The Bombay High Court recently held that formulations containing less than 135 mg of dextropropoxyphene cannot be classified as a ‘narcotic’ or a ‘narcotic drug’ within the meaning of Section 2(h) of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 [M & TP Act] and hence are not liable for state excise duty.
The division bench of Justice AS Oka and Justice Riyaz Chagla was hearing a writ petition filed by Macleods Pharamaceuticals, a company manufacturing pharmaceutical formulations under Chapter 30 of the schedule to the Central Excise Tariff Act, 1985.
By a notification dated June 12, 1986, the Union of India had declared dextropropoxyphene to be a 'narcotic drug' for the purpose of the M&TP Act.
The state Excise Department issued a show cause notice to the petitioners on October 24, 1997, seeking submission of certain information. Thereafter, the department claimed that the petitioners were manufacturing formulations that were narcotic substances, that too without permission, hence they (petitioners) committed a criminal offence.
On December 12, 1998, the department was informed by the petitioners that their formulations contained only 65 mg of dextropropoxyphene, which was less than 135 mg as contemplated in the notification for a formulation to be classified as a narcotic drug under the M&TP Act.
However, on December 29, 1998, an inspector of the state Excise Department visited the petitioner’s factory and seized the stock of the said formulations for evasion of excise duty.
When the present petition came up for hearing, the court directed the petitioners to pay duty at the rate of 20% to the state government under the M&TP Act and also not to deposit any duty with the Central Excise authorities under the Central Excise Act until the petition is pending.
Submissions and Final Judgment
Hormaz Daruwalla, counsel for the petitioners, relied on the decision of another bench of the high court in USV Limited vs. State of Maharashtra, wherein it was held-
“Plain reading of the Notification dated 12th June 1986 would disclose that any medicinal preparations containing dextropropoxyphene base per dosage unit not more than 135 mg are excluded from being classified as narcotic drug or narcotic within the meaning of the said expression under Section 2(h) of the said Act.”
Daruwalla submitted that his clients had to stop manufacturing the seized formulations and since the department wrongfully seized the said formulations, loss was caused to the petitioners, hence, costs should be imposed.
The court observed: “Having heard the arguments, we are of the view that this Petition is squarely covered by the judgment of this Court in USV Ltd. (Supra).
In the present case, admittedly the subject formulations contain less than 135 mgs i.e. 65 mgs of Dextropropoxyphene and hence cannot be classified as a Narcotic drug or Narcotic in view of the said Notification.”
Thus, the imposition of state excise duty on the petitioners was ruled as untenable and demand notices were quashed and petitioners were allowed to withdraw the amount earlier deposited with the registry.
A cost of Rs. 50,000 was imposed on the respondents for causing loss to the petitioners by wrongful seizure.