By TIOL News Service

NEW DELHI, MAY 06, 2015: THE appellant 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 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.

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.

A defibrillator is a device that delivers electrical shock through paddles placed either directly 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."

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.

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.

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 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.

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.

The matter is before the Supreme Court.

The Supreme Court observed,

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, 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.

The Supreme Court reproduced, 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."

The Supreme Court concluded, “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 paddles and paddle is optional accessory, it is difficult to hold that conditions contained in the exemption Notifications are satisfied.

The Supreme Court approved the 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.

Limitation Issue open : 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 appellant. However, it is found 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 the decision rendered by the majority, is affirmed, it will now be for the Tribunal to consider the issue of limitation.

(See 2015-TIOL-99-SC-CX)