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Collector of Customs Vs. Sarabhai Chemicals - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1998)(98)ELT369TriDel
AppellantCollector of Customs
RespondentSarabhai Chemicals
Excerpt:
.....stated that the respondents had filed 9 refund claims on the ground that propylene glycol is a 'bulk drug' and as per notification no. 77/86 and 234/86, the duty is chargeable @ 60% + 40% + cvd nil. however, their contention was not accepted on the ground that: (i) the propylene glycol does not have any therapeutic value or prophylactic value. thus it does not merit consideration as drug. (ii) the condensed chemical dictionary shows that these items have multifarious used and these are not known in literature or trade parlance as drug intermediate and it does not have major use as an intermediate in the manufacture of any drug. (iii) the propylene glycol is mainly used as a solvent. hence, the original assessment is in order.3. learned counsel stated in reply that they have a factory.....
Judgment:
1. This is an appeal filed by the Department against the order of Collector (Appeals), Bombay dated 31-5-1994.

2. Learned Departmental Representative stated that the respondents had filed 9 refund claims on the ground that Propylene Glycol is a 'Bulk Drug' and as per Notification No. 77/86 and 234/86, the duty is chargeable @ 60% + 40% + CVD Nil. However, their contention was not accepted on the ground that: (i) The Propylene Glycol does not have any therapeutic value or prophylactic value. Thus it does not merit consideration as drug.

(ii) the condensed chemical dictionary shows that these items have multifarious used and these are not known in literature or trade parlance as drug intermediate and it does not have major use as an intermediate in the manufacture of any drug.

(iii) the Propylene Glycol is mainly used as a solvent. Hence, the original assessment is in order.

3. Learned Counsel stated in reply that they have a factory at Baroda, manufacturing, inter alia, medicaments. They have been importing Propylene Glycol which is a chemical conforming to pharmacopoeial standards of U.S.A. and India and is used as an ingredient in formulation manufactured in the factory at Baroda. They have filed bill of entries on the imported goods under Tariff Heading 29.01/45(13) of the Customs Tariff prior to March, 1986 and thereafter, under Tariff Heading 2905.32 claiming exemptions under relevant notification of the Customs Tariff as well as the Central Excise Tariff.

4. It was the submission of the respondents that they had been filing relevant bill of entries as and when goods were imported and claiming the concessional rate of duty under relevant notifications. But, however, the customs authorities have been assessing ignoring exemptions claimed by the appellants on the plea that Propylene Glycol has no therapeutic value and cannot be considered as a pharmaceutical chemical having therapeutic value. The department has also not granted the benefit of Central Excise notification as a bulk drug. The relevant notifications in respect to the exemption from CVD to the bulk drug are 234/82-C.E., dated 1-11-1982 and 234/86-C.E., dated 3-4-1986 both allowing nil rate of duty in respect of bulk drug.

5. It was also his contention that Propylene Glycol is a chemical and also conforms to the pharmacopoeial standards i.e. USP/BP and is used as an ingredient in formulation and it has therapeutic and prophylactic properties and therefore, is within the meaning of bulk drug and therefore, is eligible for grant of exemption under notification of Central Excise No. 234/82 and 234/86. Propylene Glycol USP/IP that is a pharmaceutical chemical having therapeutic and prophylactic properties.

That is why, it should be classified under 29.01/45(13) of the Customs Tariff. They referred to Order-in-Appeal No. 1661/88/B.C.H. issued on 12-4-1988. The respondents also contented that in connection with the Notification No. 234/86, they had produced a certificate issued by Drug Controller of India, New Delhi, confirming that the Propylene Glycol is a bulk drug. Having complied with the necessary formalities as per the notification, it was incumbent upon the A.C. to grant the said duty concession. However, the A.C. had ignored the material placed on record by the respondents to prove that the imported goods have therapeutic value. The Assistant Collector further held that propylene glycol had multifarious uses and is not known in literature or trade parlance as drug intermediate and does not have major use as an intermediate in the manufacture of bulk drug. He also opined that Propylene Glycol is mainly used as solvent. However, the A.C. had not given any cogent reason as to why Propylene Glycol could not be considered as bulk drug or pharmaceutical chemical.

