Critical Analysis of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 LAW405

Abstract

The Medicinal and Toilet Preparations (Excise Duties) Act, 1955, is a pivotal piece of legislation in India, governing the levy and collection of excise duties on medicinal and toilet preparations containing alcohol, narcotic drugs, or psychotropic substances. This project delves into the historical context, key provisions, and practical implications of the Act, with a focus on its regulatory mechanisms and compliance requirements. A real-life case study is included to highlight the application of the Act in a contemporary scenario.

Introduction

This is Central Act implemented by the State Government. The intersection of pharmaceuticals and intoxicating substances necessitated stringent regulations, leading to the enactment of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 & Rules 1956. This Act was introduced to harmonize the levy of excise duty across states and ensure proper regulation of medicinal and cosmetic preparations that contain controlled substances. Its purpose extends to ensuring public health and revenue generation while preventing misuse of such preparations.

Administration and Implementation -The Act is implemented by the Central Excise Department in coordination with state excise departments. This Act provides for the levy and collection of duty of Excise on Medicinal and Toilet preparations containing alcohol, Opium, Indian hemp or other narcotics drug or narcotics. Regular inspections, audits, and verifications are conducted to ensure compliance. Special provisions are made for Ayurvedic and Unani medicines, considering their unique ingredients and formulations.

Historical Background

Before enactment of this Act, there was chaotic condition prevailing in the country in relation to price structure of alcohol as a raw material and formulations containing alcohol. Some States were rich in production of alcohol, while others were utilizing this as raw material in manufacture of formulations.

In the absence of uniform excise policy, the price structure of alcohol containing medicines was varying from State to State within the country. In order to overcome this difficulty and to ensure that uniform structure of excise duty for alcohol products exists, this Act was enacted. The Act is effectively implemented throughout India from 15th April,1957. The Act has 11 Chapters and 21 Sections.

By virtue of entry 40 in List II in the Seventh Schedule to the Constitution of India Act, 1935, medicinal and toilet preparations containing alcohol, etc. were subjected to Provincial excise duties. Each Provincial Government fixed its own rates of duty and followed its own procedure to regulate the imports from and exports to other Provinces of such preparations so that the industry manufacturing these preparations had to contend with several handicaps imposed by such diversities in rates and procedure. In order to secure uniformity, the entry relating to excise duty on medicinal and toilet preparations containing alcohol etc. was transferred, under the Constitution, from the State List to the Union List.

The Bill was intended to implement these provisions of the Constitution, and proposed uniform rates of excise duty and a uniform procedure for the collection thereof. In the case Part A and Part B states, the actual collection of the duties will be left with the Governments of the States, as required by Art. 268 of the Constitution. The existing duties and procedures for collection under the pre-constitution statutes of the States which are at present protected under Art. 277 will be replaced by the rates and the procedures proposed in the Bill.

Excise duties on medicinal and toilet preparations are levied and collected under the authority of the following Central Act and the rules made there under:-

1. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955
2. The Medicinal and Toilet Preparations (Excise Duties) Rules, 1956

Besides the above Act and Rules, the following Act and Rules are also applicable:-

1. The Narcotic Drug and Psychotropic Substances Act,1985
2. The Narcotic Drug and Psychotropic Substances Rules, 1985

Aim and Objectives

Aim

The aim of this paper is to extensively analyze the Medicinal and Toilet Preparations (MTP) Act of 1955, assessing its impact on the regulation of medicinal and toilet products in India, while examining a specific case study to illustrate the practical implications of the Act.

Objectives

1. To provide a historical overview of the MTP Act: Outline the origins, development, and legislative framework of the MTP Act within the context of public health and safety.
2. To examine the key provisions of the MTP Act: Analyze the main regulations regarding the manufacture, labeling, and distribution of medicinal and toilet preparations, focusing on substances classified as narcotics.
3. To conduct a detailed case study: Present a specific case that illustrates the challenges and successes of the MTP Act in practice, highlighting issues of compliance, enforcement, and consumer awareness.

Medicinal and Toilet Preparations Act, 1955

The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 is a key legislative framework aimed at regulating the manufacture and sale of medicinal and cosmetic products. Enacted to impose excise duties on these preparations, the Act serves multiple purposes:

• generating government revenue,

• ensuring consumer safety, and

• maintaining industry standards.

It establishes guidelines for labeling, ingredient transparency, and quality control, thereby protecting consumers from potentially harmful products. By overseeing the production and distribution processes, the Act promotes public health and ethical practices within the market, ensuring that individuals have access to safe and effective medicinal and toilet preparations.

Difference between Medicinal and Toilet Preparations :

Parameters	Medicinal Preparations	Toilet Preparations
Definitions	Includes all drugs which are a remedy or prescription prepared for internal or external use of human beings or animals and all substances intended to be used for or in the treatment, mitigation or prevention of disease in human beings or animals	Any preparation which is intended for use in the toilet of the human body or perfuming apparel of any description or any substance intended to cleanse improve or alter the complexion, skin, hair or teeth, and includes deodorants and perfumes.
Purpose	Their primary function is to improve health outcomes. They are formulated to target specific medical conditions or symptoms, such as pain relief, infection treatment, or chronic disease management.	The main purpose is aesthetic or hygienic. These products aim to cleanse, beautify, or refresh the body, addressing needs related to personal grooming and hygiene.
Regulatory Requirements	These products are subject to strict regulations by health authorities (e.g., FDA, EMA) which include: Clinical trials to establish safety and efficacy. Detailed documentation for manufacturing processes. Approval before marketing and sales.	While these products are also regulated, the requirements are generally less stringent. Includes: Safety assessments to ensure they do not cause harm. Compliance with labeling regulations, but clinical trials may not be required.
Ingredients	Contain active pharmaceutical ingredients (APIs) that have specific therapeutic effects. They may also include excipients that aid in the formulation	Composed of ingredients that focus on sensory appeal (fragrance, texture) and cosmetic effects including surfactants, emollients, preservatives, colorants, etc.

Some Important Terms & their Definitions-

• medicinal preparation includes all drugs which are a remedy or prescription prepared for internal or external use of human beings or animals and all substances intended to be used for or in the treatment, mitigation or prevention of disease in human beings or animals;

• toilet preparation means any preparation which is intended for use in the toilet of the human body or perfuming apparel of any description or any substance intended to cleanse improve or alter the complexion, skin, hair or teeth, and includes deodorants and perfumes.

