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Baboobhai Patel and Company Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Mumbai
Decided On
Reported in(1985)(19)ELT287Tri(Mum.)bai
AppellantBaboobhai Patel and Company
RespondentCollector of Customs
Excerpt:
1. the appeal cd (bom.) 1295/83 is directed against order bearing no.s/10-123/83c dated 17-8-1983 passed by the additional collector of customs, bombay. the appeal cd(bom.) 1296/83 is directed against the order bearing no. s/10-122/83c dated 17-8-1983 passed by the additional collector of customs, bombay. as the parties to these appeals are one and the same and as both the appeals involve common questions of facts and law, they are clubbed together and hence this common order.2. the appellants, m/s. baboobhai patel & co., imported two consignments of goods described by them as 'diethylene diamine hexahydrate' and sought clearance under two bs/e nos. 2206/89 and the other being no. 2206/90 against two rep licences bearing nos.p/045/4819 dated 7-8-1981 and p/2947861 dated 5-9-1981.....
Judgment:
1. The appeal CD (Bom.) 1295/83 is directed against Order bearing No.S/10-123/83C dated 17-8-1983 passed by the Additional Collector of Customs, Bombay. The appeal CD(Bom.) 1296/83 is directed against the order bearing No. S/10-122/83C dated 17-8-1983 passed by the Additional Collector of Customs, Bombay. As the parties to these appeals are one and the same and as both the appeals involve common questions of facts and law, they are clubbed together and hence this common order.

2. The appellants, M/s. Baboobhai Patel & Co., imported two consignments of goods described by them as 'Diethylene Diamine Hexahydrate' and sought clearance under two Bs/E Nos. 2206/89 and the other being No. 2206/90 against two REP Licences bearing Nos.

P/045/4819 dated 7-8-1981 and P/2947861 dated 5-9-1981 which they acquired as Registered Exporters. The Customs, however, did not permit clearance on the ground that the goods were found to be Diethylene Diamine Hexahydrate of Pharmacopoeia grade, which were canalised items as per the Import Policy for the year 1982-83 (hereinafter to be referred to as 'the Policy'). A show cause notice was issued to the appellants as to why the two consignments should not be confiscated and why penalty should not be imposed. In their reply, the appellants disputed that the goods are Piperazine Hexahydrate of pharmacopoeia grade. They contended that the imported goods are not Diethylene Diamine Hexahydrate or Diethylene Diamine Anhydrous and that they are not banned items and further contended the goods were not a drug but drug intermediate used for the manufacture of Diethylene Diamine Anhydrous or Hexahydrate and being Registered Exporters they are governed by para 185 of the Import Policy and therefore they are entitled to import the goods under OGL against their licences. The Additional Collector of Customs after affording a personal hearing to the appellants and after consideration of the materials placed before him recorded a finding as under :- "In view of the records of personal hearing given on 6-7-1983 and 11-8-1983 and in view of the test report and technical opinion of the Dy. C.C. and also the opinion of A.D.C., the party's contention that the item could not be treated as a drug under appendix 9 as it was not of pharmacopoeia grade was not tenable for two reasons.

Firstly, that the entry did not simplify the grade, secondly the heading of drug itself was not strictly meant to cover drugs as per the standard definition because even intermediates and complexes and bases had been covered under the same entry.

The presence of water can only be treated as water of crystallisation hence I take it that the item was covered by the entry Piperazine in Appendix 9 as Piperazine as an active ingredient of the chemical imported." Having regard to the above findings, as stated earlier, he ordered confiscation but allowed redemption on payment of fine of Rs. two lakhs in respect of each consignment.

3. These two appeals came up for consideration on 23-4-1984 and after hearing the arguments of Shri C.R. Patel the Advocate for the appellants, the Bench asked Shri Patel whether he would have any objection for conducting fresh chemical test of the samples of the imported goods by the Dy. Chief Chemist. As the Senior Departmental Representative Shri J.M. Jain and Shri Patel had no objection for the suggestions made by the Bench, the Bench ordered that the goods should be retested by the Chief Chemist and the Chief Chemist should be directed to give a detailed analysis of the composition of the substance. At the request of the Advocate Shri Patel, the Bench further directed the Customs to allow the appellants to draw their own sample for getting them retested by well known laboratories on their own choice. After receipt of the test report from the chemical examiner and test reports filed by the appellants, detailed arguments were held.4. For the appellants, Shri C.R. Patel, their learned Advocate urged the following grounds :- The goods imported by the appellants under two consignments is not a drug and in any case it is neither Piperazine Anhydrous nor Piperazine Hexahydrate which alone were banned under item 14 of Appendix 9 of the Policy AM 82-83.

The two reasons given by the Additional Collector to reject the appellants' contention that the imported goods were not a drug are misconceived and have no meaning.

The Additional Collector failed to appreciate that the sample drawn from the imported goods indicated that the goods were in lumps as opposed to the sample of Piperazine Hexahydrate produced by the appellants at the personal hearing on 11-8-1983, which was in crystals. The mere comparison of the two samples would have satisfied that the imported goods was not Piperazine Hexahydrate or Piperazine Anhydrous.

The Additional Collector failed to consider that Section 10 of the Drugs and Cosmetics Act, 1940 prohibited import of drugs which are not of standard quality. As per Section 8 of the said Act, standard quality means that the drug should satisfy the standard set out in 2nd schedule to that Act and the standard specified in the 2nd schedule is with regard to identity, purity and strength as specified in Indian Pharmacopoeia and if that drug is not specified in Indian Pharmacopoeia then it should satisfy standards of identity, purity and strength specified in the Pharmacopoeia of any other country. Having regard to the provisions of Sections 8 and 10 of the Drugs and Cosmetics Act even the canalising agency cannot import as drug any substance which does not comply with standards of identity, purity and strength specified in the Indian Pharmacopoeia or the Pharmacopoeia of any other country.

