantiate their contention that
Defibrillators manufactured by them were put to internal use by using
internal paddles on the exposed hear during cardiac surgery. They relied
upon decisions that the term ‘for use’ means capable of being used and not
actual use and also on interpretation of statute. The CEGAT, by its order
dated 01.03.2002, held that the Commissioner had come to a finding on an
incomplete reading of the manual and had not considered well-settled law on
‘for use’. The CEGAT, therefore, remanded the matter back to the
Commissioner to decide eligibility for exemption under above notifications.
It further directed that during the re-adjudication both the sides were
free to lead such evidence as were available to be put before the
Adjudicating Authority. They left open the question of limitation, penalty
and interest.
On remand, the appellant filed a further reply before the Commissioner and
relied upon various documents in support of its contention that its
Defibrillator was capable of internal use and the said Defibrillator and
implantable Defibrillators were two different pieces of equipment. The
appellant again contended that the demand was time barred, as there was no
suppression of facts. The appellant appeared for personal hearing and
reiterated its submissions and filed additional written submissions. It
produced photographs showing the Defibrillator being put to internal use
during open heart surgery as well as the Technical Literature to
substantiate its claim.
The Commissioner, however, by order dated 22.02.2003 upheld the
earlier order of the Commissioner and once again denied the benefit of the
notification to this product of the appellant. According to the
Commissioner the benefit of the exemption notification was available only
to implantable defibrillators coupled with pace makers.
The appellant once again filed the Appeal before the CESTAT,
Bangalore. After hearing, an order dated 31.12.2003 was passed, wherein
there was a difference of opinion between the Judicial and Technical
Member. As per the order of the Judicial Member, the Defibrillator
manufactured by the appellant could be used for internal use and therefore
they are eligible to the benefit of the notification. Since his opinion was
in favour of the appellants on merits, he did not go into the time bar
issue. The Technical Member while admitting that the Defibrillator could be
used for internal use in “rare circumstances” when the heart is open and
the paddles for internal use are fixed in the Defibrillators as there is a
build in mechanism in the Defibrillator for making it usable as internal
Defibrillator during an open heart surgery, however denied the benefit of
the notification on the ground that only Defibrillators used with pace
maker and which is implantable is eligible to the benefit of the
notification.
As there was a difference of opinion, the issue was referred to a Third
Member. The Third Member, viz. the President of the Tribunal, heard the
matter and passed the order dated 19.05.2004 disallowing the benefit of the
notification to the Defibrillator thereby concurring with the view of the
Technical Member.
This is how the matter has come up to this court in the form of present
appeal filed by the appellant under Section 35 L(b) of the Central Excise
Act (herein after refer to as Act), challenging the aforesaid order dated
19.05.2004.
We have already taken note of the product in question with its
salient features and particular uses it can be put to. Question is as to
whether it satisfies the requirement of Notification No. 8/96 and
Notification No. 4/97, under which the appellant is claiming exemption.
Thus, before we proceed further it would be apt to scan through the
ingredients of the aforesaid notifications along with earlier notifications
under which exemption is granted in respect of defibrillator, from time to
time. First notification in this behalf is the Notification No. 339/86
dated 11.06.1986, which was amended by notifications dated 01.03.1989 and
01.03.1994. Material part of these Notifications read as under:
“Notification No. 339/86-CE dated 11.06.86 amended by Notification
Nos.88/89-CE dated 01.03.89 and 58/94-CE dated 01.03.94.
8 DC Defibrillators now internal use and Pacemakers and their accessories
including patient cable, internal Defibrillators Paddles 45mm and 55mm
sizes but excluding:-
(a) Cardiac Monitors
(b) Cardioscopes
(c) E.C.G. Monitors of any type.
(d) E.C.G. Recorder
and the following components of D.C. Defibrillators, namely:-
(i) Connector.(ii) Discharge/Damp Relay
(iii) High Voltage Retractable, Flexible Wire
(iv) Polyester/Paper Discharge Capacitor
20. Implantable Cardiac Pacemaker and
accessories.
30. Pacemaker Wires.
31. Patient Cable for Pacemaker.”
We now reproduce the relevant portion of the two Notification Nos. 8/96 and
4/97 with which we are directly concerned. These are as follows:-
“II. Notification No.8/96 dated 23.07.1996-
TABLE
(7) D.C. Defibrillators for internal use and
pacemakers.
