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Eskay Fine Chemicals Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Mumbai
Decided On
Reported in(1991)LC780Tri(Mum.)bai
AppellantEskay Fine Chemicals
RespondentCollector of Customs
Excerpt:
.....permissible. the appellants in reply to the show cause notice came forward with the plea that the item imported was not the drug and that even the test report did not indicate the same to be a drug and hence the same was not canalised item and was permissible for importation under ogl. the adjudicating authority however disbelieved the same and passed the impugned order.3. shri c. r. patel, the learned advocate for the appellants, while challenging the validity of the order invited my attention to the test report of the chemical examiner/dy. chief chemist and submitted that even according to the test report, the item imported though was piperazine was not of pharmaceutical grade and that as such it was not the drug as contemplated under appendix 9 of the policy. he also submitted that.....
Judgment:
1. The present appeal is directed against the Order-in-Original bearing No. S/10-75/83 dated 15-12-1983 passed by the Additional Collector of Customs, ordering confiscation of 16 drums declared to contain Diethylene Diamine Tech 63.3% valued at Rs. 54,833/- under Sec. 111(d) of the Customs Act but allowed to be redeemed on payment of redemption fine of Rs. 27,000/-.

2. The appellants imported the aforesaid item and presented the Bill of Entry No. 3199/310 and claimed its clearance under OGL vide Appendix 10 of the Import Policy AM 1982-83. The authorities however objected to its clearance and got the same examined by the Chemical Examiner/Dy.

Chief Chemist, who vide his report dated 28-5-1983 opined that both the samples taken therefrom were of Diethylene Diamine (Piperazine) in the form of solid mass, with active ingredient being 59.9% and 59.2%. The authorities therefore issued a show cause notice dated 28-6-1983 alleging that the import of Piperazine was canalised under Appendix 9 of AM 1982-83 Policy and that the import by the appellants directly was not permissible. The appellants in reply to the show cause notice came forward with the plea that the item imported was not the drug and that even the test report did not indicate the same to be a drug and hence the same was not canalised item and was permissible for importation under OGL. The adjudicating authority however disbelieved the same and passed the impugned order.

3. Shri C. R. Patel, the Learned advocate for the appellants, while challenging the validity of the order invited my attention to the test report of the Chemical Examiner/Dy. Chief Chemist and submitted that even according to the test report, the item imported though was piperazine was not of pharmaceutical grade and that as such it was not the drug as contemplated under Appendix 9 of the Policy. He also submitted that the adjudicating authority has based its finding mainly on the aspect of the active ingredient and submitted that the active ingredient should not be taken as a proper criteria for deciding the nature of the item imported. He submitted that a question very similar to the one here, in relation to the tetracycline, has been gone into by this Tribunal and he cited the decision of the Tribunal in the matter of Chemifine & Others v. Collector of Customs - 1984 (18) ELT 336 and further submitted that though the Tribunal held tetracycline as the canalised drug, the matter was further agitated before the Bombay High Court and the High Court in its order reported in 1987 (27) ELT 55 has even set aside that aspect and has allowed the import. In his submission, what was canalised was the only pharmaceutical preparation and not any other quality and when the item imported is admittedly not in conformity with the pharmacopy grade, the objection raised by the department and the finding given by the adjudicating authority is not sustainable.

4. Shri Deepak Kumar, the Learned JDR, appearing for the Department submitted that piperazine is admitted to be a drug and what was imported by the appellants was piperazine, which was free from impurities. He conceded that the test report indicates that the same was not of pharmaceutical grade but submitted that this indicates that the drug imported was a sub-standard one. In his submission, even then it does not lose the characteristic of a drug and when it remains a drug as specified in the Policy itself, the import thereof has to be a canalised one and the appellants were not entitled to import them under OGL directly. He submitted that the appellants have pre-imported this item for preparation of another drug and therefore the same has all the qualities of drug.

5. Shri C.R. Patel, in reply submitted that the import is made for preparation of another drug and as such the item imported may at the best be taken as a drug intermediate, the import of which under OGL is permitted.

6. The main thrust of the submission made by Shri C.R. Patel, the Ld.

advocate for the appellants, is on the point that the item imported is not a "drug" as contemplated in the Policy, and as such could not fall within the ambit of Appendix 9. He has based his submission principally on the Test Report dated 28-5-1983 from the Chemical Examiner/Dy. Chief Chemist to whom the department had sent the samples of the items imported for examination, and has drawn my pointed attention to that part of the Report, where it is opined that "It does not conform to the specifications for pharmaceutical grade of piperazine". In the submission of the Learned advocate, when the items imported are not of pharmaceutical grade, the same cannot be classified as a "drug" and if the same is not a "drug" the provisions of Appendix 9 of Policy AM 1982-83 cannot stand attracted.

7. There is however no dispute over the point that what is imported is Diethylene Diamine Tech 63.3%, which is also known as Piperazine, and that this item is classified as a drug in the Policy, having a specific entry for the same at Serial No. 14 in para 3 of Appendix 9.