The analytical reports and opinions of Chem-Med Laboratories and Italab Private Ltd., as also the opinion of the Assistant Drug Controller established that the imported goods do not comply with the standards of identity, purity and strength of Piperazine Anhydrous or Piperazine Hexahydrate and therefore they are not drugs and could not be imported by the canalising agency.

The certificate issued by the manufacturers of the imported goods and the Certificate issued by Dr. S.R. Patwardhan of Chemical Engineering Department, Indian Institute of Technology, Bombay established that the goods imported was a drug intermediate.

The Additional Collector failed to appreciate that the lumps imported cannot be used as an ingredient in any formulation.

The Additional Collector failed to notice that entry No 14 in appendix 9 does not refer to any base, complexes or intermediates.

The Additional Collector has gone beyond the show cause notice in that he should have considered whether the imported goods are of pharmacopoeial grade or not. He has no jurisdiction to go beyond that and if once he comes to the conclusion that the imported goods are not pharmacopoeial grade he was bound to order release of the goods.

The Additional Collector also failed to notice that para 218 (4) of the Policy applied only to the items of drugs mentioned in Appendix 9 and not to any substance containing any of the drugs.

The Additional Collector failed to appreciate that the cif value of the Piperazine Hexahydrate will be much more than the value of the imported goods.

The Additional Collector ought to have accepted the opinion of the Assistant Drug Controller and the test reports produced by the appellants of Chem-Med Laboratories, Indian Institute of Technology and Italab Pvt. Ltd. In addition to the above grounds which were set out in the memorandum of appeal, Shri Patel also urged the following grounds : The report of the Chief Chemist is not reliable. Firstly because against column 7, heading of which is Assay, the Chemist has given the percentage of Piperazine and stated as per British Pharmacopoeia 1980. British Pharmacopoeia does not mention this. Further against columns 5 and 6 the Chief Chemist has stated that the test complies with BP, USP 80 but in so far as Column 7 is concerned, his certificate is silent. Further, the Chief Chemist has not given the melting and boiling points. Therefore comparative study is not possible. As per the Pharmacopoeia, percentage of Piperazine would be 98% in anhydrous and 44% in Hexahydrate, but the percentage found by the Chief Chemist in one sample is 73.6% and in another 80.6% and, therefore, the imported goods is neither anhydrous nor hexahydrate. It could only be a drug intermediate or raw material for the manufacture of a drug and not a drug.

In the policy, two items of Piperazine are canalised, viz., Piperazine Anhydrous and Piperazine Hexahydrate and therefore, if the imported goods is not anhydrous or hexahydrate the import cannot be objected to on the ground that they are canalised.

Being Registered Exporters, and having obtained the necessary endorsements on the REP licences, the appellants were entitled to import drugs and drug intermediates by reason of item 52 list 8 of appendix 10.

All the test reports, including Chief Chemist's certificate disclosed that the imported goods had water contents varying from 19.3% to 55.66% and therefore the imported goods can neither be anhydrous which term means without water nor hexahydrate and therefore not canalised under the policy.

5. Shri J.M. Jain, SDR for the Respondent Collector, however contended that even though in the show cause notice it was alleged that the imported goods were Hexahydrate of Pharmacopoeia grade, at the stage of enquiry, the appellants were told that the imported goods were canalised under item 14 of Appendix 9 of the 'Policy' and the enquiry proceeded on that footing. Therefore, it is not now open to the appellants to contend that the Additional Collector has no jurisdiction to travel beyond the show cause notice. Further contentions of Shri Jain may be formulated as under - What had been imported was a drug Piperazine and that the appellants have described the goods in the Bs/E as Diethylene Diamine Hydrate.

Diethylene Diamine Hydrate is nothing but Piperazine Hexahydrate as could be seen from British Pharmacopoeia.

The appellants have imported Piperazine added with water which could be separated by a simple process by heating.

The test reports produced by the appellants also established that Piperazine is an active ingredient in the substance imported.

The goods imported is a drug with tolerable limit of water and it could be administered as drug by changing the dosage.

The chemical test report of the Chief Chemist established that excepting certain percentage of water, the imported goods did not contain any other impurity and therefore should be treated as a drug of pharmacopoeia grade. Even otherwise, for the purpose of import policy, a drug need not satisfy pharmacopoeia grade. It would be sufficient if the substance is a drug as specified in the Policy.

The policy makers intended to canalise Piperazine in any form and therefore in entry No. 14 of Appendix 9 they have specified anhydrous and hexahydrate. Appendix 9 not only contains drugs but drug intermediates also.

The certificate of the manufacturer cannot be relied upon firstly that it does not give any reason or details or conclusions and secondly all the test reports including the test reports relied upon by the appellants did not confirm the percentage mentioned in the manufacturer's certificate.

By reason of paragraph 218(4) of the Policy not only drugs mentioned in Appendix 9 but active ingredients, salts and esters also gets canalised.

The Chief Chemist is an independent authority and the certificate issued by him prevails over all other certificates.

Piperazine as a drug is marketed only in the form of Anhydrous or Hexahydrate or in the form of its salts like Piperazine Citrate, Piperazine Adipate and Pipsrazine Phosphate. s The substance Diethylene Diamine Technical is unknown to the trade and it is neither found in the Chemical Dictionary nor in any pharmacopoeia.

The import under OGL would be subject to the conditions specified in Appendix 10 and therefore the items canalised under Appendix 9 cannot be imported under OGL, 6. In reply, Shri C.R. Patel, the learned Advocate for the appellants contended that the imported goods is a drug intermediate and therefore cannot find place either in a Chemical Dictionary or in any Pharmacopoeia. If the intention of the Policy makers was to canalise Piperazine in any form, the intention should have been made clear in the policy and the two items canalised are anhydrous and hexahydrate and not all hydrates.

7. Shri C.R. Patel, the learned Advocate who appeared for the appellants made it abundantly clear that the appellants do not require the matter being remanded because of the variation between the charges levelled against the appellants in the show cause notice and the actual finding of the learned Additional Collector. Shri Patel desired that on the basis of the materials already placed by both the sides, the Tribunal may consider whether the goods imported by the appellants are canalised items falling under Sr. No. 14 of appendix ?.