(16) Implantable cardiac pacemakers.
(58) Pace Maker.
III. Notification No.4/97 dated 01.03.97
TABLE
217. Medical equipment and other goods
specified in List 6.
LIST 6
(7) DC Defibrillators for internal use and pace
makers.
(16) Implantable cardiac pacemakers.
(58) Pace Maker.”
From the reading of the aforesaid notifications, it becomes apparent that
originally those D.C. Defibrillators which were meant for both internal as
well as external use and also pacemakers and their accessories etc. were
eligible for exemption. Certain goods which did not qualify for exemption
like cardiac monitor, Cardioscopes etc. were specifically excluded. On the
other hand some of the components of D.C. Defibrillators which were
exempted from payment of Excise duty were also specifically mentioned. For
our purposes what is relevant is that in the original Notification dated
11.06.1986, as amended on 01.03.1989 and 01.03.1994, the goods which
qualified for exemption were “Defibrillators for internal and external use
and pacemakers and their accessories including patient cable internal
defibrillator paddles 45mm and 55mm sizes”. Implantable cardiac pacemaker
and accessories were also specifically included. This entry under went a
substantial challenge in the notification No. 8/96 dated 23.07.1996. In
this Notification, replacing the earlier notifications, defibrillators for
external use are no more eligible for exemption. The entry now reads “D.C.
Defibrillator for internal use and pacemaker”. Thus, what is omitted is not
only external use but also accessories of these D.C. Defibrillators.
Likewise in place of earlier entry which mentioned on implantable cardiac
pacemaker and accessories, entry in this Notification confines only to
implantable cardiac pacemakers. Accessories thereof are specifically
removed from exemptions. Moreover in place of pacemaker wires now it is
only pacemaker. Though in the earlier notification, patient cable for
pacemaker was included as exempted item, it is omitted altogether in
Notification No.8/96. This position is maintained in Notification No.4/97
dated 01.03.1997.
Keeping in view the aforesaid characteristic and feature of the
Notifications in question, in contradistinction to the position which
prevailed in the earlier Notification dated 11.06.1986 as amended from time
to time and taken note of above, we have to examine as to whether the
defibrillator of the appellant would be covered by these two Notifications.
It is not disputed by the appellant that their Defibrillators are primarily
meant for external use. It is, however, contended that this can be used
internally as well. It is also admitted case that the defibrillator
manufactured by the appellant is not implantable internally in the human
body. The only justification given by the appellant is that at the time of
carrying out the open heart surgery same device can be used to deliver
electrical shock. However, it is accepted that to give the electrical
shock paddles are needed, which is sold by the appellant only as an
accessory. Not only this, while selling the defibrillators said paddlers
are not sold as an integral component/accessory of the main equipment. To
the contrary, their purchase is optional, meaning thereby the choice is
that the buyer to purchase paddle or not. During the arguments it was
conceded that 99 per cent sale of these defibrillators were without paddles
which means that predominantly the goods are sold for external use only.
We would also like to reproduce, at this stage the description of the goods
in question as given by the appellant itself in the operating and service
manual of the product in question. It reads as follows:-
“DESCRIPTION
BPL’s Portable Defibrillator/Monitor is designed to provide external
counter shocks and to display hear rate and ECO wave forms on the scope
screen.
…………Delivery of the monophasic countersjock pulse (Lown/Edmark
Waveform) is triggered by depressing the discharge buttons on both of the
anterior paddles, or if internal paddles are used, by depressing the INT,
PADDLE DISCHARGE button located on the control panel Optional anterior
paddles are equipped with a CHARGE push button that functions the same way
as the SET CHARGE MANual push button does.”
Going by the aforesaid features of the appellant’s goods in question which
are primarily meant for external use, simply because it can be used
internally as well but not without the paddles and paddle is optional
accessory, it is difficult to hold that conditions contained in the
exemption Notifications are satisfied. We are making these remarks in the
context of the Notification in question when contrasted with the earlier
Notification, as already described above. On these facts the Third Member
of the tribunal in the impugned order made the following analysis:
“5. As mentioned earlier, the Notification No.339/86 as amended by
Notification Nos.88/89 and 58/94 took in both DC Defibrillator for internal
and external use. While including accessories in the above items specific
reference was made to ‘internal defibrillator paddles with 45mm and 55mm
sizes’. It is relevant to note that there is a marked difference in the
description of the item when it came to Notification Nos.8/96 and 4/97.