• alcohol means ethyl alcohol of any strength and purity having chemical composition C2H5OH;
  
  

• absolute alcohol means alcohol conforming to the British Pharmacopoeial specification for dehydrated alcohol;

• denatured spirit or denatured alcohol means alcohol of any strength which has been rendered unfit for human consumption by the addition of substances approved by the Central Government or by the State Government with the approval of the Central Government;

• duty means the duty of excise payable under Section 3 of the Act;

• dutiable goods means the medicinal and toilet preparations specified in the schedule as being subject to the duties of excise levied under this Act;

• excise officer means an officer of the Excise Department of any State and includes any person empowered by the collecting Government to exercise all or any of the powers of an excise officer under this Act.

Objectives of the Act

Unify excise duties: Before this Act, different states had different excise duties on medicinal and toilet preparations containing alcohol, opium, Indian hemp, or other narcotic drugs. This Act introduced a uniform system across India.

Collect excise duties: The primary purpose of this Act is to collect excise duties on these preparations.

Regulate manufacture and sale: The Act also regulates the manufacture, sale, import, and export of these preparations.

Empower Central Government: The Central Government is empowered to make rules for pricing, exemptions, remissions, and establishing laboratories for testing and analysis.

ANALYSIS OF THE MNTP ACT

State excise taxes were applied to medications and toiletries that contained alcohol, among other things. In order to control imports from and exports to other states of such preparations, each state government set its own tariff rates and followed its own protocol. Because of these differences in rates and procedures, the industry that produced these preparations had to deal with a number of disadvantages. Under the Indian Constitution, the entry pertaining to excise duty on medications and toiletries that contain alcohol, among other things, was moved from the State List to the Union List in order to ensure uniformity.

In order to provide for the levying and collecting of excise duties on medications and toilet preparations that contain alcohol, narcotic drugs, or narcotics, the Medicinal and Toilet Preparations (Excise Duties) Act was passed in 1955. This Act went into effect on April 1st, 1957, and it covers the entirety of India.

Contents of the MNTP Act

There are 21 sections in total.

Sections	Parameter
1	Short title, extent and commencement
2	Definitions
3	Duties of excise to be levied and collected on certain goods
4	Rebate of duty on alcohol. etc. supplied for manufacture of dutiable goods
5	Recovery of sums due to Government
6	Certain operations to be subject to licences
7	Offences and penalties
8	Power of Courts to order forfeiture
9	Power to Arrest
10	Power to summon persons to give evidence and produce documents in inquiries under this Act
11	Officers required to assist excise officers
12	Owners or occupiers of land to report manufacture of contraband dutiable goods
13	Punishment for connivance at offences
14	Searches and arrests how to be made
15	Disposal of persons arrested
16	Inquiry how to be made by excise officers against arrested persons forwarded to them
17	Vexation search, seizure, etc., by excise officer
18	Failure of excise officers on duty
19	Power to make rules
20	Bar of suits and limitations of suits and other legal proceedings
21	Repeals and savings

Some of the most important sections of the act are discussed below.

Section 3- Duties of excise to be levied and collected on certain goods.

Section 3 of the Medicinal and Toilet Preparations (Excise Duties) Act (MNTP Act) generally deals with the imposition of excise duty on specific medicinal and toilet preparations.

• Subsection (1) typically sets out the general imposition of excise duty on the manufacture, production, or importation of certain goods classified under "medicinal preparations" and "toilet preparations."

This duty is usually a specific tax (e.g., a fixed amount per unit of product or based on weight or volume) or ad valorem tax (a percentage of the sale price of the product).

• Subsection (2) empowers the Central Government to prescribe the rates of excise duty on medicinal and toilet preparations.

The duties are applicable where

• in the state where the dutiable products are produced under bond, whether or not that state is also the state of manufacturing, and in which the commodities are released for domestic use from a protected warehouse;

• where the state in which the dutiable commodities are created does not manufacture them in bond.

• Subsection (3) The aforementioned duties will be collected in the way that may be specified, subject to the other requirements of this Act.

Sl. No.	Dutiable Goods	Rate of Duty (ad valorem)
Medicinal Preparations
1	Allopathic Medicinal Preparations : Alcohol-containing medicinal preparations that aren't fit to be consumed like regular alcoholic beverages : (a) Patented or proprietary medications. (b) Other Medicinal preparations that contain alcohol and can be taken like regular alcoholic beverages : (a) medicinal preparations that contain therapeutic amounts of known active components (b) Other Medications that contain narcotic drugs or narcotics but no alcohol	20% 20% 20% 20% 20%
2	Ayurvedic, Unani, or other indigenous medical systems Medicinal Preparations : Medicinal products that contain alcohol that is produced by the body itself and cannot be ingested as regular alcoholic beverages. Pharmaceutical formulations with self-produced alcohol that can be ingested like regular alcoholic drinks. Everything else that contains alcohol and is generated by distillation or has alcohol added to it. Pharmaceutical formulations that contain narcotic drugs or narcotics but no alcohol	4% 4% 6% 20%
3	Homoeopathic preparations that contains alcohol	4%
Toilet Preparations
4	Toilet products that contain narcotic drugs, alcohol, or narcotics	50%

Section 4 - Rebate of duty on alcohol, etc., supplied for manufacture of dutiable goods

If a manufacturer of dutiable goods has received alcohol [a drug or narcotic] for use as an ingredient in those goods from the collecting government or under its authority and the government has already recovered an excise duty on those goods under any currently enacted law, the collecting government will, upon application, grant the manufacturer a rebate of the excess, if any, of the duty so recovered over the duty leviable under this Act in relation to the excise duty levied under this Act.

Section 6 Certain operations to be subject to licences

• Subsection (1) denotes that by publishing a notice in the Official Gazette, the Central Government may stipulate that, without authorisation and in compliance with the terms and conditions of a licence granted under this Act, no one may produce or manufacture any dutiable goods, specified component parts of ingredients of such goods, specified containers of such goods, or labels of such containers as of a date that may be specified in the notification.

