2022 (3) TMI 561 - AT - Customs

Appeal allowed, impugned order set aside, relief granted. Export of Sibutramine Hydrochloride not prohibited.

Nosch Labs Pvt Ltd. Versus Commissioner of Customs, Hyderabad - Customs

The appeal was allowed, and the impugned order was set aside with consequential relief to the appellant. The notification GSR 82(E) did not prohibit the ... 100% EOU - Sibutramine Hydrochloride - Applicability of Notification dated 10.2.2011 - Section 26A of the Drugs and Cosmetics Act, 1940 - prohibition on export of Sibutramine hydrochloride under the notification or not - Confiscation - penalties imposed under section 114(i) and 114AA of Customs Act - HELD THAT:- The show cause notice is issued to the appellant on the ground that the appellant had exported Sibutramine Hydrochloride in violation of the notification issued by the Ministry of Health and Family Welfare vide GSR82(E) dated 10.02.2011. Accordingly, it was felt that the Sibutramine hydrochloride so exported was liable for confiscation under Section 113(d) of the Customs Act. The proposals for imposition of penalties under Section 114(i) and 114AA follow from this. Since the goods were already exported, the proposal in the SCN was to confiscate the sale proceeds of the exports. Whether export of Sibutramine hydrochloride was prohibited by the Ministry of Health and Family Welfare Notification GSR82(E) dated 10.02.2011? - HELD THAT:- A plain reading of the notification shows that among the drugs which were prohibited was Sibutramine but NOT Sibutramine hydrochloride which was exported. The two are clearly different molecules with different molecular weights although the pharmacological effect of both will be the same. It is a matter of common knowledge that many active ingredients of pharmaceuticals are by themselves not soluble in water and hence cannot be easily digested and absorbed by the human body. Hence, they are reacted with some acid such as Hydrochloric acid, Sulphuric acid or Tartaric acid to get hydrochloride salt or sulphate salt or tartarate salt of the pharmaceutical - if the notification had mentioned ‘Salbutramine and its salts’ the expression would have covered all its salts including Salbutramine hydrochloride. Clearly, the notification did not cover salts of Salbutramine and therefore, Salbutramine hydrochloride which is allegedly exported by the appellant is not covered in the notification at all. It is also evident from the text of the notification that what was prohibited were the manufacture, sale and distribution of the notified drugs and not their export either explicitly or implicitly. Whether Section 26A under which the notification was issued or any other provision of the Drugs and Cosmetics Act, 1940 provides for regulation of exports at all? - HELD THAT:- Section 26A also empowers the Central Government to regulate, restrict or prohibit, by notification, three activities viz., manufacture, sale or distribution. These are the very three activities which were prohibited in the notification. Exports were NOT prohibited in the notification and section 26A also does not envisage prohibition of exports - while the Act regulates imports, manufacture, sale and distribution, the Central Government is also empowered to grant exemption from such conditions if the import was only for transport through and export from India. There is no provision, whatsoever, in the entire Drugs and Cosmetics Act, 1940 which authorizes the regulation of export of drugs. Salbutramine hydrochloride was not covered in the notification dated 10.2.2011 at all. Further, the notification does not prohibit export of any of the drugs mentioned in it. Section 26A of the Drugs and Cosmetics Act under which the notification was issued does not envisage prohibition of exports. The scope of the Drugs and Cosmetics Act, 1940, as can be seen from the preamble, also does not extend to prohibition of exports - Unless ‘salts of Salbutramine’ or ‘Salbutramine hydrochloride’ is read into the notification, prohibition of export is also read into the notification and prohibition of export is also read into Section 26A of the Drugs and Cosmetics Act, 1940 and its preamble is also read so as to enlarge its scope to include prohibition of export, export of salbutramine hydrochloride is not prohibited by the notification. Whether Salbutramine hydrochloride is ‘prohibited goods’ in terms of section 2(33) of the Customs Act? - HELD THAT:- Firstly, Salbutramine hydrochloride or salts of salbutramine were not covered under the notification dated 11.2.2011. Secondly, the notification does not prohibit import or export of the drugs which are notified but only prohibits manufactured, sale and distribution. Therefore, Salbutramine hydrochloride exported by the appellant is NOT prohibited goods in terms of section 2(33) of the Customs Act. If the export is not prohibited but there are some other regulations or restrictions under some other laws, such as Drugs and Cosmetics Act, 1940, Drugs and Cosmetics Rules, 1945 or any notifications issued under them and which are violated, will such export goods be liable for confiscation