Exported Goods Cannot Be Confiscated Under Section 113 Of Customs Act: CESTAT Hyderabad

The Bench, consisting of P.K. Choudary (Judicial Member) and P. Venkata Subba Rao (Technical Member), held that the purpose of the Drugs and Cosmetics Act, 1940 is not to regulate exports, but only to regulate the import, manufacture, sale and distribution of drugs and cosmetics. The CESTAT added any illegality or violation of any law, which is not a prohibition of export either under the Customs Act or under any other law, does not attract the provisions of Section 113 (d) of Customs Act for confiscation of goods.

The appellant Nosch Labs Pvt Ltd is in the business of manufacturing drugs. A notification was issued by the Ministry of Health and Family Welfare under the Drugs and Cosmetics Act, 1940, whereby the manufacturing, sale and distribution of certain drugs for human use was prohibited. The Directorate of Revenue Intelligence received intelligence that the appellant had manufactured and exported a drug, Sibutramine, in violation of the said notification.

The Additional Commissioner of Customs, Hyderabad passed an order that the drug exported by the appellant, in violation of the prohibition imposed under the Drugs and Cosmetics Act, 1940, was liable for confiscation under Section 113(d) of the Customs Act, 1962. The Additional Commissioner also appropriate, under Section 121 of the Customs Act, the amount realized on export of the said drug, and imposed penalty on the appellant under the Section 114(i) and 114AA Customs Act.

The appellant filed an appeal before the Commissioner (Appeals), who upheld the original order but reduced the penalty imposed on the appellant under the Customs Act. The appellant filed an appeal before the CESTAT Hyderabad against the order of the Commissioner (Appeals).

The appellant Nosch Labs submitted before the CESTAT that the said notification issued under Section 26A of the Drugs and Cosmetics Act, 1940, covered Sibutramine, and not Sibutramine Hydrochloride which the appellant had exported, which was a different molecule. The appellant contended that the said notification only prohibited manufacture, sale and distribution of certain drugs. The appellant thus averred that only the domestic trade of the said drug was prohibited and export was not prohibited by the said notification. The appellant submitted that the said drug was correctly exported by it. The appellant added that since there was no prohibition on export either under the Customs Act or under any other law, Section 113 (d) of the Customs Act did not apply and, therefore, the confiscation cannot be sustained. The appellant thus averred that the penalties imposed under the Customs Act cannot be sustained.

The CESTAT noted that a show cause notice was issued to the appellant on the ground that it had exported Sibutramine Hydrochloride in violation of the notification issued by the Ministry of Health and Family Welfare, and the show cause notice thus provided that the drug so exported was liable for confiscation under Section 113(d) of the Customs Act. The CESTAT observed that since the drug was already exported by the appellant, the show cause notice proposed to confiscate the sale proceeds of the exports.

The CESTAT ruled that the said notification issued under the Drugs and Cosmetics Act only prohibited Sibutramine, and not Sibutramine Hydrochloride which was exported by the appellant. The CESTAT thus held that the drug exported by the appellant was not covered in the notification. The CESTAT added that the notification issued by the Ministry of Health and Family Welfare only prohibited the manufacture, sale and distribution of the notified drugs and not their export, either explicitly or implicitly.

The CESTAT ruled that the purpose of the Drugs and Cosmetics Act, 1940 is not to regulate exports, but only to regulate the import, manufacture, sale and distribution of drugs and cosmetics. The CESTAT added that the Section 26A of the Drugs and Cosmetics Act, under which the said notification was issued, empowers the Central Government to regulate, restrict or prohibit, by notification, the manufacture, sale or distribution of drugs and cosmetics. The CESTAT ruled that there is no provision in the entire Drugs and Cosmetics Act which authorized the regulation of export of drugs.

The CESTAT thus held that the drugs exported by the appellant were not covered in the said notification issued under the Drugs and Cosmetics Act, and the notification issued did not prohibit the export of the drugs mentioned therein. Further, the CESTAT held that Section 26A of the Drugs and Cosmetics Act, under which the notification was issued, does not envisage prohibition of exports. The CESTAT added that the scope of the Drugs and Cosmetics Act does not extend to prohibition of exports.

The CESTAT held that as per Section 113(d) of the Customs Act, any goods that are attempted to be exported, contrary to any prohibition imposed by or under the Customs Act or any other law for the time being in force, are liable for confiscation. The CESTAT ruled that in order to attract the provisions of Section 113(d), the export of a drug must itself be prohibited either under the Customs Act or any other law in force. The CESTAT added that any other illegality or violation of any law which is not a prohibition of export either under the Customs Act or under any other law, does not attract Section 113 (d).

The CESTAT thus ruled that the drugs exported by the appellant were not 'prohibited goods' in terms of Section 2(33) of the Customs Act, since they were not liable for confiscation under Section 113(d).

The CESTAT held that Section 113 of the Customs Act provides for confiscation of goods that are attempted to be exported or which are to be exported, and it does not provide for confiscation of goods which have already been exported. Thus, the CESTAT held that exported goods are not liable for confiscation under Section 113.

The CESTAT concluded that the goods were already exported by the appellant and, therefore, they cannot be confiscated under Section 113(d). The CESTAT added that since the goods exported by the appellant were not liable for confiscation under Section 113(d), confiscation of the sale proceeds of such exports under Section 121 also could not be sustained.

The CESTAT ruled that since the basis for confiscation of goods under Section 113 is absent, penalties imposed on the appellant under Section 114(i) and Section 114AA of the Customs Act could not be sustained.

The CESTAT thus allowed the appeal of the appellant and quashed the order of the Commissioner of Customs.

Case Title: Nosch Labs Pvt Ltd versus Commissioner of Customs, Hyderabad

Dated: 11.03.2022 (CESTAT Hyderabad)

Representative for the Appellant: Mr. T. Satya Murthy

Representative for the Respondent: Mr. N. Bhanu Kiran

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