8. We have carefully considered the submissions made on both sides. The two questions that arise for consideration in these appeals are : - (i) Whether the licence issued to the appellants covered the imports in question and if so, is the Customs not entitled to object to the import (ii) Whether the goods imported are canalised items and the import of which is impermissible under OGL under item No. 1 of Appendix 10 of the Policy 10. Before we proceed to answer the above questions, we consider it useful to refer to the evidence on record and also to set out the relevant provisions of the policy and certain of the technical authorities relied upon by both the sides.

11. The appellants sought clearance against two REP licences acquired by them as Registered Exporters. Though the licences were not produced, it was not disputed that the licences did permit import of OGL items.

Import of OGL items has been dealt with in Appendix 10. List of OGL items allowed to be imported subject to Actual Users' condition are set out in list 8 of appendix 10. Item 52 relates to : Actual Users (Industrial) could import raw materials, components, and consumables (non-iron and steel items) other than those included in the appendices 3, 4, 5, 8, 9 and 15 under item 1 of appendix 10 under OGL.

As item No. 1 of Appendix 10 did not permit import of raw materials, components and consumables falling under appendices 3, 4, 5, 8, 9 and 15 and since the objection of the customs was on the ground that the imported goods are canalised items suffice if we refer to the relevant entry in appendix 9.

Under the heading 'Drugs' it is stated in Appendix 9 that in the case of items set out at Sr. Nos. 1 to 17 the import will be made only by the State Chemicals and Pharmaceuticals Corporation of India Ltd. under Open General Licence, on the basis of foreign exchange released by the Government. Serial No. 14 is described as : "In the case of drugs appearing in Appendices 3, 5 and 9, the names mentioned : - If entry 14 of Appendix 9 is read along with paragraph 218(4) of the Policy it becomes clear that what has been canalised is not only Piperazine anhydrous/Hexahydrate but also their active ingredients, salts and esters. It has been the contention of the appellants that what had been imported by them is not at all a drug and therefore not a canalised item and in any case it is neither Piperazine anhydrous nor Hexahydrate nor their active ingredients, salts and esters. They contended that the imported goods are Diethylene Diamine Technical, a product not conforming to any pharmacopoeial standard. It is a down-stream product coming last after products like Ethylene Diamine etc. are obtained. Their further contention was that Piperazine Anhydrous U.S.P. and Piperazine Hexahydrate B.P.C. and their salts like Piperazine Citrate, Piperazine Adipate and Piperazine Phosphate are manufactured from Diethylene Diamine Technical. In support of their contention they relied on Exhibit 'K', a certificate of the manufacturers dated 16th May, 1983. Besides the said certificate they also relied upon the opinion of Dr. S.r'. Patwardhan, Chemical Engineering Department, Indian Institute of Technology, Bombay. Dr.

Patwardhan, in Exhibit 'L' among other things, stated that he had considered the test report of the Customs House Laboratory, reports of Chem-Med-Analytical Laboratories, reports of Italab Pvt. Ltd. Technical comments of the Dy. Chief Chemist of the Customs House and Technical comments of the Assistant Drug Controller on two consignments and made detailed study from technical book and certified that : "(i) Diethylene Diamine Technical 62-68% in lump form on the one hand and Piperazine Anhydrous/Hexahydrate on the other are two different material.

(ii) Diethylene Diamine (Technical) 62-68% is a down stream product during the manufacture of Ethylene Diamene from Ethylene Dichloride and Ammonia.

(iii) (a) Diethylene Diamine (Technical) 62-68% lumps cannot be converted to Piperazine Hexahydrate by simply adding water.

(b) Diethylene Diamine (Technical) 62-68% needs the following processes for manufacturing of Piperazine Hexahydrate of B.P. standard :- "Diethylene Diamine 62-68% technical in lump form merits the classification as chemical or drug intermediate and definitely not as a Drug. Drug intermediate is a chemical which comes into existence in the process for manufacture of an end product. Thus drug is an end-product while intermediate is not".

"from the test conducted on the above samples it is clear that it does not confirm to Diethylene Diamine Hydrate in the anhydrous form or in the hexahydrate form {Piperazine). The water content of anhydrous form and hexahydrate should be nil and 55.6% respectively according to formula weight. However, water content (20.68%) as found by vacuum drying and Karl Fisher test shows that the sample is not anhydrous diethylene diamine nor hexahydrate. Also three distinct DTA peaks confirm the presence of many hydrated forms.

"The sample does not confirm to Piperazine Hexahydrate BP 80 and Piperazine Anhydrous U.S.P. XX and therefore the same cannot be a Drug. Further, the sample definitely merits the classification as chemical compound because the same has specified melting point and the water of hydration is chemically bonded with Diethylene Diamine Molecule and the same is not a physical mixture of water and Diethylene Diamine".

The Assistant Drug Controller, Bombay, in his letter, Exhibit 'D' had stated : "The sample on test by M/s. Chem. Med. Lab. Ltd., Bombay is found to be not (Diethylene Diamine) Piperazine Anhydrous U.S.P. or (Diethylene Diamine hydrate BP) Piperazine Hydrate BP. Copies of test report attached. It appears to be some impure Diethylene Diamine hydrate with moisture around 30.72% w/w/ and Melting point around 72C. The goods are also marked only as Diethylene Diamine Hydrate Tech. (63.9 to 68.6%) and no pharmacopoeial standards are claimed. In view of this, the item may not fall under the category of drugs but will qualify as chemical compound in the manufacture of Piperazine salts conforming to USP or BP standards.

There is therefore no objection to release of the goods in so far as Drugs and Cosmetics Act and the Rules thereunder are concerned".

