Excise Duty Exemption | To Determine If A Product Falls Under Description "Intravenous Fluids”, Its Composition & Not Its Use Matters : Supreme Court

The Supreme Court has ruled that in order to determine whether a product would fall under the description of “Intravenous Fluids” so as to be eligible for exemption from excise duty, it is the composition of the product in question which is relevant and not whether the product is used for treatment of any particular disease.

The top court made the observation while ruling that the veterinary products ‘Calcium Borogluconate Injection (I.P.) (Vet.)’ and ‘Calcium Magnesium Borogluconate Injection (I.P.) (Vet.)’ manufactured by the assessee, M/s. Denis Chem Lab Ltd., fell under the description of “Intravenous Fluids”, and thus were eligible for exemption from excise duty.

Dismissing the plea of the Revenue Department that the product was in the nature of a medicinal product and thus, was not eligible for exemption, the bench comprising Justices B.V. Nagarathna and Ujjal Bhuyan remarked that the product predominantly consisted of Glucose (sugar) and electrolyte (minerals) which are essentially for the purpose of replenishment. Referring to the composition of the product, the court said that it retained its essential purpose of replenishment and did not partake the character of a medicine used only for the treatment of any particular disease.

Intravenous fluids were accorded exemption from payment of excise duty vide Notification dated 01.03.2000 (Notification No.6/2000-C.E.). Subsequently, by Notification dated 01.03.2001 (Notification No.3/2001-C.E.), it was clarified that intravenous fluids covered under the 2000 Notification would mean- “Intravenous Fluids, which are used for sugar, electrolyte or fluid replenishment”.

The Customs Excise & Service Tax Appellate Tribunal (CESTAT), while considering the issue whether the said veterinary products manufactured by the assessee were “Intravenous Fluids”, had ruled in favour of the assessee. The Tribunal had held that the two products were eligible for exemption from excise duty under the exemption Notifications, as claimed by the assessee.

In the appeal filed before the Supreme Court against the decision of the CESTAT, the Revenue Department argued that as per the Notification dated 01.03.2001, the benefit of exemption is available only if an intravenous fluid is used for sugar, electrolyte or fluid replenishment per se, and the composition of the product is such that it is used only for the purpose of replenishment and not for any other purpose.

It was the case of the Revenue that the product of the assessee was in the nature of a medicinal product, which was administered to animals through the medium of intravenous fluids. It contended that the addition of boric acid and chlorocresol to the product in question, clearly indicated that they were antiseptic in nature and to treat particular diseases in animals. Thus, the products were not fluid replenishment per se and therefore, did not fall under the ambit of the exemption Notification, the department claimed.

Ruling on the nature of intravenous fluids, the court remarked that intravenous fluids/solutions are made of chemicals, such as, sugar, electrolytes or amino acids and that they are in the nature of a life-saving product. Thus, the object and purpose of the exemption is to ensure that they are available at a reduced price and can be easily accessed to be used for human beings or animals readily, the court said.

The court ruled that in order to determine whether the assessee was entitled to the benefit of exemption or not, the simple test that ought to have been followed was to note the composition of the products in question and not as to whether they were being used for treatment of any particular disease.

After perusing the license issued to the assessee by the Food and Drugs Control Administration (FDCA), the court said, “A reading of the license issued to the Assessees, makes it apparent that the composition of the product predominantly consists of Glucose (sugar) and electrolyte (minerals) which are essentially for the purpose of replenishment, not necessarily only used at the time of treatment for any particular disease but also as a preventive measure. Mere addition of Boric Acid and Chlorocresol, that too in minimal proportion, would not alter the character of the product. The product retains its essential purpose of replenishment; and not partake the character of a medicine used only for the treatment of any particular disease.”

“In that view of the matter, we find that the CESTAT was justified in holding that the respondents/Assessees were entitled to the benefit of exemption as per the Notifications dated 01.03.2000 and 01.03.2001. We do not find any merit in these appeals. The Civil Appeals are dismissed,” the court ruled.

Case Title: Commissioner of Central Excise vs M/s Denis Chem Lab Ltd. & Anr.

Citation : 2023 LiveLaw (SC) 650

Counsel for the Appellant: Mr. Siddhant Kohli, Adv. Mr. Mukesh Kumar Maroria, AOR Ms. Aakansha Kaul, Adv. Mr. Shiv Mangal Sharma, Adv. Ms. Chinmayee Chandra, Adv. Mr. Manish Pushkarna, Adv.

Counsel for the Respondent: Mr. V. Lakshmikumaran, Adv. Ms. Charanya Lakshmikumaran, AOR Ms. Apeksha Mwhta, Adv. Ms. Falguni Gupta, Adv. Ms. Neha Chaudhary, Adv. Ms. Umang Motiyani, Adv.

The Central Excise Act, 1944-

The Supreme Court has ruled that in order to determine whether a product would fall under the description of “Intravenous Fluids” so as to be eligible for exemption from excise duty, it is the composition of the product in question which is relevant and not whether the product is used for treatment of any particular disease.

The top court made the observation while ruling that the veterinary products ‘Calcium Borogluconate Injection (I.P.) (Vet.)’ and ‘Calcium Magnesium Borogluconate Injection (I.P.) (Vet.)’ manufactured by the assessee fell under the description of “Intravenous Fluids”, and thus were eligible for exemption from excise duty.

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