• Subsection(2) All licencesgranted under sub-section (1) must be for the area, if any, for the specified duration, with the stipulated limits and conditions, and in the required form with the prescribed details.

Section 7 Offences and penalties

The section 7 specifies what punishment the offender might face.

An imprisonment sentence extending upto maximum six months in prison, or a fine of up to two thousand rupees, or both might be encountered in case an individual commits the following offences---

• violates any of the terms of a notification issued under section 6;

• refuses to pay any excise duty due under this Act;

• fails to submit any information that he is required to provide by rules made under this Act, or

• conveys false information (unless he has a reasonable belief that the information he has providedis true), or

• attempts to commit or aids in the execution of any of the offences mentioned above.

Section 9 Power to arrest

Under this section the provision of executing an arrest are mentioned.

• Any excise officer who is properly authorised by rules created in this regard may make an arrest of anyone he believes is subject to penalty under this Act.

• Any individual who has allegedly violated or is suspected of violating this Act or any of its rules and who, upon request from an excise officer authorised by such rules, refuses to provide his name and residence, or who provides a name or residence that the officer has reason to suspect is false, may be arrested by said officer so that his identity and residence may be determined.

Section 15 Disposal of persons arrested

• Anybody apprehended under this Act must be sent right away to the closest excise officer, who has the authority to transfer those arrested to a magistrate, or, to the officer in charge of the closest police station in the event that no such excise officer is available within a reasonable commute.

• When someone is sent to a police station under subsection (1), the officer in charge of that station must either grant them bail so they can appear before a magistrate with jurisdiction or, if they are unable to provide bail, immediately transfer them to that magistrate while they are in custody.

Section 17 - Vexatious search, seizure, etc., by excise office

Sub-section(1) of this section states the crimes that carry a maximum fine of two thousand rupees for any officer acting under this Act or its guidelines, which are as follows

• searches a location, conveyance, or vessel without a reasonable suspicion;

• detains, searches, or arrests someone unjustly;

• unnecessarily seizes someone's movable property under the guise of seizing or searching for any article subject to confiscation under this Act;

• performs any other act that causes harm to another person in his capacity as an officer without having cause to believe that such an act is necessary for the performance of his duties;

Sub-section(2) states that the punishment for intentionally and deliberately providing false information that results in an arrest or search under this Act is two years in jail, a fine of up to two thousand rupees, or both.

Section 19- Power to make rules

Under this section, the Central Government establishes regulations by publishing a notice in the Official Gazette, to accomplish the goals of this Act.

These rules ---

• Outline the procedures for assessing and collecting the obligations imposed by this Act, determining the authorities responsible for carrying out its activities, issuing notices that demand payment, determining how the duties will be paid, and recovering unpaid duties;

• Forbid the production of dutiable goods, or any of their component parts, ingredients, or containers, in any way, except on property or on premises authorised for that purpose, with the exceptions or under the conditions that the Central Government deems appropriate.

• Manage the distribution of taxable items outside their storage or manufacturing zones or other places that such items may further be processed and shipped between such places or to an authorized dealer or otherwise convey the items to the markets,

• Manage the sourcing and manufacturing concepts and any processes related to the sourcing and manufacture of taxable goods including all the parts of such items as may be necessary to ensure proper collection and assessment of the duties mandated by this Act.

• Make provisions for the engagement of excise personnel to oversee any pre-or-post enactment rules made in reference to this Act.

• Demand that the manager of a manufacturing or licensed storage facility makes available space within his factory or storage facility for the excise officers whose purpose is to ensure adherence to the provisions of the internal regulations imposed under this Act and specify the amount of such space;

• Require the establishment, licensing, administration, and supervision of bonded warehouses and the system of making and removing dutiable cargoes from those or in moving dutiable cargo from one bonded warehouse to another;

• Establish measures necessary for the identification of excisable goods produced locally under an excise license, excisable goods imported under an excise duty and paid for or goods which are exempt from excise duty as stipulated in this Act.

• To compel persons interested in the manufacture, warehousing or sales of merchandise (either alone or as brokers or commission merchants) as may be necessary for an effective collection and collection of the duties chargeable by this Act to provide information, keep such books of account and make such returns as may be prescribed; it shall also determine the nature of information required, the form and the contents of the said books and returns and how these may be verified.

• Stipulate that goods subject to duties must not be sold, offered, or stored for sale unless they are contained within designated packaging, which must display a banderol, stamp, or label of a specified type, affixed in accordance with prescribed regulations;

• Enact provisions on the granting of licenses and transport permits, including any license fees that may be charged.

• Detain dutiable goods, including: merchandise, plant and equipment, machinery, or materials, for collection of the duty concerned;

• Provide for the seizure of dutiable goods in respect of which any regulation made under this Act has been contravened and for the seizure of any liquor, narcotic or other article used in the commission of the contravention and any packages, containers, coverings or other vessels in which such goods or articles are contained. It also covers the seizure of animals, vehicles, vessels or conveyances used in the conveyance of such goods or articles and all instruments or machinery used in the manufacture of such goods;.

• Levy upon anyone, not complying with any rule, a penalty less than two thousand rupees made under this Act;

• Specify how such confiscation and penalty are to be carried out, the upper limit at which specific classes of excise officers may decide on such a confiscation or penalty, the appeals from such officers' orders and the revision of such orders by a higher authority, the deadline for these appeals and revisions, and the disposition of the confiscated goods and articles.

• Compounding of offences against, or liabilities incurred under, the provisions of this Act or rules made thereunder shall be permitted;

• Any examination of the facilities for manufacture and sampling, testing of goods produced on such facility, and the instrument or vessel utilized for manufacture, storage, trade or movement of the taxable goods in respect of such examination or search is necessary for the enforcement of the duties imposed under this Act, shall be permitted;

• Provisions dealing with ex gratia drawback regarding the duty payable on the goods, which being a taxable good, are to be taken outside the frontiers of India;

• The import duty or any part of it on any taxable goods of this country may be suspended, where the Government is of the opinion that such action is justified by the need to promote trade or is in the national interest

• Instruction boards explaining laws or conditions under which goods would be assessed and taxed, or the local law in regard to, should be published in the Gazette.

• Permit specific groups of excise officers to issue written directives for additional issues resulting from any rule issued by the Central Government under this section.