In the three certificates of analysis issued by Italab Private Ltd. Marked Exhibit 'F' at (pages 23 to 25 of appeal file 1295/83) results of analysis is given as under :- Diethylene diamine content (on mol. wt. 86.0) ... 67.02% w/w Moisture content (by Dean and Stark) ... 31.61% w/w Second Certificate Diethylene Diamine content (on mol. wt. 86.0) ... 69.10% w/w Moisture content (by Dean and Stark) ... 29.04% w/w Third Certificate Diethylene Diamine content (on mol. wt. 86.0) ... 70.19% w/w Moisture by Dean and Stark ... 26.30% w/w Common Remarks : The sample does not correspond to Piperazine hexahydrate M/s. Chem-Med. Analytical Ltd. issued two certificate of analysis on the two samples tested by them and they are marked Exhibit 'C at pages 15 and 16 of the above file.

1. Description : White deliquescent crystals, having an ammoniocal odour.

5. Water (By Karl Fisher : 30.72% w/w/ (Limit : 2.0% 2/2 maximum) Method P) 7. Nitrogen content : 32.77% on anhydrous basis (Limits: 31.5% to 33.0%) 8. Primary Amine and : Complies with U.S.P. test.

Ammonia 9. Content of Piperazine : 98.4% on anhydrous basis.

(C4H10N2) (Limits : to 98.0% 101.0%)Opinion : In the opinion of the undersigned the sample referred to above IS NOT OF STANDARD QUALITY as defined in the Act and the Rules thereunder for the reasons given below. The sample does not comply with prescribed 1. Description : White deliquescent crystals, having an ammoniocal odour.

4. Heavy Metals : Complies. (Limit: 20 parts per million maximum) 7. Content of Piperazine : equivalent to 153.8% (Limit not less than Hexahydrate 98%) (Since upper limit is not mentioned it is to be taken as equivalent of 100.5% as per B.P. 1980 page : 5). OPINION : In the opinion of the undersigned the sample referred to above is NOT OF STANDARD QUALITY as defined in the Act and the Rules thereunder for the reasons given below.

The sample does not comply with prescribed standards as per B.P. 1980.(WITH RESPECT TO CONTENT OF PIPERAZINE HEXAHYDRATE)--------------------------------------------------------------------------------------------- "Diethylene diamine hexahydrate (Piperazine Hexahydrate) in the form of lumps (pharmacopial grade)".

The Chief Chemist in his certificate dated 27-4-1984 set out the results as under:1. Description and Colourless deliquescent Same as C.L. 350(R) appearance crystal with faint odour2. Solubility Freely soluable in water - do - and ethanol3. Identification It responds to identifi- - do - cation test for Piperazine4. Heavy Metals Complies (limit 20 parts - do - (as per B.P. 1980) per million max.)5. Primary amines Complies - do - and ammonia (as6. Sulphated Ash Complies - do - (As per B.P. 1980)7. Assay (as per B.P. 73.6% 80.6% 1980 on dried samples8. Total water content 20.0% 19.3% (Azeotropic toluene B. As seen from the above analytical report the active ingredient in the goods is entirely piperazine (Diethylene Diamine, Piperazine Hexahydrate, Piperazidine C4H10N2).

It reveals from the above analytical report that the samples are free from the impurities which would be detrimental for their use as drug.

Since piperazine has multifarious uses including its use as an anthelmintic (in the treatment of round wormsascaris and thread worms-entirobius) in the form of its various salts including elixir and the doses are usually expressed in terms of piperazine hydrate (vide Martindale-The extra pharmacopieia, 27th Edn., page 108-109). Technical grade of piperazine is a distinct product different from pharmacopieal grade in terms of purity- as well as freedom from impurities the presence of which renders it unsuitable for medicinal use. In view of the above, the aoove two samples are Piperazine of pharmacopieal grade".

Dr. S.R. Patwardhan had issued two more certificates both dated 26-6-1984. In these certificates he had carried out XRD test and the result of XRD test is given by him as under : - "From XRD Analysis it is clear that the above sample does not conform to Diethylene Diamine (Piperazine) in anhydrous form, or in the hexahydrate form. This is evident from the fact that XRD plot shows number of peaks which donot correspond to D values as prescribed in ASTM standards.

From the above results of Diethylene Diamine Hydrate (62-68%) technical, I certify as under :- (a) The sample does not conform to Piperazine Hexahydrates BP 80 and Piperazine Anhydrous USP XX therefore the same cannot be a drug." The appellants have produced a literature of the suppliers which we have marked for the purpose of identification as Exhibit 'M'. It reads as under :- Purity and : Appearance : white crystallic (fused) compound Melting properties rage : ca. 35-45C Foreign amines : max 0.1% (G.L.C. peak area) sulphated ash : Max. 0.1% Assay : 65.0% (Perchloric acid titration) Action and use : Intermediate for pharmaceuticals and for the production of piperazine salts, which are used as anthelmintics for humans as well as for poultry, swine and other farm animals.

Packaging : Drums, 100 kg. net Handling : keep tightly closed. Absorbs carbon dioxide. Irritating to In the condensed Chemical Dictionary, Tenth Edition by Gessner G.Hawley, the learned author at page 72 has described 'Anhydrous' as : "Descriptive of an inorganic compound that does not contain water either absorbed on its surface or combined as water of crystallization. Do not confuse with anhydride." At page 538 in the said book against the expression Hydrate the learned author refers to Hydration and the Expression Hydration is described as : Hydration : "(1) The reaction of molecules of water with a substance in which the H-OH bond is not split. The products of Hydration A given compound often forms more than one hydrate; the hydration of sodium sulfate can give Na2SO4.10H2O (decahydrate), Na2S04.7H2O (Heptahydrate) and Na2SO4.H2O (monohydrate). In formulas of hydrates, the addition of water molecules is conventionally indicated by a centred dot. The water is usually split off by heat, yielding the anhydrous compound. See also water of crystallization, gas hydrate." At page 819 of the same book-Piperazine, its properties and uses are given as under :- "Piperazine (diethylenediamine; pyrazine hexahydride; piperazidine) NH CH2CH2NH CH2CH2.

