1. Dispute over excise duty exemption for clinical samples of patent or proprietary medicines under the Central Excises and Salt Act, 1944. (Para 1 , 2 )
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1996 Supreme(SC) 2315
SUPREME COURT OF INDIA
Suhas C. Sen & K.T. Thomas, JJ.
Union of India - Petitioner
Versus
Suhrid Geigy Ltd. - Respondent
CA 89 of 1981
Decided On : 08-04-1996
Important Points
The Supreme Court held that the word "and" in the definition of "manufacturer" within the exemption notification is conjunctive, thereby entitling the respondent company to the excise duty exemption for clinical samples.
Subject
Taxation Law - Excise Duty
Act Referred
Headnote
Central Excises and Salt Act, 1944 - Companies Act, 1956 – Constitution of India - Article 14 – Claim of compensation – Jurisdiction - Such clearances in any month are limited to a quantity not exceeding four per cent by value of total duty paid clearances during preceding month of all types of patent or proprietary medicines - Samples are intended for the free supply to hospitals, nursing homes or medical practitioners, and samples are packed in a form distinctly different from regular trade packing and each smallest packing is clearly and conspicuously marked "Physicians samples not to be sold - Provided further that in respect of a patent or proprietary medicine aforesaid exemption under this notification will be available only for a period of three years from date of first clearance of the said medicine from any factory of a manufacturer – Held, Central Excise authorities declined to grant benefit of this exemption to the respondent company on ground that it was not a manufacturer within the meaning of the explanation - There is no dispute that the respondent is a Company within the meaning of Companies Act, 1956 - It has been contended by Counsel on behalf of the respondent Company that the respondent company does not hold any share in the capital of any foreign company but a foreign company holds share in the respondent company. What the explanation requires is of both conditions. In order to be treated as a manufacturer the respondent must not hold any share in the capital of any foreign company and no part of the capital of the respondent company must be held by a foreigner or a foreign company. If the second condition is not fulfilled the respondent does not cease to be a manufacturer - High Court has rightly held that the word and between explanation must be read as conjunctive and not disjunctive - In that view of the matter the respondent company is entitled to the benefit of the exemption notification – Court agree with the view of the High Court on this point - High Court thereafter decided to strike down certain provisions of the notification as being discriminatory and contrary to the guarantee given in Article 14 of Constitution - It was entirely unnecessary for High Court to do so - Suffice it to say that Court do not agree with the view of the High Court on this aspect of the matter - Appeal Dismissed
Legal Category Hierarchy
Table of Contents
2. Whether a company qualifies as a manufacturer for exemption if it holds no shares in foreign companies but is partially owned by foreign entities. (Para 3 )
3. The court found the word and in the manufacturer's definition to be conjunctive, requiring both conditions to be met for disqualification. (Para 3 , 4 )
4. The word and used between conditions in the definition of a manufacturer for excise exemption must be read as conjunctive. (Para 3 , 4 )
6. How is the word and interpreted in the definition of a manufacturer for excise duty exemption?
The court held that the word and between the conditions in the explanation is conjunctive, not disjunctive, meaning both conditions must be fulfilled to determine the status of the manufacturer. (Para 3 , 4 )
7. Does foreign shareholding in a company automatically disqualify it from being a manufacturer for excise exemption?
No, because the conditions in the explanation are conjunctive; the failure to fulfill the second condition regarding foreign shareholding does not necessarily mean the company ceases to be a manufacturer. (Para 3 )
8. Are the provisions of the excise exemption notification for clinical samples discriminatory under Article 14 of the Constitution?
The Supreme Court disagreed with the High Court's finding that the provisions of the notification were discriminatory or contrary to the guarantee provided under Article 14 of the Constitution. (Para 4 )
ORDER :
Suhas C. Sen, J.
1. The dispute in this case is about the interpretation of the Notification issued by the Central Government on April 1, 1977 being G.S.R. 163 (E). In that notification the Government exempted clinical samples cleared by a manufacturer of patent or proprietary medicines falling under Item No. 14E of the First Schedule to the Central Excises and Salt Act, 1944, (1 of 1944) from the whole of the duty excisable thereon. This exemption was subject to following provisions:
(i) such clearances in any month are limited to a quantity not exceeding four per cent by value of the total duty paid clearances during the preceding month of all types of patent or proprietary medicines,
(ii) samples are intended for the free supply to hospitals, nursing homes or medical practitioners, and
(iii) the samples are packed in a form distinctly different from regular trade packing and each smallest packing is clearly and conspicuously marked "Physician's samples, not to be sold.
Provided further that in respect of a patent or proprietary medicine aforesaid, the exemption under this notification will be available only for a period of three years from the date of first clearance of the said medicine from any factory of a manufacturer.
2. The exemption could be claimed only by the manufacturer. The manufacturer was defined in the explanation to mean :
(a) where it is a company within the meaning of the Companies Act, 1956 (1 of 1956), a company
(i) which does not hold any share in the capital of any foreign company, and
(ii) no part of the capital of which is held by a foreigner or a foreign company,
(b) where it is a
(i) the firm has no interest in any foreign firm, and
(ii) no interest in the firm is held by a foreigner or a foreign company and,
(c) where it is an individual, such individual is not a foreigner.
3. The Central Excise authorities declined to grant benefit of this exemption to the respondent company M/s. Suhrid Geigy Ltd. on the ground that it was not a manufacturer within the meaning of the explanation. There is no dispute that the respondent is a Company within the meaning of the Companies Act, 1956. It has been contended by Mr. H.N. Salve, Counsel on behalf of the respondent Company that the respondent company does not hold any share in the capital of any foreign company but a foreign company holds share in the respondent company. What the explanation requires is the fulfilment of both the conditions. In order to be treated as a manufacturer the respondent must not hold any share in the capital of any foreign company and no part of the capital of the respondent company must be held by a foreigner or a foreign company. If the second condition is not fulfilled the respondent does not cease to be a manufacturer. The High Court has rightly held that the word 'and' between (i) and (ii) of the explanation must be read as conjunctive and not disjunctive. In that view of the matter the respondent company is entitled to the benefit of the exemption notification.
4. We agree with the view of the High Court on this point. The High Court thereafter decided to strike down certain provisions of the notification as being discriminatory and contrary to the guarantee given in Article 14 of the Constitution. It was entirely unnecessary for the High Court to do so. Suffice it to say that we do not agree with the view of the High Court on this aspect of the matter.
5. Since on the very first point we uphold the contention of the company, the appeal must be dismissed.
6. There will be no order as to costs.
Appeal Dismissed.