6. In support of their contentions, the respondents cited the judgment of the Tribunal in the case of Harish Bros. v. Collector of Customs reported in 1989 (40) E.L.T. 122 wherein the Tribunal had held that chemicals conforming to pharmacopoeial standards being non-preparatory drugs as such are covered under Notification No. 55/75-C.E. and the successor Notifications 234/82 and 234/86. The Tribunal has also held in the case of Babulal Bros. v. Collector of Customs reported in 1988 (34) E.L.T. 723 that in respect to drugs, the condition of end use is unwarranted. In Rakesh Enterprises v. Union of India reported in 1986 (25) E.L.T. 906, the Hon'ble Bombay High Court has come to the conclusion that chemicals conforming to pharmacopoeial standards are drugs and therefore, it is not necessary to establish that the drug/drug intermediate is actually so used. In the case of Kumar Prabhulal Shah and Ors. v. Union of India reported in 1987 (28) E.L.T.193, the Hon'ble Bombay High Court held that Phenol USP and Sorbitol Solution is not liable to countervailing duty being basic drug and drug intermediate and are eligible for exemption and therefore, actual use is not necessary to be established for the purpose of exemption.

7. The respondents also referred to a case reported in 1990 (45) E.L.T.280 (Tribunal), in the case of Collector of Customs v. Gufic Pvt. Ltd. wherein the very same question of importation of Propylene Glycol conforming to USP was involved and the Tribunal after having considered various considerations have come to the conclusion that the Propylene Glycol conforming to pharmacopoeial standards is a bulk drug even though used as a solvent in the formulation of drug preparation. The Hon'ble Supreme Court on appeal by the Department, against the decision reported in 1990 (45) E.L.T. 280 (Tribunal) had dismissed the appeal of the department and thereby confirmed orders of the Tribunal. In fact, in the case of very same respondents, the very same subject has been decided by the Tribunal in favour of the respondents holding that Propylene Glycol conforming to pharmacopoeial standards like USP, IP is a bulk drug and is eligible for duty concession under Central Excise notification as well as under Customs Act. The Tribunal, in its Order No. 42/89-C.E. in Appeal No. C/1491 /86-C in the case of Pacific Export v. Collector of Customs, Bombay, had an occasion to discuss the observations of the Hon'ble Supreme Court judgment in the case of Collector of Customs v. Andhra Sugar reported in 1988 (38) E.L.T. 564 that "the condition for drug intermediate regarding end use was considered necessary because those intermediate could be used as chemical in other allied chemical industries. Here the goods are clearly drugs being pharmacopoeia grade as mentioned earlier and therefore there is no reason to attach any condition to such goods for the purpose of extending benefit of notification...".

8. The respondents contended that Propylene Glycol conforming the pharmaceutical grade is a bulk drug and therefore, there is no reason to attach any condition to such goods for the purpose of extending benefit of Notification No. 234/82-C.E. and 234/86-C.E. and it should be considered as pharmaceutical chemical for the purpose under Customs Tariff Act to fall under Tariff Heading 29.01/45(13). Reliance was also placed by them on Order-in-Appeal No. 1661/88/BCH issued on 12-4-1988 by Collector (Appeals).

9. It was also their contention that the Tribunal in the case of Collector of Customs, Bombay v. R.B. Chemicals reported in 1989 (20) ECR 296 held that Propylene Glycol USP/IP is exempted under Notification No. 234/82. Hon'ble Bombay High Court in the case of Citric India v. Union of India reported in 1993 (66) E.L.T. 566 (Bom.) held that exemption cannot be denied by considering end use alone. The judgment also distinguished the case of Andhra Sugars.

10. The respondents also contended that under amended Section 27(2) of the Customs Act, 1962, if imported goods are captively consumed and no part of the goods are sold in the open market, no question of unjust enrichment will arise and therefore, there is no bar on refund of duty illegally recovered. The respondents also referred to a decision of Hon'ble Bombay High Court in the case of Solar Pesticides v. Union of India reported in 1992 (57) E.L.T. 201 (Bom.) as also the decision of Hon'ble Madras High Court in the case of Indo-Swiss Synthetic Gem Mfg.

Co. Ltd. v. Collector of Customs reported in 1992 (59) E.L.T. 345. The Tribunal had followed the above mentioned judgments in the case of Vardhman Spinning Gen. Mills v. Collector of Customs reported in 1993 (68) E.L.T. 919 (Tribunal).

11. Learned DR stated, in reply, that it is common knowledge that Propylene Glycol is used mainly as a solvent and solely and not principally as a drug and re-emphasised that chemical literature and trade parlance do not define them as drug or drug intermediates.