The individual in question will not face prosecution under section 1 if any confiscation or penalty has been decided in relation to a violation of any rule under this Act, which is also an offence under section 7.

However, any rule made under this section must be laid as soon as possible after it is made before each House of Parliament while it is in session for a total of thirty days, which can be divided into one session or [in two or more successive sessions, and if, before the session immediately following the session or the successive sessions aforesaid] both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule will only have effect in its modified form or nothing at all.

Medicinal and Toilet Preparations Rules, 1956

The Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, are a set of rules that govern the manufacture, storage, and transportation of medicinal and toilet preparations.The rules were framed by the Central Government under the Medicinal and Toilet Preparation Act of 1955.

Some Important Definitions

• laboratory means that part of a non-bonded or bonded manufactory in which the actual manufacture of dutiable goods takes place;

• bonded manufactory means the premises or any part of the premises approved and licensed for the manufacture and storage of medicinal and toilet preparations containing alcohol, opium, Indian hemp and other narcotic drugs or narcotics on which duty has not been paid;

• non-bonded manufactory means the premises or any part of the premises approved and licensed for the manufacture and storage of medicinal and toilet preparations containing alcohol, opium Indian hemp and other narcotic drugs or narcotics on which duty has been paid.

• rectified spirit means plain un-denatured alcohol of a strength not less than 50.0 over proof and includes absolute alcohol;

• rectified preparation means every medicinal preparation specified in the schedule and includes every preparation declared by the Central Government as restricted preparation under these rules;

• warehouse means any place or premises licensed licensed under rule 70.

Table2: Difference between Bonded and Non-bonded Manufactory

Parameters	Bonded Manufactory	Non-Bonded Manufactory
Excise Duty	Payable on removal of goods	Payable at the time of spirit purchase
Excise Staff	Functions under excise staff	No excise staff required
License	Required to be obtained from excise commissioner	Required to be obtained from the officer as the state government may authorise on this behalf
Alcohol	Alcohol on which duty has not been paid shall be used under the supervision	Only alcohol on which duty has already been paid shall be used
Manufacture Scale	Suitable for large-scale manufacture	Suitable for small-scale manufacture

Contents of the MNTP Rules, 1956

Chapters	Parameters
1	Preliminary
2	Appointment of Offices
3	Levy and refund of, and exemption from duty
4	Manufacture
5	Warehousing
6	Licensing
7	Export under claim for Rebate of Duty or under Bond
8	Inter-State Movement of Medicinal and Toilet Preparations containing Alcohol, Opium, Indian Hemp and other Narcotic Drugs and Narcotics.
9	Entry, Search, Seizure and Investigation
10	Penalties, Confiscations and Appeals
11	Miscellaneous

The rules under each chapter are described below.

Chapter I- Preliminary

Rule No.	Description
3	The agent or proprietor of goods, as well as the manufacturer or warehouse operator, shall be considered the owner for specific purposes.

Chapter II - Appointment of Offices

Rule No.	Description
4	Designating officers and giving them authority
5	Any officer's authority may be used by the excise commissioner

Chapter III - Levy and refund of, and exemption from duty

Rule No.	Description
6	Duty redemption
7	Government and non-profit organisations are exempt from paying taxes on the preparation of medications.
8	Authority to be exempt from duty in certain circumstances
9	Time and mode of duty payment
10	Change of duty
11	Recovering duties or levies that were incorrectly refunded or under levied
12	Residuary powers to collect money owed to the government
13	No reimbursement for incorrectly paid duties or charges unless a claim is made within six months
14	Duty refund on exported items
15	Export of commodities on which an exporter has not paid duty under a general bond
16	General bond by an exporter
17	Penalties for not providing export documentation within the allotted time

Chapter IV Manufacture

Rule No.	Description
18	Provision of rectified spirit for the production of pharmaceutical and personal hygiene products
19	Loss when the rectified spirit is transitted
20	Method of production

Section A

Manufacture in bond of medicinal and toilet preparations containing alcohol, opium, Indian hemp and other narcotic drugs and narcotics.

Rule No.	Description
21	Rectifiedspirit issued without duty payment
22	Accessing and leaving a bonded manufacturing facility
23	The fundamentals of a bonded factory
24	Changes, modifications cannot be made without authorisation
25	Setting up containers in a bonded manufacturing facility.
26	Purchase order or Request for rectified spirit
27	Confirmation that the rectified spirit was received
28	Depositing or storing the rectified spirit
29	Rectified spirit issued from the Spirit store
30	Purchase order regarding the preparation, storage and distribution of Indian hemp, opium and narcotics.
31	Produced items that are subject to duty.
32	Labelling of manufacturing vessels
33	Sample to be taken
34	Depositing the finished product
35	Defect found in the Finished store
36	Getting rid of low-quality preparations
37	Destruction of recovered alcohol
38	Loss during Manufacturing
39	Duty revocation when an accident causes any loss
40	Issuance of alcoholic and narcotic preparations from bonded laboratory
41	Proper account to be maintained by the licensee
42	Number of supervisory staff
43	Accounts
44	Duty and penalty collection accurately
45	Area of responsibilities

SECTION B

Manufacture outside bond of medicinal and toilet preparations containing alcohol, opium, Indian hemp and other narcotic drugs and narcotics

Rule No.	Description
46	Working hours
47	Arrangements of the establishment
48	Storage Containers
49	Rectified Spirit for which duty has been paid obtained on indent
50	Indented production and storage of opium, narcotics and indian hemp
51	Manufacturing Restrictions
52	Premises of non-bonded lab to be licensed for manufacture, sale and storage
53	Excise Officers are to gather samples for analysis at least once each month.
54	Sample collection procedure
55	Debarment of compensation for samples collected
56	Accountsto be kept correct and up to date in authorised printed registers.
57	List of employees
58	Inspection of non-bonded lab

SECTION - C

Classification of Medicinal and Toilet Preparations Containing Alcohol

Rule No.	Description
59	Allopathic medicinal preparations
60	Maintaining restricted preparations
61	Production methods
63	Indian hemp, narcotics and opium containing products
64	Different types of Ayurvedic preparations
65	Ayurvedic Pharmacopoeia
66	Categorisation of self-generated alcohol-containing preparations for duty-levy purposes
67	Imposition of tax on Ayurvedic preparations produced by distillation, including those that incorporate alcohol at any point during the manufacturing process.
68	Duties of the standing committee

