CESTAT Ahmedabad: No Excise Duty on Expired Medicines If Reasonable Time Given for Destruction Approval
Pranav B Prem
The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Justice Somesh Arora (Judicial Member) and Mr. Satendra Vikram Singh (Technical Member), has held that excise duty cannot be demanded on expired medicines destroyed in a factory if the manufacturer had sought permission for such destruction and the department failed to respond within a reasonable time. However, if the destruction was carried out without providing such time or without following the required process, duty would become payable.
The appeal was filed by Sun Pharmaceuticals Industries Limited, a 100% Export Oriented Unit (EOU) engaged in both exports and Domestic Tariff Area (DTA) sales. The case involved two key issues: first, whether Special Additional Duty (SAD) was payable on stock transfers to sister units in the DTA where no VAT or CST was paid; and second, whether excise duty was payable on expired medicines and raw materials that were destroyed without prior permission from Central Excise authorities.
The appellant had availed the benefit under Notification No. 23/2003-CE, which provides an exemption from payment of SAD on DTA clearances if the goods are not exempt from sales tax or VAT by the State Government. The appellant contended that SAD was not applicable on stock transfers, as there was no sale attracting VAT. Though the department contested this and demanded SAD, the appellant paid the amount under protest.
The more contentious issue arose from the destruction of expired tablets, capsules, remnants, and raw materials. While the appellant had obtained destruction approval from the Food and Drugs Administration (FDA) for finished goods, no such permission was sought from Central Excise authorities. For raw materials, no approvals were obtained either from the FDA or Central Excise. The department raised a demand for duty on these destroyed items, arguing that the destruction was unauthorized and thus not exempt under the law.
Referring to Para 6.8(f) of the Foreign Trade Policy 2009–14, the Tribunal noted that there shall be no duties or taxes on scrap, waste, or remnants if they are destroyed with permission from the customs authorities. The Tribunal observed that in the absence of such permission or if the party had failed to allow the department a reasonable time to act on its request for destruction, the duty demand would stand.
The Tribunal highlighted that it was not clear from the records whether the appellant had made a formal request to the department and waited a reasonable period before destroying the goods. In such circumstances, the Tribunal held that it would be necessary for the adjudicating authority to examine these aspects in detail, including any limitation issues.
The appellant argued that they had regularly informed the department about such destructions and that their actions were in line with past decisions of CESTAT, including in their own case. They also raised contentions regarding revenue neutrality and absence of willful suppression. While accepting that the issue of SAD liability was covered against them by the decision in Moser Baer India Ltd., they sought relief on the issue of destruction-based duty demand.
The Tribunal concluded that although the SAD liability was correctly imposed in light of binding precedent, the issue regarding excise duty on destroyed goods warranted reconsideration. CESTAT, therefore, remanded the matter back to the original authority to decide:
Whether the appellant had sought permission for destruction.
Whether the department was given a reasonable period to respond.
Whether the destruction was carried out in compliance with the applicable procedures.
The validity of the extended limitation period invoked by the department.
Accordingly, the appeal was partly allowed and remanded to the adjudicating authority for fresh adjudication on these specific issues.
Appearance
Shri. A.B. Nawal, Cost Accountant for the Appellant
Shri. Rajesh R Kurup, Superintendent (AR) for the Respondent
Cause Title: Sun Pharmaceuticals Industries Limited V. C.C.E & S.T.-Silvasa
Case No: Excise Appeal No. 11451 of 2015
Coram: Hon'ble Mr. Somesh Arora [Member (Judicial)], Hon'ble Mr. Satendra Vikram Singh [Member ( Technical)]
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