Legal principle

Section 113(d) of the Customs Act applies only where the export of goods is itself prohibited by law and only to export goods not yet out of India; a notification under Section 26A of the Drugs and Cosmetics Act prohibiting manufacture, sale and distribution neither covers the drug's hydrochloride salt (a distinct molecule) nor prohibits export, so goods already exported cannot be confiscated under Section 113(d), their sale proceeds cannot be confiscated under Section 121, and penalties under Sections 114(i) and 114AA cannot survive.

Court decision

The Tribunal allowed the appeal and set aside the impugned order with consequential relief to the appellant. It held that the notification did not cover Sibutramine hydrochloride (or salts of Sibutramine) and prohibited only manufacture, sale and distribution, not export; Section 26A of the Drugs and Cosmetics Act does not envisage prohibition of exports; the drug was not 'prohibited goods' under Section 2(33); Section 113(d) requires an actual prohibition of export and applies only to export goods, not goods already exported; consequently the goods could not be confiscated under Section 113(d), the sale proceeds could not be confiscated under Section 121, and the penalties under Sections 114(i) and 114AA had to be set aside.

Facts

M/s Nosch Labs Pvt Ltd, a manufacturer of bulk drugs operating 100% Export Oriented Units in Andhra Pradesh, exported Sibutramine Hydrochloride through four shipping bills. Notification GSR 82(E) dated 10.02.2011, issued by the Ministry of Health and Family Welfare under Section 26A of the Drugs and Cosmetics Act, 1940, prohibited the manufacture, sale and distribution of certain drugs including Sibutramine and R-Sibutramine. DRI investigated and issued a show cause notice alleging the exports violated this prohibition. The Additional Commissioner confiscated the drug valued at Rs.46,84,174 under Section 113(d), appropriated the export proceeds under Section 121, and imposed penalties of Rs.5,00,000 under Section 114(i) and Rs.2,00,000 under Section 114AA; the Commissioner (Appeals), after a Tribunal remand, upheld the confiscation but reduced the penalties to Rs.2,50,000 and Rs.1,00,000. The appellant appealed to the Tribunal.

Key provisions

• Section 113(d), Customs Act, 1962 — Confiscation of goods attempted to be improperly exported
• Section 26A, The Drugs and Cosmetics Act, 1940 — Powers of Central Government to regulate, restrict or prohibit manufacture, etc., of drug and cosmetic in public interest.
• Section 114AA, Customs Act, 1962 — Penalty for use of false and incorrect material
• Section 114(i), Customs Act, 1962 — Penalty for attempt to export goods improperly etc
• Section 121, Customs Act, 1962 — Confiscation of sale-proceeds of smuggled goods
• Section 2(33), Customs Act, 1962 — Definitions
• Section 26A, Customs Act, 1962 — Refund of import duty in certain cases
• Section 129E, Customs Act, 1962 — Deposit of certain percentage of duty demanded or penalty imposed before filing appeal
• Section 12(2)(j), The Drugs and Cosmetics Act, 1940 — Power of Central Government to make rules.