Chapter V Warehousing

Rule No.	Description
69	Setting up bonded storage facilities
70	Obtaining warehouse licenses
71	Licensee requires to sign a bond
72	Goods being acquired at the warehouse
73	The authority of the owner to handle stored items
74	Only items permitted by regulations may be removed from the warehouse.
75	Duration for which goods maybe stored in warehouse
76	Calculations regarding the amount of goods stored
77	Remittance authority for missing or damaged warehoused goods
78	The warehouse's licensee's obligations
79	Warehousing-related offences
80	Monthly report that details how many dutiable items were received
81	Approval on duty payment

Chapter VI- Licensing

Rule No.	Description
82	License acquiring procedure
83	Application forms
84	License issuance
85	Limitations of license forms
86	License modification or replacement.
87	License deferral and cancellation
88	License fee reimbursement.
89	Displaying the license or its copy
90	Control of the licensee's business
91	Special guidelines for obtaining a licence to produce pharmaceutical and toilet products in a bonded or non-bonded laboratory.
92	The manufacturing plan that goes with the application
93	Details to be included with the application when a firm is involved
94	The applicant must have the licence required by the 1940 Drugs and Cosmetics Act
95	The licensing authority disposes of applications for licenses to make toilet and medication preparations in bonded or non-bonded laboratories.
96	Cash or interest-bearing securities, such as National Savings Certificates, Government Promissory Notes, etc.,, may be used to provide security.

Chapter VII - Export under claim for Rebate of Duty or under Bond

Rule No.	Description
97	Exporting strategies
98	Submission of triplicate application
99	Product inspection before shipping
100	Inspection at the export location
101	Inspection at the export location
102	Additional steps regarding products shipped via parcel post
103	Submission of a rebate claim

Chapter VIII - Inter-State Movement of Medicinal and Toilet Preparations containing Alcohol, Opium, Indian Hemp and other Narcotic Drugs and Narcotics.

Rule No.	Description
104	Movement between states
105	Requirement of an agreement/bond for re-warehousing and timely delivery
106	A general bond may be formed by the remover
107	Procedure fortransfer of itemsbetweenwarehouses
108	Application not presented in triplicate
109	Process when duty payment is neglected

Chapter IX - Entry, Search, Seizure and Investigation

Rule No.	Description
110	Free access to the facilities, tools, inventory, and accounts of dutiable goods dealers is granted to authorised officers
111	Penalties for providing inaccurate or misleading information or for obstructing
112	Authority ofdetention ofindividuals and iteminspection
113	Authority of an excise officerto halt, enter, and searchanyvehicle, ship, or other mode of transportation for dutiable items
114	Authority of an excise officer to confiscate, remove, or hold any goods for which he believes a duty should have been applied but has not.
115	An officer's authority to demand entry to a location, ship, or vehicle in order to check or examine commodities
116	Police will be in control of the confiscated items and keep them safe
117	Service protocol
118	A mistake in a person's name or designation will not render any notice null and void.
119	Removal of confiscated items
120	Only an excise officer may initiate proceedings under the Act.
121	Any individual whom an excise officer has reason to suspect of being subject to penalty under the Act may be arrested.
122	Arrest and seizure procedures must adhere to the Act.

Chapter X Penalties, Confiscations and Appeals

Rule No.	Description
123	Authority to decide whether to confiscate and punish
124	Common Penalties for violating rules
125	The nature of the crimes
126	Products or items that violate any of the Act's prohibitions may be forfeited.
127	The excise commissioner or the relevant state or federal authority receives appeals for or against anything
128	Petitions can be revised (reversed, modified) accordingly
129	A copy of the decision or order being appealed against must be included with the appeal and revision request

Chapter XI Miscellaneous

Rule No.	Description
130	A fresh declaration must be made when the Excise Commissioner issues a written notice
131	Dutiable goods inventories must be kept in any organised way
132	A factory or warehouse's inventory must be accounted for and balanced
133	Constraintson removing items from bonded labs
134	Licensees are responsible for any products or items removed by any individual
135	Maintenance of accounts and registrations of inventories
136	Equipment for weighing and measuring to be supplied and maintained
137	Locks must be installed and maintained to secure or lock anystorage facility room, location, carrier, or fixture belonging to anybody
138	Detention to be imposed on goods, plant, and machinery that are subject to unpaid duties
139	Dutiable commodities to be sold in labelled containers as prescribed.
140	Officer to not divulge knowledge acquired while serving in his official position
141	Accommodations for excise officials working in bonded factories or warehouses
142	Authority to provide further orders in written form
143	Old regulations, directives, and notices to be revoked as soon as new regulations take effect

Analysis of the Rules

Some of the important rules are discussed in details below.

Rule 4 : Appointment of officers and delegation of powers to them

Sub-rule (1) of this rule mentions that Excise Officers are appointed by the state government to execute any powers granted or fulfil any obligations required by the Act or these regulations, and delineate the authority of each officer.

Sub-rule (2) states that the Excise Commissioner may give authority to any Excise Officer under his supervision to function throughout his jurisdiction or any designated portion, unless the State Government instructs them differently.

Rule 6: Recovery of Duty

This rule requires any manufacturer of dutiable goods to pay the relevant taxes. Dutiable goods stored in warehouses require the store owner to pay duties as determined by the Act at a designated time and place to an authorized person according to these rules and this applies regardless of duty payment methods.

Exceptions to this make up Rule number 7. It contains the list of institutions to which alcohol-containing medicinal preparations are supplied directly from a bonded laboratory without the payment of any taxes. These include -

• The Central governed hospitals and dispensaries in operation.

• The institutions covered include hospitals and dispensaries which receive financial support from either the Central Government or State Government.

• Hospitals and dispensaries which operate as charitable institutions under the administrative management of local government bodies.

• The Medical Store Depot run by the Central Government or State Government;

• Institutions that receive certification from the district's principal Medical Officer when they provide free medications to impoverished individuals.

Rule 16 : General bond by an exporter

According to this rule, with the approval of the Excise Commissioner any licensed person who intends to export dutiable goods from his State following the rules provided here may enter into a general bond in Form B-3 secured by sufficient certainty in a specified amount and conditions. The Excise Commissioner determines the appropriate conditions under which dutiable goods can be exported periodically during the approved timeframe specified by sub-rule (3) of Rule 99.