Properties : Colourless, deliquescent, transparent, needle-like crystals, which absorb carbon dioxide from the air. Soluble in water, alcohol, glycerol and glycols. M.p. 104-107C. Flash point 190F (87-70C). Cumbustible; low toxicity.

Derivation : Treatment of ethylene bromide or chloride with alcoholic ammonia at 100C. Uses : Corrosion inhibitor ; anthelmintic ; insecticide ; accelerator for curing polychloroprene." Properties : White crystals; m.p. 44C; b.p. 125C soluble in water and alcohol.

Uses : Fibers; insecticides; Pharmaceuticals; laboratory reagent; anthelmintic.

In McGraw-Hill's Dictionary of Scientific and Technical Terms, second edition, at page 78 'Anhydrous' is described as : "Anhydrous (CHEM) being without water, especially water of crystallization." "Hydrate (CHEM) A form of a solid compound which has water in the form of H2O molecules associated with it; for example, anhydrous copper sulfate is a white solid with the formula CuSO4 but when crystallized from water a blue crystalline solid with formula CuSO4.5H2O results, and the water molecules are an integral part of the crystal." "Piperazine (ORG CHEM) C4H10N2 A cyclic compound; colourless, deliquescent crystals, melting at 104-107C; soluble in water, alcohol, glycerol, and glycols ; absorbs carbon dioxide from air; used in medicine. Also known as diethylenediamine; ethyleneamine; piperazidine." Piperazine Hexahydrate (ORG CHEM) C4H10N2.6H2O. White crystals with a melting point of 44C; soluble in alcohol and water; used for Pharmaceuticals and insecticides." In Martindale, The Extra Pharmacopoeia, 28th edition, at page 103 the substance Piperazine Hydrate is described as : "Piperazine Hydrate (B.P., Eur. P.). Piperazine; Piperazini Hydras; Piperazidine, Diethylenediamine; Hexahydropyrazine-Piperazine hexahydrate.

Pharmacopoeias. In Br., Cz., Eur., Fr., Ger., Jug., Neth., Pol., Port., Roum., Span., and Swiss. Braz and U.S. include anhydrous piperazine (C4H10N2=86.14) Colourless glassy deliquescent crystals with a faint characteristic odour and a saline taste. M.p. about 43. It absorbs carbon dioxide from air.

The dosage of the salts of piperazine is usually expressed in terms of piperazine hydrate; 100 mg of piperazine hydrate is approximately equivalent to 120 mg of piperazine adipate, to 214 mg of piperazine calcium edetate, to 125 mg of piperazine citrate, and to 104 mg. of piperazine phosphate." In British Pharmacopoeia 1980, Vol. I, page 353, Piperazine Hydrate is described as : Piperazine Hydrate contains not less than 98.0 per cent of C4H10N2, 6H2O. In U.S. Pharmacopoeia, 15th edition, page 629, Piperazine is described as :>/p> "Piperazine contains not less than 98.0 per cent and not more than 101.0 per cent of C4H10N2, calculated on the anhydrous basis.

Packaging and storage-preserve in tight containers, protected from light." In Section 3(b) of the Drugs and Cosmetics Act, the Expression "Drug" is defined as under :- (i) all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of diseases in human beings or animals; and (ii) such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette." Section 10 of this Act prohibits import of any drug which is not of standard quality or which is a misbranded drug or an adulterated drug.

"Provided further that the Central Government may, after consultation with the Board, by notification in the Official Gazette, permit, subject to any conditions specified in the notification, the import of any drug or class of drugs not being of standard quality." The expression "Standard quality" is defined for the purpose of import of drugs in Section 8.

"Standards of quality :- (1) For the purposes of this Chapter, the expression "standard quality" means- (a) in relation to a drug, that the drug complies with the standard set out in the Second Schedule." Standards to be complied with by imported drugs is given in the second schedule, and the standard prescribed for Drugs not included in the Indian Pharmacopoeia but which are included in the Official pharmacopoeia of any other country are, "standards of identity, purity and strength specified for drugs in the edition of such official pharmacopoeia of any other country for the time being in force and such other standards as may be prescribed." 11. For the better understanding and appreciation of the contentions raised during the hearing of the appeals, we have in the preceding paragraphs set out in detail the evidence on record, technical authorities relied upon by the parties as well as the relevant provisions of the policy. With this we now proceed to answer the questions we have set out in paragraph 8 of this order.

12. Answer to Question No. 1 : On behalf of the appellants Shri C.R.Pat el, their learned Advocate contended that the two licences acquired by them are REP licences. Paragraph 183 read with paragraph 185 of the policy A-M 82-83 (to be referred to as 'the policy' hereinafter) authorised import of all OGL items and therefore Customs cannot object to the import of the goods in question on the ground that they are canalised items. Elaborating his contention Shri Patel contended that the list of OGL items allowed to be imported are set out in list 8 of appendix 10. Item 52 of this list reads "drugs/ drug intermediaries covered under OGL." Shri Jain for the respondent Collector however, contended that though it is permissible to import drugs/ drug intermediaries listed in list 8 of Appendix 10 under OGL, the importer of those items has to comply with the conditions specified in Appendix 10. He pointed out that the items listed in list 8 are allowed to be imported subject to 'Actual Users' condition.

Items allowed to the Actual Users (Industrial) and (non-Industrial) are set out in Appendix 10. They are items 1 and 16. The relevant portions of appendix 10 reads : "The categories of importers, the items allowed to be imported by them under Open General Licence and the conditions governing their importation are set out below : - Items Categories of eligible importers 1. Raw materials/components and Actual Users consumables (Non-iron and steel (Industrial)." items) other than those included This entry permits Actual User (Industrial) to import raw materials, consumables other than iron and steel items and other than those included in the Appendices 3, 4, 5, 8, 9 and 15. A drug could be raw material and therefore it could be imported by Actual Users (Industrial) subject, however, to the conditions specified in item 1.