Furthermore, Notification No. 77/86 specifies that it covers only those chemicals having therapeutic or pharmaceutical value and used solely or predominantly as drugs. Similarly, Notification No. 234/86 covers only those chemical or biological or plant product, conforming to pharmacopoeial standards, normally used for the diagnosis, treatment, mitigation or prevention of diseases in human beings or animals, and used as such or an ingredient in any formulation. It was also his submission that the Department's appeal against the Tribunal's order in the case of Collector of Customs, Bombay v. R.B. Chemicals reported in 1989 (20) ECR 296 (CEGAT SB-C) is yet to be decided by the Hon'ble Supreme Court.

12. We have considered the above submissions. We observe that learned DR is correct to the extent of pointing out that it has multifarious uses.

13. The 'McGraw Hill Dictionary of Scientific and Technical Terms, Fifth Edition' describes 'Propylene Glycol' as follows :- "A viscous, colorless liquid, miscible with water, alcohol, and many solvents; boils at 188C; used as a chemical intermediate, anti-freeze, solvent, lubricant, plasticizer, and bactericide." The 'Condensed Chemical Dictionary, Tenth Edition' by Gessner G. Hawley describes Tropylene Glycol' as follows :- "Uses : Organic synthesis, especially polypropylene glycol and polyester resins, cellophane; antifreeze solution; solvent for fats, oils, waxes, resins, flavoring extracts, perfumes, colors, soft-drink syrups, antioxidants; hygroscopic agent; coolant in refrigeration systems; plasticizers; hydraulic fluids; bactericide; textile conditioners; in foods as solvent, wetting agent, humectant, emulsifier; feed additive; anticaking agent; preservative (retards molds and fungi); cleansing creams; sun tan lotions; pharmaceuticals; brake fluids; deicing fluids for airport runways; tobacco." 14. Learned DR is also correct in pointing out that Notification No.77/86 extends the benefit only to those goods which are specified in the Table and classifiable under the Chapters/Headings mentioned therein, including those falling under Chapter 29, provided the conditions mentioned therein were fulfilled.

15. Learned Counsel's argument that the imported item being of pharmaceutical standard (BP/USP), would also be required to be considered as a pharmaceutical chemical is correct but learned DR is also correct in pointing out that Notification No. 77/86 covers only those pharmaceutical chemical of therapeutic value which were used solely or predominantly as drugs not elsewhere specified.

16. Similarly, the respondents have claimed that Propylene Glycol used in their product "Theragran Syrup' and 'Chloramphenicol Ear Drops 5%' but what they are required to show that they are included therein on account of their prophylactic or therapeutic value and not for other reasons. Learned DR is also correct in pointing out that Notifications 234/82 (as amended) and 234/86 also incorporate an explanation giving the definition of 'bulk drugs' for that notification. This definition is, however, broadly the same as given in the Drugs Act.

17. The fact that the item is imported is of pharmaceutical standard is not denied and is not in dispute.

18. The fact that pharmaceutical chemicals of prescribed standards are used or could be used directly or indirectly as drugs or medicines or as ingredients in pharmaceutical preparations or formulations cannot be doubted or even disputed but once a condition prescribing that it must be used solely or predominantly as drugs not elsewhere specified is there, it is necessary for a claimant of the Notification 77/86 to show that this condition was satisfied. Since the technical literature clearly indicates multifarious uses, the criteria of sole or predominant use was not satisfied ex facie. Therefore, the fact that the item was of pharmaceutical standard does not help the cause of the respondents insofar as 77/86 was concerned.

19. Furthermore, Propylene Glycol has been specifically mentioned by name under Heading 2905.32. Therefore, for customs purposes, it was correctly classifiable under that heading and the benefit of the above Notification 77/86 has been correctly denied in the absence of any proof with reference to the condition of sole or predominant use as drug or medicine.

20. The fact that the respondents are using it in some of their products is not sufficient to satisfy the condition of use solely or predominantly as drugs in view of the recognised act that it has multifarious uses; And, for the same reason, production of a drug licence, issued without insisting on such a condition, is of no avail.

21. Looking at it the other way round, if it was a pharmaceutical drug of a type not elsewhere specified and was solely or principally used as a drug, then the respondents should have claimed Heading 3005.03 (or 3005.90) and with reference to Sl No. 11 (and not 5) subject to their showing that it was classifiable under 3005.03 but this is not their case.

22. The respondents are correct in pointing out that the Propylene Glycol figures in Pharmacopoeia of India (1985 edition) but even the Pharmacopoeia shows them as "pharmaceutical aid; humectant solvent" and does not help in resolving the issue relating to sole or predominant use.

