M/S. B.P.L. LTD. Vs COMMNR. OF CENTRAL EXCISE, CALICUT
Bench: A.K. SIKRI,ROHINTON FALI NARIMAN
Case number: C.A. No.-005523-005523 / 2004
Diary number: 15132 / 2004
Advocates: NIKHIL NAYYAR Vs
ANIL KATIYAR
Page 1
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.
2) 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
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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.
3) We may point out at this stage that a defibrillator is a device that
delivers electrical shock through paddles placed either directly
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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.”
4) 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
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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.
5) 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.
6) Thereafter, the appellant filed an appeal before the CEGAT,
Madras (now Chennai) against the order of the Commissioner
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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.
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7) 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.
8) 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.
9) 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
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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.
10) 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.
11) 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
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Central Excise Act (herein after refer to as Act), challenging the
aforesaid order dated 19.05.2004.
12) 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.
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(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.”
13) 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.”
14) From the reading of the aforesaid notifications, it becomes
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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
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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.
15) 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.
16) 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,
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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.”
17) 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
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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:-
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“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
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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.”
18) 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, Rajasthan1, 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
1 (1995) 4 SCC 473
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enlarge the scope of exemption granted by the notification.”
19) 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
2 (2001) 1 SCC 236
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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.”
20) 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 Limited3. 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.
21) For the same reason, judgment in the case of Collector of
Customs, Bombay v. Handicraft Exports4 will also have no
application to the instance case. In that case exemption from
import duty was provided in respect of 'embellishment for 3 (1987) Supp SCC 679 4 (1997) 7 SCC 144
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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.
22) 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
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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.
23) 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.
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