Rule 18 : Supply of rectified spirit for manufacture of medicinal and toilet preparation

Rule 18 articulates that although rectified spirit is often provided to manufacturers from state distilleries or spirit warehouses where the manufacturing facility is located, manufacturers are free to receive rectified spirit from suppliers outside the state.

Rule 23 : Essentials of a bonded manufactory

Sub-rule (1) of this rule comments on the prerequisites for production in a bonded laboratory, which are discussed below .

A Bonded Laboratory must have -

1. a single outlet for plain spirits, except when it exists in proximity to a distillery or a warehouse for rectified spirits from which it can be obtained as needed;
2. a minimum of a single big space for the production of medicinal preparations
3. several areas to retain finished medicinal preparations;
4. setups forproducing toiletries independently;
5. dispositions for preserving finished toilet preparations; and
6. a furnished officer-in-charge's quarters close to the bonded premises.
7. windows with malleable iron rods that are at least 19 mm thick, space 102 mm apart at the maximum, embedded in brickwork up to a minimum depth of 51 mm, and having their insides covered with nets of sturdy wires or extensible metal with a mesh that is not beyond 25 mm of diameter or length
8. a board outside each of these rooms in the factory having the room's name and, a serial number painted in a readable oil colour (if applicable)
9. all pipes leading from washbasins or washbasins within manufacturing facilities that empty into drains that are a component of the building's overall drainage system.
10. at the end of each workday, all gas and electric connections to the permitted premises must be securely locked, allowing for the supply of gas or electricity to be turned off.

Sub-rule 2 allows the Central Government to loosen any of the rules outlined in subrule (1) under exceptional circumstances.

Rule 29 : Issues of rectified spirit from the spirit store

The laboratory of the manufactory can obtain rectified spirit from the spirit store when the licensee submits a requisition form. This is what Sub-rule(1) of the rule talks about. The licensee must complete Form R.Q-I for requisitioning alcohol and can only request amounts matching the formula from either the relevant pharmacopoeia or the patent medicine label instructions as specified in the current Drugs Rules, 1945. Sub-rule(1) also mentions that rectified spirit must be combined instantly with other materials in the presence of the officer-in-charge for preparation as described in the application. The distribution of rectified spirit is restricted to producing medicinal and toilet preparations exclusively in laboratory settings.

Under Sub-rule(2) the finished store allows the transfer of medicinal or toilet preparations to the manufacturing laboratory where they can be combined with raw materials for subsequent production of either identical products or other preparations upon receiving a written request from the licensee.

Rule 40 : Issue from a bonded manufactory

When duty is paid, a bonded manufacturer produces alcoholic beverages and preparations containing opium, Indian hemp, or other narcotic medicines under sub-rule(1). The licensee must submit an application in Form A. R-2, signed by the licensee or his designated agent, to the officer-in-charge. After reviewing the entries and determining the duty owed, the officer-in-charge must issue a permission allowing the necessary quantities to be removed.

Sub-rule(2) specifies that prior to the preparations being removed from the bonded premises, the duty imposed on alcohol preparations, preparations containing opium, Indian hemp, or other narcotic drugs, and narcotics to be issued from a bonded factory must be deducted from the licensee's current account, if the licensee is also an account-holder as specified in rule 9.

Rule 47 : Building arrangements (for Non-Bonded Manufactory)

According to this rule, a non-bonded laboratory must have

• an area of the non-bonded plant designated as the "laboratory" must be kept apart from the other areas.

• "spirit store," "laboratory," and "finished store" windows withmalleable iron bars that are at least 19 mm thick, spaced at most102 mm apart, and anchored in the brickwork to a minimum depth of 51 mm at each end. Sturdy wire-netting, with an opening no larger than 25 mm in diameter, must be firmly attached to the bars on the inside of every window.

• a single entrance, and the "laboratory," "spirit," "store," and "finished store" will each have a single door.

• pipesleading from washbasins and washbasins within the manufacturing facility must empty into closed drains that are a component of the building's overall drainage system.

• all gas and electric connections to the licensed premises arranged in such a way that, at the end of the workday, the regulators or switches are safely locked out and the gas or electricity supply is switched off.

• its own designated"spirit store" for rectified spirit

• each item in the Schedule to the Act withits own finished shop for toiletriesand medicinal preparations.

• the Excise Commissioner's prior approval is required for any changes to the layout of buildings and factories.

• small producers whose yearly alcohol use does not exceed 500 litres, as well as those that create therapeutic preparations for their patients' use alone and not for sale, may be exempt from all or any of the aforementioned rules.

Rule 52 : Manufacture, storage and sale to be carried on only in the licensed premises of the non-bonded manufactory

Rule 52 comprises of the following sub-rules

Sub-rule (1) indicates that only the permitted premises may be used for the production and storage of any preparations

Sub-rule (2) mentions that all itemsproduced must be registered in Form R.G. 3and be assigned aunique serial number, which is its batch number.

Under sub-rule (3) every finished goodto be moved from the "laboratory" to the "finished store," where they must be set up to make it easier to monitor the stock of each batch from the accounts recordedin Form R.G.4.

Sub-rule (4) talks about how the finished product storemust include final preparations created from rectified spirit acquired at various duty rates separately.

Under Sub-rule (5) the manufacturermust measure and seal every bulk preparation to the closest fluid ounce before it is stored.

Lastly Sub-rule (6) mentions that the manufacturer must alsorecord the quantity withdrawn and the method of disposal, along with his signature and date, on the stock card that is connected to a vessel that contains preparations that are held in bulk.

Rule 60 : Maintenance of restricted list of preparations

Sub-rule(1) of rule 60 expresses that the Schedule contains a list of medicines that are seen to be just as prone to abuse as regular alcoholic beverages; these are known as restricted preparations. All other pharmaceutical preparations produced before April 1, 1957, will be regarded as unrestricted preparations as they cannot be abused like regular alcoholic drinks.

According to Sub-rule(2), the Central Government may, at the request of a State Government or on its own initiative, send a preparation that falls within the unrestricted category to the Standing Committee asmentioned in Rule 68 if it is discovered to be widely consumed as a regular alcoholic beverage. If the aforementioned Committee recommends it, the Central Government designate the preparation as restricted.

