ORDER
V.K. Agrawal, Member (T)
1. The issue involved in this appeal filed by M/s. Nestor Pharmaceuticals Ltd. is whether the benefit of Notification No. 108/95-C.E., dated 28-8-1995 was available to the Folic Acid and Ferrous Sulphate cleared by them.
2. Briefly stated the facts are that the Appellants cleared the impugned goods claiming exemption from payment of duty under Notification No. 108/95; that a show-cause notice dated 2-12-1996 was issued to them for denying the benefit of the said notification and for demanding central excise duty amounting to Rs. 62,25,991/- and for imposition of penalty, on the ground that they had not submitted a certificate before clearance of the goods to the Assistant Commissioner from the United Nations or an International Organisation that the goods were to be supplied to a project financed by the United Nations or International Organisation and the said project had duly been approved by the Government of India; that the Assistant Commissioner, under Adjudication Order dated 29-10-1997 confirmed the demand of duty and imposed a penalty of Rs. 62,25,991/- holding that the exemption is to be allowed only on production of the requisite certificate; that the certificate issued by Rail India Technical & Economic Services Ltd. (RITES) can not be accepted for the purpose of the notification. On appeal, the Commissioner (Appeals) also rejected the appeal, holding that goods involved is Folic Acid and Ferrous Sulphate Tablets and not Drug kit A to be supplied under the project; and that Notification 108/95 is applicable only when the cost of relevant project is borne by the U.N. or International Organisations and not in those cases where money is borrowed by the Government for implementation of certain projects.
3. Shri Vinay Garg, learned Advocate, submitted that the World Bank, under its various social scheme extends loan/credit facility to various member countries; that under one scheme known as “World Bank Assisted Child Survival & Safe Motherhood Project”, the International Development Association of the World Bank under credit No. 2330 IN entered into a loan agreement with the Government of India called as Project Agreement; that the Government, through the Ministry of Health and Family Welfare, hired the services of RITES for procurement of drugs and drug kits; that as per the Joint Procedure, RITES was to call for the tenders; that accordingly tender was invited by the RITES; that it is apparant from the perusal of the bid-documents that the project has been funded by the World Bank under their credit/loan agreement; that tenders were invited for the supply of drug kit A consisting of (i) Oral Rehydration Salt (ORS), (ii) Tablet IFA (large), (iii) Tablet IFA (small), (iv) vitamin A solution and (v) Tablet Cotrimoxazole (Paediatric); that they were awarded two contracts for drug kit A under RITES letter dated 12-4-1996.
4. The learned Counsel, further, submitted that approval of the World Bank was obtained in respect of everything relating to Project Agreement; that the World Bank, under letter dated 9-4-1996 addressed to RITES mentioned that based on the information provided, they offer their no objection to the proposal to award the contracts for supply of Drug kit A to, among others, the Appellants; that this letter contains the following “One hundred percent ex-factory cost in each is eligible for disbursement”. The learned Advocate contended that this letter is the certificate which is specified in the Notification; that similarly for second contract another letter dated 18-4-1996 was issued by the World Bank; that after issue of the show-cause notice for demanding duty, the Appellants requested RITES to approach the World Bank to issue a certificate as demanded by the Department; that the World Bank, under letter dated 4-2-1997, while showing their inability to issue certificate, mentioned that the Bank has already given a letter of ‘No Objection’ for the award of the contract financed under the loan/credit and it is for Project authorities to give certificates; that they had already produced two certificates issued by RITES; that RITES again under letter dated 24-4-1997 forwarded the copies of the no objection given by the Bank for award of the contract and mentioned that “these no objections confirms that the 100% ex-factory cost of the kit ‘A’ awarded on you are to be reimbursed by the World Bank”. The learned Advocate, thus contended that all the conditions specified in the notification were fulfilled by them. He also submitted that the Commissioner (Appeals) has herself given findings as under : –
“Going by the correspondence produced by the Appellants, it is obvious that the drug kits referred to therein had been supplied by the appellants under a project assisted by the World Bank and approved by the Government of India, and the World Bank had given a loan to the Government of India for this project. In this connection, D.O. letter No. 15012/7/94-4IP III, dated 7th/17th April, 1995 of Under Secretary to the Ministry of Health, NOC of the World Bank dated 9th April, 1996 and 18th April, 1996 for accord of contracts and certifying that 100% factory cost was eligible for disbursement and their letter dated 4-2-1997 confirm the same”.