There is no reference to D.C. Defibrillator for external use or a specific
reference to ‘internal defibrillator paddles’. Even according to the
assessee, its product can be treated as D.C. Defibrillators for internal
use only when it is fitted with internal defibrillators. Admittedly
assessee is clearing defibrillators without such ‘internal defibrillators
paddles’ also. A reference to assessee’s Operating and Service Mannual also
would show that ‘internal defibrillator paddles’ are only optional
accessories. Defibrillators for external use which are once included in the
exempted category are not taken out of such category under Notification
Nos. 8/96 and 4/97. If the assessee’s contention is to be accepted then in
spite of such specific exclusion its product will continue to get benefit
of exemption on the basis of supply of some optional accessories like
internal paddle.
6. The material produced by the Revenue before the Commissioner and
accepted by him were later made available toe the assessee before this
Tribunal. Arguments were addressed by both on that basis. The relevant
portion from the Commissioner’s order is quoted below:-
“Internal Cardioverter Defibrillators (ICD) were originally developed and
have been most frequently used for prevention of sudden cardiac death
(www.americanheart.org). A modern internal defibrillator is much smaller
and is implanted in the upper chest. Newer devices are a combination of ICD
and pacemaker in the unit. These combination ICD/pacemakers are implanted
in patients who require both devices (www.emedicine.com)…….. This
device is a small electric generator hooked up to wires called leads. A
typical ICD weighs about 4 ounces and measures about ½ inch thick by 2
inches wide and is implanted under the skin in the upper chest. Leads are
the wires that conduct the ICD to the heart the tip of which is placed
against the heart’s inner wall and carries electric impulses from the ICD
to the heart through the cut vein into the heart’s chambers beginning with
the right ventricle (www.chfpatients.com).”
7. The above would show that D.C. Defibrillators for internal use included
in the exempted category cannot be taken as a defibrillator for external
use cleared by the appellant with an accessory of internal defibrillators
paddles. A reference to reply received from Jerry Potts to the appellant’s
query would also lead such a conclusion. The reply reads as follows:-
“Implantable defibrillators are definitely distinct from ‘internal’
defibrillators used during surgery to countershock the heart. If anything,
the term internal defibrillator, as you defined it in your message, more
closely relates to an external defibrillator. That is because the device
typically used to manually deliver a counter shock to the myocardium during
open hart surgery is identical to those defibrillators that externally
deliver transthorascic shocks to a closed chest (except for the peddles
that are used.)”
Therefore, the defibrillator used during open heart surgery is identical to
the defibrillators used to deliver transthorascic shocks externally except
for the internal paddles additionally provided. Exclusion of defibrillators
for external use from the exemption provisions in Notification Nos.8/96 and
4/97 cannot be ignored. Appellant’s product which is basically a
defibrillator for external use but capable of using during open heart
surgery if the optional accessory of internal defibrillators paddles are
also provided, cannot be treated as defibrillators for internal use are
contemplated in the exemption provisions.”
We approve the aforesaid reasoning and rational given by the Tribunal in
coming to the conclusion that the goods of the appellant would not qualify
the description contained in Notification Nos.8/96 and 4/97. It is trite
that strict interpretation is to be given to the exemption notifications
and it is upon the assessee to approve that he fulfills all the conditions
of eligibility under such Notifications. This is so held by this Court in
Rajasthan Spinning and Weaving Mills, Bhilwara, Rajasthan v. Collector of
Central Excise, Jaipur, Rajasthan[1], wherein this principle was stated in
the following manner:
“16. Lastly, it is for the assessee to establish that the goods
manufactured by him come within the ambit of the exemption notification.
Since, it is a case of exemption from duty, there is no question of any
liberal construction to extent the term and the scope of the exemption
notification. Such exemption notification must be strictly construed and
the assessee should bring himself squarely within the ambit of the
notification. No extended meaning can be given to the exempted item to
enlarge the scope of exemption granted by the notification.”