The categories that are permitted to import drugs and medicines are : (3) By registered medical practitioners for their own professional use." The appellants did not contend that they belong to any of the above categories. Condition No. 17 of the conditions govering imports under OGL reads :- "Import of raw materials, components and consumables permitted under OGL (vide items 1 and 2 above) is allowed to Actual Users (Industrial) in accordance with the conditions laid down. However in respect of items other than those appearing in List 8 of this Appendix import under OGL can be made by Actual Users and others.

This is with a view to facilitate supply of the required inputs for small industries through stock and sale." This condition puts an embargo for the import of items appearing in list 8 of Appendix 10 by others.

Paragraph 183, enumerates the import facilities available to Export Houses. One of the facilities available to them is import replenishment (REP) licences transferred to them by others. Another facility allowed to them is to permit import of items placed on Open General Licence in the manner set out in paragraph 185.

"185(1) provides "Export Houses would be allowed to import OGL items against REP licences issued in their own name or transferred to them by others. This facility will be available to them for the import of (b) Raw materials, components, consumables and spares (excluding items covered by Appendix 5) which have been placed on Open General Licences for Actual Users (Industrial) as per conditions laid down." Thus it is seen that Export Houses were also permitted to import under OGL, raw materials, components, consumables and spares though they do not qualify as Actual Users. But then their import in other respects is governed by the conditions stipulated in Appendix 10. They could import only permissible raw materials, components and spares. In other words, they were not allowed to import raw materials, components, consumables and spares appearing in appendices 3, 4, 5, 8, 9 and 15. They cannot also import items appearing in list 8 of the Appendix 10 because of general condition No. 17. The facility allowed or available to the Export Houses in so far as import of raw materials, components and consumables and spares is certainly not greater than the facility available to Actual Users (Industrial) under Appendix 10. The appellants were conscious of the limitations and restrictions placed on them and therefore the appellants sought clearance only under item 1 of Appendix 10. We therefore reject the contention of Shri Patel that the two licences which the appellants acquired permitted the import of canalised items.

13. Answer to Question No. 2 : The question that arises for consideration is whether the goods imported by the appellants are canalised items. Shri Jain the learned Departmental Representative contended that all the analytical reports established that 'Piperazine' is an active ingredient of the imported goods and therefore the imported goods shall have to be treated as canalised item. Shri Patel on the other hand contended that what has been canalised is not an active ingredient of a substance or a chemical but only active ingredient of a drug specified in Appendix 9. If the intention of the policy makers according to Shri Patel was to canalise all substances containing drugs nothing was easier than stating so in the policy. The question, namely, what has been canalised under the policy is an active ingredient of a 'drug' or an active ingredient of any substance came up for consideration in Appeal No. CD (BOM) 739/83 and connected appeals decided on 6-1-1984. This Bench in the said appeals had held that the policy makers did not intend to canalise any substance containing drug and they canalised only drugs, their active ingredients, salts, esters and complexes. We do not see any reason to take a view different from the one taken in the above said appeals. We therefore reject Shri Jain's contention.

Shri Patel for the appellants then contended that the imported goods are neither piperazine anhydrous nor hexahydrate. According to Shri Patel what had been imported was Diethylene Diamine Technical which is a down-stream product coming last, after the products like ethylene diamine etc, are obtained and it does not conform to any pharmacopoeal standard. In support of his contention that the imported goods is diathylene Diamine Technical, Shri Patel relied upon the literature supplied by the manufacturers and the certificates issued by Dr.

Patwardhan. We have referred to this literature as well as the certificates. We cannot accept the literature supplied by the manufacturers, because it does not furnish any data, for describing their product as Diethylene Diamine Technical and that it is a down stream product coming last after the products like ethylene diamine etc. are obtained. Dr. Patwardhan has also certified that Diethylene Diamine Technical is a down stream product during the manufacture of Ethylene Diamine from ethylene dichloride and ammonia. Dr. Patwardhan in his certificate had referred to Vol. 7, page 30-31 Encyclopaedia of Chemical and Technology, 2nd edition by Kirk-Othmer We have carefully perused the pages 30 and 31 of the said Encyclopaedia. Under the caption "Cyclization' the learned author has described how Ethy'lenediamine and other polyethylene polyamines are transferred into piperazine. The manufacturing process of ethyleneamines are given in page 31. The relevant portion reads :- "The ethyleneamines are prepared commercially by treating ethylene dichloaride (1, 2-dichloroethene (see Chlorocarbons and chlorohydrocarbons) with ammonia (see Vol. 2, p.349). Reaction conditions vary but in all cases a mixture is obtained. At comparatively low temperatures and pressures, predominantly ethylenediamine is formed in low yield At higher temperatures and pressures the yields are greater and the proportion of the polyethylene polyamines is higher.

In one production method, ethylene dichloride is forced under pressure into an excess of anhydrous ammonia vapors at 150C (43) Anhydrous needles of ethylenediamine hydrochloride are obtained, which,on treatment with caustic soda at 100C, yield the free amine.

The diamine vapors steam, and unreacted ammonia are led to a dehydrating column where the diamine is dried and condensed.

In another procedure, ethylene dichloride is treated with excess aqueous ammonia in a pressure tight reaction chamber at 110C and 10 atm(44). The mixture of reaction products containing ethylenediamine hydrochloride, ammonium chloride, and ammonia in equeous solution is heated with aqueous caustic soda and is fractionated. The ethylenediamine is drawn off and the ammonia released from the ammonium chloride is returned to the reaction vessel." The manufacturing process given in these pages does not support the contention of the appellants that Diethylene Diamine Technical is obtained at any stage of the manufacturing process. With great respect Dr. Patwardhan had only borrowed the manufacturer's literature for describing the imported goods as diethylene diamine technical and that it is obtained as a down-stream product during the manufacture of ethylene diamine and ammonia.

In their certificate Rexoline Chemicals AB have stated that their product Diethylene diamine approximately contain 65% piperazine. But then the Chief Chemist who analysed the two samples found piperazine content to be 73.6% in one sample and 80.6% in another sample. Dr.

