2026 (3) TMI 1088 - AAR - Customs

Classification of APIs as Drugs: statutory character and specific tariff entries govern, so APIs attract the Sl. No. 226 IGST rate.

Imported bulk drugs and active pharmaceutical ingredients (APIs), including imports for manufacture, testing, clinical trials, bioavailability or ... Determination of IGST payable on the import of bulk drugs - Definition of 'drug' under Section 3(b) of the Drugs and Cosmetics Act, 1940 - benefit of Notification no. 09/2025 -Integrated Tax-IGST (Rate) - Whether Integrated Goods and Services Tax ('IGST') is leviable @5% for the import of 'bulk drugs' in terms of SI. No. 226 of Schedule I of Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025 under the Customs Tariff Act, 1975. Specific Entry vis-à-vis General Entry - HELD THAT:- It is a well-settled principle of classification that when a product is covered by both a general entry and a specific entry, the specific entry shall prevail over the general entry (generalia specialibus non derogant). Accordingly, Active Pharmaceutical Ingredients (APIs), though classifiable under Chapters 28 or 29 for tariff purposes, when they satisfy the description of 'drugs', are appropriately classifiable under SI. No. 226 for the purpose of determination of applicable rate of tax. The SI. No. 226 entry is a specific entry which will prevail over the general entry of 'all organic chemicals other than gibberellic acid' APIs / bulk drugs are 'drugs' for the purposes of SI. No. 226 and thus fall within the expression 'All Drugs and medicines'. The definition of 'drug' under Section 3(b) of the Drugs and Cosmetics Act, 1940 is wide and inclusive in nature, and expressly covers substances intended for use as components of a drug. Active Pharmaceutical Ingredients (APIs) / bulk drugs, being pharmaceutical substances used as such or as ingredients in formulations, squarely fall within the ambit of the said definition. On a conjoint reading of the definition of 'active pharmaceutical ingredient / bulk drug' under the Drugs (Price Control) Order, 2013 with the definition of 'drug' under Section 3(b) of the Drugs and Cosmetics Act, 1940, and the definitions of 'bioavailability study', 'bioequivalence study' and 'clinical trial' under the New Drugs and Clinical Trials Rules, 2019, it is evident that APIs, even when imported for testing, bioequivalence, bioavailability or clinical research purposes, retain their statutory character as 'drugs' and are not excluded merely on account of their stage or purpose of use. APIs are regulated and licensed as 'drugs' by the Central Drugs Standard Control Organization (CDSCO) under the statutory framework of the Drugs and Cosmetics Act, 1940 and the New Drugs and Clinical Trials Rules, 2019, including for import under Forms 10 and CT-17. Their regulatory recognition as drugs reinforces their statutory character. Judicial precedents and advance ruling authorities have consistently held that, in the absence of any restrictive language, the expression 'drugs' includes 'bulk drugs', and no artificial distinction can be introduced between the two where the notification does not provide so. The wording of SI. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) is broad and description-based, covering 'All drugs and medicines ... ' without restriction to finished formulations, and further extends to goods falling under 'Chapter 30 or any Chapter', thereby encompassing APIs classifiable under Chapters 28 and 29. Sl. No. 226 is a specific entry describing goods by their essential character as 'drugs', and therefore prevails over the general entries covering 'all inorganic chemicals' or 'all organic chemicals' under Chapters 28 and 29. The character of APIs as 'drugs' does not change merely because they are imported for clinical trials, bioavailability or bioequivalence studies. Such studies are integral to the drug approval process and do not alter the intrinsic statutory identity of the goods. Final Conclusion: The Authority ruled that bulk drugs / Active Pharmaceutical Ingredients (APIs) - including those imported for manufacture or for clinical trials, bioavailability or bioequivalence studies - fall within SI. No. 226 of Schedule I to Notification No. 9/2025 and attract IGST at 5%, unless they are covered by the NIL rated entry at SI. No. 113 of Notification No. 10/2025. Issues: Whether imported bulk drugs/active pharmaceutical ingredients (APIs), including those imported for manufacture of formulations or for testing, clinical trials, bioavailability or bioequivalence studies, qualify as 'All Drugs' under Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025 and thereby attract IGST @5%, provided they are not covered under Sl. No. 113 of Notification No. 10/2025-Integrated Tax (Rate) dated 17.09.2025.Analysis: Sl. No. 226 of Schedule I to Notification No. 9/2025 is description-based and covers (i) all drugs and medicines (including salts, esters and diagnostic kits) and (ii) formulations manufactured from bulk drugs, and applies to goods falling under 'Chapter 30 or any Chapter.' The expression 'drug' is not defined in the IGST notification; Section 3(b) of the Drugs and Cosmetics Act, 1940 defines 'drug' to include substances intended for diagnosis, treatment, mitigation or prevention of disease and all substances intended for use as components of a drug. Clause (b) of the Drugs (Prices Control) Order, 2013 defines 'active pharmaceutical ingredients or bulk drug' as pharmaceutical, chemical, biological or plant products used as such or as ingredients in any formulation. Definitions in the New Drugs and Clinical Trials Rules, 2019 of bioavailability, bioequivalence and clinical trial confirm that products used in such studies remain within the statutory drug regulatory regime. Where a specific descriptive entry (SI. No. 226) and a general chapter-based entry (SI. Nos. 35/36) both could apply, the specific entry prevails. The semicolon in SI. No. 226 separates two independent categories; construing 'all drugs and medicines' to exclude bulk drugs would render the separate reference to 'formulations manufactured from bulk drugs' redundant. The statutory and regulatory recognition of APIs as drugs, their requirement for CDSCO licensing (Forms 10/CT-17), and consistent judicial/tribunal authorities treating 'drugs' as inclusive of bulk drugs support classification of APIs under SI. No. 226. The character of APIs does not change because they are imported for clinical trials or testing; the stage or end-use does not alter their statutory identity as drugs for the purposes of the notification. It is not disputed that the goods are not listed in Annexure I to Notification No. 10/2025 and therefore not nil-rated under Sl. No. 113.Conclusion: Bulk drugs/active pharmaceutical ingredients (APIs), including those imported for manufacture of formulations or for testing, clinical trials, bioavailability or bioequivalence studies, qualify as 'All Drugs' under Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025 and attract IGST at 5%, provided they are not covered under Sl. No. 113 of Notification No. 10/2025-Integrated Tax (Rate) dated 17.09.2025.Ratio Decidendi: Where a taxing rate notification contains a specific descriptive entry covering 'drugs and medicines' and applies to 'Chapter 30 or any Chapter,' substances statutorily defined or recognized as drugs (including APIs/bulk drugs under Section 3(b) of the Drugs and Cosmetics Act, 1940 and Clause (b) of the Drugs (Prices Control) Order, 2013) fall within that specific entry and therefore attract the rate specified therein; the specific description governs over a general chapter-based entry and the statutory/regulatory character of the goods is determinative notwithstanding their stage of use.