This principle has been reiterated time and again. It is not necessary to
take note of all such cases. We would however like to reproduce the
restatement of this member by the Constitutional bench of this Court in
Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal &
Ors.[2], as follows:
“29. The law is well settled that a person who claims exemption or
concession has to establish that he is entitled to that exemption or
concession. A provision providing for an exemption, concession or
exception, as the case may be, has to be construed strictly with certain
exceptions depending upon the settings on which the provision has been
placed in the statute and the object and purpose to be achieved. If
exemption is available on complying with certain conditions, the conditions
have to be complied with. The mandatory requirements of those conditions
must be obeyed or fulfilled exactly, though at times, some latitude can be
shown, if there is a failure to comply with some requirements which are
directory in nature, the non-compliance of which would not affect the
essence or substance of the notification granting exemption.
30. In Novopan India Ltd. (Novopan India Ltd. v. CCE and Customs, 1994
Supp (3) SCC 606) this Court held that a person, invoking an exception or
exemption provisions, to relieve him of tax liability must establish
clearly that he is covered by the said provisions and, in case of doubt or
ambiguity, the benefit of it must go to the State. A Constitution Bench of
this Court in Hansraj Gordhandas v. CCE and Customs (AIR 1970 SC 755 :
(1969) 2 SCR 253) held that (Novopan India Ltd. Case, SCC p. 614, para 16):
“16…such a notification has to be interpreted in the light of the words
employed by it and not on any other basis. This was so held in the context
of the principle that in a taxing statute, there is no room for any
intendment, that regard must be had to the clear meaning of the words and
that the matter should be governed wholly by the language of the
notification i.e. by the plain terms of the exemption.”
Having regard to the above it is difficult to accept the contention of Mr.
Datar, learned senior counsel who appeared for the appellant, predicated on
the submission that such defibrillator of the appellant is capable of
internal use and, therefore, it would be covered by the aforesaid
notifications. No doubt there is difference between the ‘actual use’ and
‘intended for use’ and even when a product is not actually used but is
capable of being used, it would be treated as the product ‘for use’ as held
in State of Haryana v. Dalmia Dardri Cement Limited[3]. However, in the
present case we find that defibrillator when sold without paddle is not
capable of being used internally and paddle is only sold as optional
accessory.
For the same reason, judgment in the case of Collector of Customs, Bombay
v. Handicraft Exports[4] will also have no application to the instance
case. In that case exemption from import duty was provided in respect of
’embellishment for footwear under the notification. The Court held that the
imported goods need not be capable of being exclusively used as
embellishment for footwear but may also be capable for being used for other
purposes. Here, as noted above, defibrillators are not capable of being
used internally without paddles and paddle is an accessory which does not
qualify for exemption any longer. It would be pertinent to note that in
Handicraft Export’s case this Court also held that importer will have to
prove that the goods were not only capable of being utilized as
embellishment for shoes but also that the same were imported for and were
actually been used for embellishment for footwear. In the present case as
defibrillators are sold without paddles, obviously the sale as such is not
intended by the purchaser to be used for internal purpose. We are,
therefore, of the view that the majority opinion of the Tribunal is correct
in law.
This leaves us with the question of extended period of limitation invoked
by the department. It was contended that the declaration given by the
appellant was bona fide and such bona fides were clear from the fact that
law on this issue was not free from doubt which can be gathered from the
fact that even the impugned judgment of the Tribunal is not unanimous as
the Member (Judicial) had taken a different view which was in favour of the
appellant. However, we find that the Third Member did not decide this issue
and left it for the regular bench to consider the same, with the direction
that the appeal would be placed before the regular Bench. Without awaiting
the decision the appellant filed the present appeal challenging the
impugned order passed by the Third Member. Since we are affirming the
decision rendered by the majority, it will now be for the Tribunal to
consider the issue of limitation.
Insofar as the present appeals are concerned, the same are dismissed.
No costs.
………………………………………J.
(A.K. SIKRI)
………………………………………J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
MAY 05, 2015.
———————–
[1] (1995) 4 SCC 473
[2] (2001) 1 SCC 236
[3] (1987) Supp SCC 679
[4] (1997) 7 SCC 144
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