Patwardhan also found 79.32% in one sample and 65.99% in another sample. The Chem-Med Laboratory found not less than 98% in anhydrous state. Italab found 67 2% and 69.10% and 70.19% in the 3 samples tested by them. Having regard to the variance in the contents of Piperazine, the manufacturer's certificate that their products contained approximately 65% cannot be true.

The appellants then attempted to establish that the imported goods is a chemical or a drug intermediate. Dr. Patwardhan in his certificates dated 23-9-1983, Exhibit 'L' opined that Diethylene Diamine 62-68% technical in lump form merits the classification as chemical or drug intermediate and definitely not as a drug. He then stated that drug intermediate is a chemical which comes into existence in the process of manufacture of an end product. Thus drug is an end product while intermediate is not. Dr. Patwardhan is not certain whether it is a chemical or a drug intermediate. In his subsequent certificate dated 21-4-1984 Dr. Patwardhan opined that in his opinion, the sample is of Diethylene Diamine Hydrate (79.32%) technical grade and definitely merits the classification as chemical compound because the same has specified melting point and the water of hydration is chemically bonded with Diethylene diamine molecule and the same is not a physical mixture of water and diethylene diamine. In the third set of certificate issued on 26-6-1984 the same Doctor has stated that : "From the above results of diethylene diamine hydrate (62-68%) technical, I certify as under :- (a) The sample does not conform to Piperazine Hexahydrate BP 80 and Piperazine Anhydrous USP XX and therefore the same cannot be a drug." It is thus seen that according to the first set of certificate issued by Dr. Patwardhan the imported goods is either a Chemical or a drug intermediate. Being an expert the Doctor should have been in a position to state definitely as to whether it is a chemical or a drug intermediate. If the imported goods is a chemical it should find place in any one of the Chemical Dictionaries. The appellants have not chosen to produce any dictionary where Diethylene Diamine Technical is defined or described. Dr. Patwardhan no doubt stated that the imported goods could be classified as a drug intermediate. He has not chosen to give any reasons as to why the imported goods should be classified as a drug intermediate. A substance becomes an intermediate if it is a precursor to a desired product. The appellants are not manufacturers. They have not produced any literature to show that Diethylene Diamine Technical is a precursor of Piperazine. In his certificate Dr. Patwardhan has stated that the drug intermediate is a drug which comes into existence in the process of manufacture of an end product. This cannot be accepted. Therefore, we are not inclined to place much reliance on the certificate dated 23-9-1983 issued by Dr. Patwardhan. In his certificate dated 21-4-1984 Dr. Patwardhan opined that the imported goods merits the classification as chemical compound because the same has specified Melting Point and water of hydration is chemically bonded with diethylene diamine molecule but the same is not a physical mixture of water and diethylene diamine. It is not clear how an expert can go on changing his opinion in respect of the same substance. Earlier he opined that the imported substance merits classification as a Chemical or a drug intermediate.

Let us examine whether the imported material is a chemical compound.

Neither Dr. Patwardhan nor the appellants have furnished the formula of the compound. If it is a chemical compound normally it should find place in any of the dictionaries dealing with chemicals.

Compound is described in Hawley's The Condensed Chemical Dictionary, Tenth Edition, at page 268 as under : "Compound.-(1) A substance composed of atoms or ions of two or more elements in chemical combination, The constituents are united by bonds (q.v.) of valence forces. A compound is a homogeneous entity in which the elements have definite proportions by weight and are represented by a chemical formulat (q.v.) A compound has characteristic properties quite different from those of its constituent elements; it cari be decomposed by energy in heat, or of an electric current. Example. Water is a liquid formed by chemical combination of two gases; it can be separated into hydrogen and oxygen by an electric current (electrolysis); in certain reactions it is split into its constituent ions (H and OH) (hydrolysis); it is not chemically changed by heat or cold. See also mixture; homogeneous; reaction.

(2) Loosely.a product formulat (often proprietary) of various types, e.g. Pharmaceuticals (a vegetable compound), rubber (a fast curing compound) etc.

So if the imported goods is a chemical compound its constituent element should have definite proportions by weight, and must be represented by a chemical formula. As has been stated earlier, the appellants were unable to give the chemical formula of the imported goods. The appellants however, in the course of arguments produced a literature which is marked as exhibit 'M'. It contains a formula and the formula given is C4H10N2.xH2O.There is no dispute piperazine is a compound. Similarly, water is a compound. If the imported substance is a compound of two compounds, viz., Piperazine and water it should have a definite formula and it cannot have xH2O, as has been mentioned in exhibit 'M'. .x indicates indefiniteness. It is significant to note that in exhibit 'M'.

Molecular weight is given as 86.14 (Anhydrous). This molecular weight represented the molecular weight of Piperazine only. If the substance is a chemical compound the molecular weight should be more than 86.14%.

Therefore, we are unable to agree that the imported goods is a compound of Piperazine and water or a chemical compound.

The appellants also did not produce any evidence that in trade parlance or commercially a product Diethylene Diamine Technical exists.

Shri Patel then contended that it is not sufficient if the department establishes that the imported goods is not a chemical or a chemical compound but it has to establish that it is either an anhydrous or hexahydrate of Piperazine of pharmacopoeial grade.

14. Shri Patel argued that what had been canalised under item 14 of Appendix 9 of the policy are drugs of standard quality and their active ingredients, salts and esters. Elaborating his contention Shri Patel submitted that it is drug of a pharmacopoeial grade alone that had been canalised. In support of his contention Shri Patel relied upon the provisions of Drugs and Cosmetics Act. (To be referred to as 'the Act'). He referred to Section 10 of the said Act which prohibited import of any drug which is not of standard quality. He then took us to Section 8 which defines the expression 'Standard Quality" Further, he referred to the second schedule, item 5(b). Based on the above provisions he contended that even the canalising agency cannot import drugs which are not of standard quality. Shri Jain for the department on the other hand urged that import policy nowhere lays down that the drug permitted to be imported should be of standard quality. He urged that the policy permitted import of even drug intermediaries and substances containing drugs.