According to Sub-rule(3) any medicinal preparation produced in India for the first time since April 1, 1957 that is not an official allopathic preparation will be considered restricted unless the Central Government states otherwise following recommendations from the Standing Committee. Manufacturers who plan to create new alcohol preparations outside of official allopathic formulations need to send two samples to the Government which will forward the request along with receipt information to the Central Government for final approval.

Rule 70 : Licensing of warehouses

This rule explains that a private warehouse may be licensed by the Excise Commissioner to hold dutiable commodities for which duty has not been paid. The Commissioner may also specify the terms and conditions under which the items must be held, as well as the way in which the warehouse must be secured with locks or other fasteners.

Rule 79 : Offences with respect to warehousing

Given below are the offences that are committed by the owner of the goods stored, by himself, by someone working for him, or by someone else with his consent, by virtue of rule 79:

1. after a warehouse has been permitted, making any additions or changes to it without the Excise Commissioner's prior approval;
2. opening of any of warehouse's doors or locks that are required to be locked by these regulations or Excise Commissioner's a specific orders, or by anyone gaining access to such a warehouse, unless an officer is present and performing his official duties; or
3. covertly shields any items while storing;
4. stores or removes items in or from a warehouse in a manner not permitted by the regulations.

Rule 83 : Form of application

According to sub-rule (1), each licence applicationmust be made using appropriate application forms, specifyingthe location, if any, where the applicant plans to operate, and be submitted to the licensing authority at least two months prior to the day the licence is supposed to start operating. If the application is for renewal, it must be filed at least one month prior to the startingyearit is needed for.

Under sub-rule(2), if a fee is specified , a Treasury challan proving payment of the amount must be included with every application for a licence grant or renewal.

Table List of Application Form

Form No.	Rule No.	Description
A.L.1	83 & 91	Application for License to Produce Goods that areSubject to Excise Duty (within or out of bond)
A.L.2	83	Having ayurvedic practitioners make ayurvedic preparations.
A.L.3	83	In accordance with the M&T.P. (E.D.) Act of 1955, bonded warehouses are used to store commodities that are subject to duty.
L-1	83	Permits to produce medications and toiletries that include opium, alcohol, Indian hemp, and other narcotics, provided that the duty is paid.
L-2	83	To produce medications and toiletries that contain narcotics and substances that are not under bond, such as alcohol, opium, and Indian hemp.
L-3	83	Practitioners of Ayurveda or Unani medicine may produce Ayurvedic preparations using their own alcohol for dispensing only, not for sale.
L-4	83	For a Warehouse Under Bond.
B-1	21	Bonds that a Bonded Manufacturer's licensee must sign
B-2 (Sur.)	71	Bonds signed by a Bonded Warehouse's licensee with surety.
B-2 (Sec.)	71	Bonds signedby a bonded warehouse's licensee with security.
B-3 (Sur.)	15	Dutiable items withdrawn to ship abroadwithout duty payment as scheduled, with surety.
B-3 (Sec.)	15	Bonds to ensure that dutiable commodities are shipped to a foreign nation on time and without duty, with security.
B-3 (Gen Sur.)	16	Timely transmissionof dutiable products that are occasionally exported to another nation without duty payment.
B-3 (Gen Sec.)	16	Bonds for shippingtaxable items periodicallyfor export to a foreign nation without duty payment.
B-4 (Sur.)	105	Bonds for enabling arrival and re-storage of dutiable items that have been transported between bonded warehouses, as scheduled(with surety).
B-4 (Sec.)	105	Bonds for the timely arrival and re-storage of dutiable items that have been relocated between bonded warehouses(with security)
B-5 (Gen Sur.)	106	Bonds that ensuresthat dutiable items transferred between bonded warehousesarrive on time and are re-stored.
B-5 (Gen Sec.)	106	Bonds enablingdelivery of taxable goodson time and re-stored after being transported between bonded warehouses.
R.G.1	25	Registers of containers in bonded andnon-bonded warehouse.
R.G.2	27,30	Spirit store sales in the Bonded/Non-Bonded Manufacturing site.
R.G.3	31,33,52	Registers of bonded and Non-Bonded Manufacturing Operations.
R.G.4	31.35	Bonded and non-Bonded Manufacturing preparations registers.
R.G.5 (Part I)	72,75	Receipt Register for the Warehouse.
R.G.5 (Part II)	72,75	Issue Register in the Warehouse.
V.B.1	90	Visitor's log
I.D.1	26,49,50	Indent/ Order Form for alcohol and other things.
R.Q.1	29,30	Alcohol requisition for issuance from spirit store.
A.R.1	107	Request to moveitems that are subject to duty between bonded warehouses.
A.R.2	40,81	Approval upon duty payment.
A.R.3	98	Removal application for items subject to duties that are exported via land.
A.R.4	98	Removal application for taxableproducts that are shippedvia air, sea, or postal service.
T.P.1	107,112	For the transportation of itemssubject to duty,
D.D.1	9	Notice requesting payment of duty.
R.T.1	41,56	Returns inbusiness dealings inbonded and non-bonded manufacturing site.
R.T.2	80	Returns in business transactions inbonded depositories/ warehouses.

Rule 97: Method of export

Under this rule, exporting duty-paid goods requires a claim for a duty refund. Bonded goods must be transported to the export location for their scheduled export after the duty has been paid.

Rule 110 : Authorized officers to have free access to premises, equipments, stocks and accounts of dealers in dutiable goods

According to this rule, any officer who has received written permission from the Excise Commissioner shall be granted unrestricted entry to any licensed premises as necessary, as well as to any location where goods on which taxes are imposed are produced, stored, or held for sale.

This officer may, with or without prior notice to the owner, conduct inspections of the building, equipment, machinery, inventory, and financial records. Additionally, the officer is permitted to verify the records pertaining to goods that are either stored in or removed from the manufacturing site, warehouse, or any area within the facility designated for the production of other commodities. This access is intended for the purpose of verifying the accuracy of any returns submitted in accordance with these regulations or for gathering necessary information related to the Act or these rules.

