TaxTMI 
TaxTMI 
1984 (8) TMI 335
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....45/4819, 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 mater....
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....tention 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 c....
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.... 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....
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....pendix 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 Piperazine Phosphate. 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 appellant....
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.... exchange released by the Government. Serial No. 14 is described as : "Piperazine (diethylene diamine) anhydrous/hexahydrate". Paragraph 218(4) which has relevance to the issues involved reads : "In the case of drugs appearing in Appendices 3, 5 and 9, the names mentioned: -   (i) refer to the respective active ingredients, or (ii) are as they are commonly known. Each entry includes the salts and esters of the same drug, if any." 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 Pip....
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....arl 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. Finally, Dr. Patwardhan certified that : "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 ....
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.... 2. Solubility : Complies as per U.S.P. requirements. 3. Identification : U.S.P. test : Positive. 4. Melting point : 72^oC (Limits : 109oC to 113oC). 5. Water (By Karl Fisher Mehtod P) : 30.72% w/w/ (Limit : 2.0% 2/2 maximum) 6. Colour of solution Complies with U.S.P. test. 7. Nitrogen content 32.77% on anhydrous basis (Limits : 31.5% to 33.0%) 8. Primary Amine and Ammonia Complies with U.S.P. test. 9. Content of Piperazine (C4H10N2) 98.4% on anhydrous basis. (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 standards as per U.S.P. XX       (WITH RESPECT TO MELTING POINT AND WATER)." (2nd certificate). "As per PIPERAZINE HYDRATE B.P. 1980 1. Description : White deliquescent crystals, having an ammoniocal odour. 2. Solubility : Complies as per B.P. requirements 3. Ide....
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.... C. Whether drugs of pharmacopieal grade or not : 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 above 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 ....
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.... 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. 104-107^oC^. Flash point 190^oF (87-70C). Cum-bustible; low toxicity. Derivation : Treatment of ethylene bromide or chloride with alcoholic ammonia at 100^oC. Containers : Glass bottles; drums. Uses : Corrosion inhibitor ; anthelmintic ; insecticide ; accelerator for curing polychloroprene." Piperazine hexahydrate C4H2N26H2O Properties : White crystals; m.p. 44^oC; b.p. 125oC 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 waier of crystallization." At page 773, "Hydrate is described as : "Hydrate (CHEM) A form of a solid compound which has water....
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....s 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 lime 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. The second proviso to this section reads: "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 re....
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....gible importers 1. Raw materials/components and consumables (Non-iron and steel items) other than those included in the appendices 3, 4, 5, 8, 9 and 15. Actual Users (Industrial)." 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. Item 16 of Appendix 10 reads : "Drugs and medicines The categories that are permitted to import drugs and medicines are : (1) By hospitals or medical institutions for their own use ; (2) By any individual for his personal use ; (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 covering 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 r....
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.... 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 ....
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....ene dichloride is treated with excess aqueous ammonia in a pressure-tight reaction chamber at 110^oC 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 Dieihylene 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 anoth....
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....ecursor 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 sh....
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....t 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....
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....l 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 Chemed 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 Con....