8. The appellants themselves have admitted that they have imported the said item for manufacture of the pharmaceutical products namely piperazine citrate and piperazine hexahydrate, used for destroying roundworms in human intestine.

9. The only point that is agitated, as mentioned above, is that the same is not of pharmaceutical grade or standard, all the same, it is clear that the same has to be used in preparation of a pharmaceutical product.

10. What the policy has intended by "drugs" in para 3 of Appendix 9, has nowhere been specified, except in Para 218(4) of Ch. 21 of the Policy, where it is provided that the names of the drugs mentioned in various Appendiees specified therein, including Appendix 9, refer to the respective active ingredients or as they are commonly known, and they include salts, and esters of the same. In the Condensed Chemical Dictionary (Tenth Edition) Revised by Gestner G Hawley, "drug" is defined as a substance intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease or to affect the structure or function of body". As, out of proportion use of some substance, which otherwise qualify to be drugs having the characteristics, may affect adversely to the human body as specified above, after long drawn researches, pharmaceutical grades or standards have been designed to provide desired characteristics and acceptable tolerance, so as to minimise the adverse effects and make the same acceptable to human body. The pharmaceutical grades and standards, are in the nature of the safeguards, making the drug acceptable to the body.

11. It however cannot be said that the item which does not conform to the said standard or grade, is not a "drug". The basic characteristics of the "drug" does exist thereunder, and the only meaning that emerges out from the fact that it does not meet with the specifications of the pharmaceutical grade, is that, the same is sub-standard.

12. Para 3 of Appendix 9 of the Policy nowhere provides that the same is applicable only to the standardised drug and if the item to be imported, though may have all the characteristics of "drug" is not included if the same is sub-standard, or does not meet the required standards laid down in Pharmacopea.

13. Under the circumstances, the plea of the Learned advocate for the appellants, that the item imported is not the "drug" cannot be accepted.

14. The authority below has based his conclusion on the basis that the active ingredient is 59.9% in one lot and 59.2% in another. As could be seen from Para 218(4) of Ch. 21 of the Policy, the active ingredient is the main criteria in ascertaining as to whether the item is a drug or not. Pleading that the criteria adopted is not permissible, the Ld.

advocate, referred to and relied upon the decision of this Bench, in Chemifine and Others v. Collector of Customs - 1984 (18) ELT 336, where the same provision of the same policy was under scrutiny, and after full discussion on the provision held that what appeared to have been canalised was the drugs specified in Appendices 8 and 9 and that the intention was not to canalise all substances containing drugs. In his submission the criteria of existence of active ingredient was not approved thereunder. The Ld. advocate then submitted that the point at issue before the Tribunal in the said matter was import of Tetracycline Urea complex, and the Tribunal ultimately held that what was imported was Tetracycline adding innocuous substance urea to brand it as "complex", but when the matter was taken up to the High Court at Bombay, the High Court vide its decision reported in 1987 (27) ELT 55, reversed the said finding.

15. Here however, what is imported is not a "complex". It is pure "piperazine" and the Report of Chemical Examiner/Dy. Chief Chemist, dated 28-5-1983, clearly states that the item was "free from impurities". The piperazine, in the item imported was to the extent of 59.9 or 59.2% and the other ingredient was only water of crystallisation. There was thus, no mixture of more than one item. The said decision thus could not stand attracted here.

16. Even on the point of active ingredient, the observations made in the decision referred to above, pertain to the item at issue there, namely Tetracycline Urea complex, and cannot be mutatis mutandis made applicable here. Further, here the question of active ingredient may not even assume much importance, as what is imported is piperazine alone, and that is the sole active ingredient.

17. It is also pleaded that the item imported is a drug intermediate, and not a "drug". An item may have multifarious uses, and even assuming that the same may also be used as a drug intermediate, the same does not lose its characteristic as the basic drug and as a basic drug, the same is included in Appendix 9, and as such, has been made a canalised item.

18. Taking all the factors into consideration, there appears no reason to interfere with the findings of the authority below that the item imported being a canalised item, cannot be imported by the appellant, under OGL directly, and as such the import being unauthorised, the goods imported are liable to confiscation under Sec. 111(d) of the Customs Act.

19. When the authority below has used its discretion to invoke the provision of Sec. 125 of the Customs Act and when the department has not preferred any appeal against that, no interference therein is called for. However, considering the quantum of redemption fine, the fine imposed is about 50% of the value of the goods. The authority below has not considered it necessary to impose any penalty under Sec.

112 of the Customs Act, indicating that the appellants are not found to have any grave mala fide. The appellants are actual users (industrial), and have imported the same drug for manufacturing other medicines. The appellants could have imported the item through the canalising agency.

Taking all the factors into consideration, I hold that the redemption fine to the extent of 50% of the value is not called for. I, therefore, reduce the redemption fine from Rs. 27,000/- to Rs. 15,000/- (Rupees Fifteen thousand only).

20. With the modification as above, the appeal is rejected. The consequential reliefs arising out of modification to follow.


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