23. Insofar as Notification No. 55/75 (as amended) is concerned, it does not incorporate the condition of sole or predominant use in respect of drugs, medicines, pharmaceuticals and drug intermediates not elsewhere specified which are covered by Sl No. 19 of the Schedule to the notification. Insofar as Notification No. 234/82 is concerned, it also does not provide for any such condition and all that is required is that the item should be used for diagnosis, treatment, mitigation or prevention of diseases in human beings or animals. Therefore, once the respondents had claimed that it was being used in the preparations including eye drops, it was open to the Department to verify this fact by examining the samples of their products so named if necessary but, it was not open to it to reject the claim outright, off the cuff, so to say. In case of Notification No. 234/86, it mentions, inter alia, that it exempts bulk drugs falling under Chapter 28 or 29 and this was also required to be kept in mind.

24. Once, therefore, it falls under Chapter 29, the respondents had furnished to the proper officer a certificate from the Drug Controller, Government of India, within the specified period that the item is a bulk drug within the meaning of 'bulk drug' indicated in the notification and is also used for one of the purposes mentioned in the notification, the Department was required to take these facts into consideration.

25. Since the respondents have produced a certificate from the Assistant Collector. Food and Drugs Control Administration dated 10-2-1986 to the effect that they are permitted to use Propylene Glycol of pharmacopoeial grade as bulk drug in the manufacture of Theragran Syrup', 'Asclor Ear Drops', 'Oxyterim Injection 50 mg/ml. Veterinary' and 'Oxyterim Inj. I.M. 50 mg/ml. 10 ml. vial', the benefit of this notification was required to be extended. The production of this certificate confirms the respondents' claim that it is used as one of the ingredients in the medicaments named by them and therefore, the Department was required to accept this position unless it could prove that the certificate was wrongly procured or they actually did not use the items as indicated therein inspite of permission for use; But, the Department has not done so and therefore, the respondents' contention in this respect was required to be upheld.26. The respondents have also referred to Hon'ble Bombay High Court judgment in the case of Rakesh Enterprises and Anr. v. UOI reported in 1986 (25) E.L.T. 906 but the same is with reference to Phenol USP and of Hon'ble Karnataka High Court in the case of Mysore Acetate and Chemical Co. Ltd. v. Assistant Collector, Central Excise, Mysore reported in 1984 (17) E.L.T. 319 (Kar.) with reference to Acetic Anhydride. They do not relate to the product in question and the issues therein were of a different character and the notifications involved were different; whereas in this particular case, it is possible to proceed with reference to the certificate of the Drug Controller insofar as Notification 234/86 is concerned particularly as in view of reference to the Drug Controller's certificate in the provision, the same was, in the normal course, required to be accepted.

27. I further observe that insofar as Notification 234/86 is concerned, the Collector (Appeals) has relied inter alia, upon Tribunal's orders itself. Learned DR's argument that itself, not sufficient to prevent their application at this stage in the absence of any stay order or even an indication that the matters had already been heard by that Hon'ble Court. Since this matter has already been heard and the respondents' contention that the Tribunal orders are still in force has not been contradicted or shown to be wrong, we are required to take the above judgments into consideration. The Tribunal's order in the case of Collector of Customs v. Gufic (P) Ltd. reported in 1990 (45) E.L.T. 280 (Tribunal) clearly lays down that Propylene Glycol is a bulk drug for the purpose of Notification 234/82 as it is used for the treatment of animals. This judgment was followed by the Tribunal in the case of Collector of Customs v. R.B. Chemicals reported in 1989 (20) ECR 296 (CEGAT SB-C). Learned Counsel has also referred to the Tribunal's order in respondent's own case as well (Order No. 154 to 161/89-C, dated 5-5-1989). In these matters, the Revenue's appeals were dismissed but the petitions of the respondents were partly allowed and partly remanded. However, in view of earlier two decisions in the case of Gufic (P) Ltd. and R.B. Chemicals (supra), it is clear that the ratio of the Tribunal's above orders apply to the present case and therefore, the benefit of Notification No. 234/86 was required to be extended. In view of the above discussion, the item was not covered by Notification No. 77/86 but was duly covered by Notification No. 234/86. Since the Collector has relied upon Tribunal's own orders and rightly so, we see no reason to interfere with his order by which he has accepted the appeals subject to provisions of Section 27(2) of the Customs Act.


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