Rule 123 : Power of adjudication of confiscation and penalty

By virtue of this rule, the Excise Commissioner will decide whether to confiscate something or punish someone for violating any imposed restrictions.
Any Excise Officer may be granted the authority to decide on a confiscation or penalty by the State Government, which may also specify the parameters for how this authority may be used.

Rule 124 : General Penalty

Where no further sanctions are specified, breaking the laws will result in a fine of up to one thousand rupees as well as the seizure of the products involved, in accordance with this rule.

Rule 131 : Stocks of dutiable goods to be stored in any orderly manner

Regardless of whether duty has been paid or not, according to this rule, all dutiable goods kept in private warehouse or on the property of an individual licensed under Chapter VI of these regulations,must be stacked neatly to allow counting. On request ofExcise Commissioner, packages containing identical goodsmust be kept together in separate lots, with each row holding an equal number of packages of uniform size, volume, and strength. In order to facilitate counting, the Excise Commissioner may also require the licensed individual or warehouse keeper to keep stock cards for each individual lot, leave an open passageway free of packages in the center of the warehouse or other storage location, and create a similar passageway along the walls of the warehouse or other storage location at right angles to the aforementioned passage. Additionally, he may require that each individual lot or consignment be clearly marked with the admissiondate,the stock card recordnumber, etc.

Rule 137: Provision and maintenance of locks

By virtue of sub-rule (1) of this rule, warehouses, rooms, locations, vessels, or any fittings owned by an individual licensed to deal in dutiable goods is required to be locked and securedby these regulations or by theorder of the Excise Commission.

In accordance with sub-rule (2), to theappropriate officer-in-charge's liking, the licensee shall,offer, repair, and reinstate all attachments and connectionsnecessary to enable officers to fix and/or securelocks. The appropriate officer can offer to attach, rebuild, or renew the fittings if the licensee or warehouse-keeper declines to do so; the licensee or warehouse-keeper,will be responsible for paying the cost of such services upon request.

The collecting government is responsible for providing the necessary excise tickets or keys.

Sub-rule (4) talks about when a licensee or warehouse keeper neglects to pay the costs of supplying, servicing, and/or re-establishing fastenings (as specified in sub-rule (2)), or if a licensee, or a worker deliberately damages any lock-label, or gains access to any warehouse, premise, or vessel wrongfully, or has any fastening vessel or fitting so constructed that the protection intended by the lock or clamping may be defeated, there may be a penalty of up to two thousand rupees.

Rule 143 : Cancellation of former rules, orders and notifications

All Rules made under any law corresponding to this Act in force in any State are hereby repealed except as respects things done or omitted to be done before such repeal and every licence granted under any such rules shall be deemed to have been granted in accordance with the provisions of these rules.

Case Analysis

The case that we are going to discuss in detail is of Heinz India Limited vs The State Of Kerala on 4 May, 2023.

Appellant: Heinz India Limited

Respondents: The State Of Kerala

At the heart of Heinz India Limited vs. The State of Kerala lay a classification dispute with significant fiscal implications. The central legal issue revolved around the appropriate categorization of "Nycil Prickly Heat Powder," a product marketed for its dual properties of skin care and relief from prickly heat. The primary question that this court must decide is whether medicated talcum powder is a drug, medicine, or cosmetic. The core question was whether this product should be classified as a "medicine" or "drug" - therefore being eligible for lower tax or as a "cosmetic" as described in both, the Kerala General Sales Tax Act, 1963 (KGST Act) and the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) respectively.

In its ruling, the Kerala High Court dismissed the revisions that Heinz had submitted after the Kerala Sales Tax Appellate Tribunal ruled that its product, Nycil Prickly Heat Powder, could not be classified as "medicine" under Entry 79 of the First Schedule to the Kerala General Sales Tax Act, 1963 (henceforth referred to as the "KGST Act"), but rather as "Medicated Talcum Powder."

In the second set of appeals, M/s Glaxo Smithkline Pharmaceuticals Ltd. ("GSK" henceforth) is offended by the Madras High Court's ruling, which dismissed its argument that the prickly heat powder was a "medicinal formulation or preparation ready for use internally or externally for treatment or mitigation or prevention of diseases or disorders in human being or animals" [under Entry 20-(A) of Part C of First Schedule to the Tamil Nadu General Sales Tax Act, 1959 -henceforth "TNGST Act"]. Instead, the court determined that it was toilet powder [under Entry 1(iii) of Part-F of the TNGST Act].

Atwin test was established by the court to determine whether an item qualifies as a medicine, cosmetic ormedication. The first is the common parlance test, which determines if the item is generally regarded as a medication. A product is not considered to be of general usage if it is classified as a medication. It will only be used to treat a certain condition, and once that condition is resolved, the user mustcease using it. It is important to consider the consumer's approach. The second testis to checkif the components are deemed essential for healing in accordance withmedical journals.

The court held that the product was typically used for the "specific purpose of treating prickly heat" and that it is ceased to beusedafter the illness got cured, rather than used by customers as a regular talcum powder. This indicated that it contains components that have both therapeutic and preventative properties, making it useful for treating illnesses. According to theinclusive definition in Entry 127 of the Act's first schedule, nycil powder has to be placed under the special entry rather than the general entry even though it contains all the components and characteristics of a medication and is essentially a talcum powder with curative and preventative properties.

The petitioners (representing the manufacturer and marketer of Nycil Prickly Heat Powder), advanced several arguments predicated on the premise that the product was, in substance, a medicinal preparation. The primary thrust of the petitioner's argument was that the functional attributes and composition of Nycil warranted its classification as a medicine or drug, irrespective of its presentation as a powder. The manufacturer sells chlorphenesin (an antifungal and antibacterial agent)under the trade name "Nycil." Boric acid and zinc oxide make up 32% of the material's overall composition in Nycil powder. Talc and starch make up the remainder of the substance. The purpose of Nycil powder is to keep skin clean so that it can shield the skin frominfection and prickly heat while offering relaxation and refreshment. As a result, it is covered by Entry 79 of the KGST Act's first schedule.

References:

• The Medicinal and Toilet Preparations (Excise Duties) Act, 1955

• Central Excise Rules and Notifications

• Ministry of Finance reports and circulars

• Journal of Pharmaceutical Policy and Practice

• News articles on the 2022 Maharashtra enforcement case