5. He further mentioned that the grounds on which the exemption was proposed to be denied to them in the show-cause notice has been upheld in their favour by the Commissioner (Appeals); that the Commissioner has confirmed the demand on the grounds which were not raised in the notice; she has travelled beyond the scope of the notice; that Drug kit A consisted of 5 medicines out of which 4 medicines attracted nil rate of duty, being sold under Pharma Copoeia names, and accordingly they have sought exemption under Notification No. 108/95 in respect of Folic Acid & Ferrous Sulphate only; that the terms ‘finance’ does not mean that the cost of the project should be borne by the International Organisation; that the word ‘finance’ only means borrowing of money under loan; that it is clear from all the documents that the project in Question was financed by the World Bank.
6. Dr. Ravinder Babu, Teamed D.R., submitted that the Appellants had not produced the requisite certificate and as such the condition of the notification has not been fulfilled.
7. We have gone through the submission of both the sides. Notification No. 108/95-C.E., dated 28-8-1995 read as under :-
“In exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), read with Sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts all goods falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the said goods) when supplied to the United Nations or an international organisation for their official use or supplied to the projects financed by the said United Nations or an international organisation and approved by the Government of India, from the whole of –
(i) the duty of excise leviable thereon under Section 3 of the [Central Excise Act, 1944] (1 of 1944); and
(ii) the additional duty of excise leviable thereon under Sub-section (1) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957):
Provided that before clearance of the said goods, the manufacturer produces before the Assistance Commissioner of Central Excise having jurisdiction over his factory, a certificate from the United Nations or an international organisation that the said goods are intended for official use by the said United Nations or the said international organisation or are to be supplied to a project financed by the said United Nations or the said international organisation and the said project has duly been approved by the Government of India.
Explanation. – For the purpose of this notification, “international Organisation” means an international organisation to which the Central Government has declared, in pursuance of Section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), that the provisions of the Schedule to the said Act shall apply.”
8. It is not in dispute that the medicine in question was supplied in persuance of a project of World Bank and Government of India. The show cause notice for denying the benefit of notification was issued only on the ground that requisite certificate was not submitted by the Appellants. It has been shown by the Appellants through World Bank’s two letters dated 9-4-1996 and 18-4-1996 that the medicine was to be supplied for the project, namely, Child Survival and Safe Motherhood project and one hundred percent ex-factory cost was eligible for disbursement. No proforma of the certificate has been prescribed in the Notification. These two letters clearly indicate that the goods were intended to be supplied to a project financed by the International Organisation. The learned Advocate for the Appellants has rightly pointed out that the Commissioner (Appeals) has upheld the matter in their favour on this court. The department has not filed any appeal against this finding. We agree with the learned Advocate that the Commissioner (Appeal) has gone beyond the scope of the show cause notice in denying them the benefit of notification. It is settled law that no matter can be decided on a ground other than the grounds raised in the show cause notice. The impugned order is to be set aside on this court itself. However, we find that the Appellants have amply shown that the contracts were awarded to them for supply of drug kit A which consisted of 5 medicines and as excise duty was payable only in respect of one medicine, the benefit of notification was claimed in respect of that medicine. Secondly the expression “financed by” does not mean that the entire cost should be borne by the International Organisation. According to Websters, Ninth New College Dictionary, ‘finance’ means – “1: money or other liquid resources of a Government, business, group, or individual, 2 : the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities 3 : the source or study of the management of funds 4 : the obtaining of funds or capital. It is apparant from the Joint Procedure for procurement of drug & drug kits enclosed with the letter dated 17-4-1995 of Ministry of Health and Family Welfare that the source of fund was International Development Association of the World Bank under credit No. 2300 IN. Further the Bid documents also mentions under the heading “Source of Funds” that the loan/credit has been received from the World Bank in various currencies. Thus it is evident that the project was financed by an International Organisation. Accordingly, we allow the appeal filed by the Appellants.