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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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