under section 113(d)? - HELD THAT:- A plain reading of section 113(d) shows that ‘any goods attempted to be exported or brought within the limits of any customs area for the purpose of being exported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force’ are liable for confiscation. Thus export itself must be prohibited either under the Customs Act or any other law for the time being in force to attract section 113(d). Any other illegality or violation of any law which is NOT PROHIBITION OF EXPORT either under the Customs Act or under any other law does not attract section 113 (d). Undisputedly, in this case, the goods have been exported. Once, they are exported, they move out of the customs control as well as the territory of India. In fact, the Customs Act, 1962 did not, during the relevant period, extend to outside the territory of India - In this case, the goods were already exported and hence they cannot be confiscated under section 113(d). For this reason also, the confiscation of the goods which have already been exported cannot be sustained. Can the amounts paid by the appellant through a Pay Order during investigation be confiscated under section 121 of the Customs Act? - HELD THAT:- Since it is found that the Salbutramine hydrochloride exported by the appellant is not liable for confiscation under section 113(d), confiscation of the sale proceeds of such exports under section 121 also cannot be sustained - the penalties imposed under Section 114(i) and 114AA also cannot be sustained once the basis for confiscation of goods under Section 113 is absent. The appeal is allowed. Issues Involved:1. Whether the notification GSR 82(E) dated 10.02.2011 prohibited the export of Sibutramine Hydrochloride.2. Whether the Drugs and Cosmetics Act, 1940 provides for the regulation or prohibition of exports.3. Whether Sibutramine Hydrochloride is classified as a 'prohibited good' under Section 2(33) of the Customs Act.4. Whether violations of other regulations or restrictions make the goods liable for confiscation under Section 113(d) of the Customs Act.5. Whether Section 113 of the Customs Act extends to goods that have already been exported.6. Whether the amounts paid by the appellant during the investigation can be confiscated under Section 121 of the Customs Act.7. Whether the penalties under Sections 114(i) and 114AA of the Customs Act were correctly imposed.Detailed Analysis:1. Prohibition under Notification GSR 82(E):The notification GSR 82(E) dated 10.02.2011 issued by the Ministry of Health and Family Welfare did not cover Sibutramine Hydrochloride but only Sibutramine and R-Sibutramine. The notification prohibited the manufacture, sale, and distribution of these drugs but did not explicitly or implicitly prohibit their export.2. Regulation of Exports under the Drugs and Cosmetics Act, 1940:The Drugs and Cosmetics Act, 1940 primarily aims to regulate the import, manufacture, distribution, and sale of drugs and cosmetics. Section 26A of the Act, under which the notification was issued, does not envisage the prohibition of exports. The Act does not contain any provisions to regulate or prohibit exports.3. Classification as 'Prohibited Good' under Section 2(33) of the Customs Act:Sibutramine Hydrochloride is not classified as a 'prohibited good' under Section 2(33) of the Customs Act because the notification did not cover it, and it did not prohibit the export of the drugs mentioned.4. Confiscation under Section 113(d) of the Customs Act:Section 113(d) of the Customs Act applies only if there is a prohibition of export under the Customs Act or any other law. Since the export of Sibutramine Hydrochloride was not prohibited, violations of other regulations or restrictions do not make the goods liable for confiscation under this section.5. Confiscation of Already Exported Goods:Section 113 of the Customs Act provides for the confiscation of 'export goods,' which are goods that are to be exported. It does not extend to goods that have already been exported. Therefore, the confiscation of goods that have already been exported cannot be sustained.6. Confiscation under Section 121 of the Customs Act:Section 121 of the Customs Act provides for the confiscation of sale proceeds of smuggled goods. Since Sibutramine Hydrochloride was not liable for confiscation under Section 113(d), the confiscation of the sale proceeds under Section 121 also cannot be sustained.7. Imposition of Penalties under Sections 114(i) and 114AA of the Customs Act:The penalties under Sections 114(i) and 114AA of the Customs Act cannot be sustained once the basis for confiscation under Section 113 is absent.Conclusion:The appeal is allowed, and the impugned order is set aside with consequential relief to the appellant. The notification GSR 82(E) did not prohibit the export of Sibutramine Hydrochloride, and the Drugs and Cosmetics Act does not regulate exports. Sibutramine Hydrochloride is not a 'prohibited good' under the Customs Act, and the confiscation of already exported goods is not permissible. The amounts paid during the investigation cannot be confiscated, and the penalties imposed are set aside.