We have referred to the definitions of the expression "Drug" given in Clause (b) of Section 3 of the Act. It is an inclusive definition. It takes within its ambit all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals. The definition of the expression of drugs would include not only medicines but substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of diseases in human beings or animals. In our opinion, the policy did not intend to include only 'medicines' under the category 'drugs'. Any substance which could be used for the preparation of medicine are also included.

For instance, in the policy, the intermediate of Doxicycline base has also been mentionrd as one of the canalised items under the heading 'drugs'. This cannot be of pharmacopoeial grade. Piperazine Anhydrous and Pipera zine Hexahydrate by themselves are not 'medicines' but then they are used for the preparation of medicines. Piperazine as a medicine is administered only in the form of its salts such as Piperazine citrate, piperazine phosphate and piperazine adipate.

The contention of Shri Patel that until a drug is of standard quality the canalysing agency also cannot import has not much force. Proviso to Section 10 of the Act authorises the Central Government to permit import of any drugs or class of drugs not being of standard quality. It is not all drugs which are not of standard quality the import of which is prohibited under the Act. It is only such of the drugs which are to be directly used as medicines and if they are not of standard quality then import of those drugs are prohibited under the Act. The Act itself makes distinction between the drugs of 'standard quality' and other types of drugs. Under the Act a drug could be of 'standard quality' or it may be an adulterated drug a misbranded drug or a crude drug. It will still be a drug. In the policy in Appendix 9 the expression used is 'drugs' and not drugs of pharmacopoeial grade. On careful consideration of all the aspects, we unhesitatingly reject the contention of Shri C.R. Patel that the drug specified in appendix 9 should be drugs of pharmacopoeial grade.

15. Let us now proceed to examine whether the imported goods is piperazine anhydrous/hexahydrate. The Che-med Analytical Laboratories found 98% of piperazine in the two samples analysed by them. This was in an anhydrous state. Italab however, found 69.10%, 70.19% and 67.02% in the 3 samples analysed by them. But their reports does not indicate as to whether any attempt was made to find the contents of piperazine in anhydrous state. The Dy. Chief Chemist simply stated that the sample is Diethylene Diamine Hexahydrate in the form of lumps of pharmacopoeial grade. In the absence of analytical data no reliance can be placed on the test report of the Dy. Chief Chemist. The certificate of the Assistant Drug Controller was that the imported goods may not fall under the category of drugs but will qualify as chemical fit for use in the manufacture of Piperazine salts conforming to USP or BP standard. But this opinion is based on the manufacturers' certificate.

His opinion that it is a chemical cannot be accepted because no chemical dictionary contains Diethylene Diamine Technical. The Assistant Drugs Controller had stated that there is no objection to release the goods because the release does not contravene the provisions of Drugs and Cosmetics Act or the rules made thereunder.

Apparently he meant that the imported goods are not of pharmacopoeial grade. This is also clear from the reference he has made to the test of the samples carried out by M/s. Chem-Med Analytical Laboratories. We have already held that for the purpose of 1TC a drug need not be of pharmacopoeial grade. Therefore we need not attach any importance to the certificate of the Asstt. Drug Controller. The Chief Chemist has opined that the samples are not Diethylene Diamine Technical, He had found that active ingredient in the goods imported is entirely piperazine and samples are free from impurities. He however found that one sample contained 73.6% piperazine and the other 80.6%. His reports also do not indicate that he made any attempt to find out the content of piperazine in the anhydrous state. All the reports of all the analysts disclosed that the samples contained piperazine and water. The percentage of water found by the Chief Chemist was 26.0% and 19.3%.

Percentage of water found by Dr. Patwardhan was 17.48% and 34.01% Italab found 26.30%, 29.04% and 31.61%. Chem-Med Lab. found 30.72% in one of the samples. The percentage of water as well as percentage of piperazine found by various analysts vary. It was only the Chem-Med Lab. that had analysed the sample in anhydrous state. Its analysis established that the samples contained 98% of piperazine in anhydrous state. According to U.S. Pharmacopoeia, Piperazine contains not less than 98.0 per cent and not more than 101.0 per cent of C4H10N2, calculated on the anhydrous basis.

The water content in the samples could be the moisture content. It is significant to note that the imported goods were brought in tins. While taking samples or during journey moisture could get in and therefore water content in the substance thus got explained. We had held that imported goods is not a chemical, not a drug intermediate and not a chemical compound. None of the analyst found any impurities in the samples- Therefore, the imported goods could be made use of in the preparation of medicines. As has been stated earlier, neither piperazine anhydrous nor hexahydrate is directly administered as medicine. They are used for the manufacture of medicines. Just because the imported goods has certain percentage of water it does not cease to be anhydrous. Because water is not chemically bonded and it does not in any way affects the physical or chemical properties of the substance Piperazine anhydrous. Piperazine anhydrous was canalised and the import of which was banned for all excepting the canalising agency. We, therefore, uphold the confiscation ordered by the Addl. Collector not for the reasons stated by him but for the reasons given by us' on the basis of the evidence produced and on record.

Shri Patel for the appellants contended that the Customs had earlier cleared similar consignments and therefore the Addl. Collector was not justified in imposing a heavy fine of Rs. 2.00,000/-. Shri Patel urged that the appellants would not have ventured to import but for the clearance of the previous imports of similar goods by the Customs. The past clearance of similar goods cannot operate as an estoppel against the Customs. An illegal or unauthorised clearance does not confer any right on the subsequent importer. But then that factor shall have to be taken into consideration for the purpose of imposing fine and penalty.

The Additional Collector has not impased any penalty even though he has held that import was illegal. The fine imposed by the Additional Collector in the circumstances of the case appears excessive. We, therefore, reduce the fine from Rs. 2 lakhs to Rs. 75,000/- (Rupees seventy five thousand only) in respect of each consignment. The impugned adjudication orders of the Additional Collector of Customs are modified accordingly.

Subject to the above modification in the amount of fine, these appeals fail and the sam are rejected.


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