Duty-free shops not exempt from domestic regulatory laws: Bombay High Court on nicotine pouches ban

The Bombay High Court has declined to interfere with the Drugs Control Department's decision to ban the sale of imported nicotine pouches by Adani Group's Mumbai Travel Retail Limited at Mumbai's Chhatrapati Shivaji Maharaj International Airport for lack of an import license [Mumbai Travel Retail Ltd v. Union of India & Ors.]

A Division Bench of Justice Suman Shyam and Justice Advait M Sethna held that duty-free shops (DFS) operating at international departure terminals do not enjoy blanket immunity from domestic regulatory and public health statutes such as the Drugs and Cosmetics Act, 1940.

The Court added that such shops may be exempted from fiscal levies like customs duties and indirect taxes but the exemption does not extend to the non-fiscal regulatory oversight.

“The exemption, if any, would be limited to the fiscal measures such as levy of customs duty/tax/MVAT etc. As such, if an item is restricted or prohibited under 'any other law for the time being in force' it would constitute 'prohibited goods' under Section 2(33) of the (Custom) Act of 1962 and hence, the domestic regulatory regime will apply in full force,” the Bench held.

However, the Court refrained from deciding whether tobacco-free nicotine pouches are 'drugs' under the Drugs and Cosmetics Act.

Instead, it directed the Central Drugs Standard Control Organisation (CDSCO) to decide the same.

Mumbai Travel Retail Limited - a joint venture between the Adani Group and a Dubai-based company - and Flemingo Dutyfree Shop Private Limited, had moved the Court challenging the orders passed by the Central Drugs Standard Control Organisation (CDSCO) and the Assistant Drug Controller.

On April 2, the authorities banned the sale of imported tobacco-free nicotine pouches at Mumbai's Chhatrapati Shivaji Maharaj International Airport. The authorities classified the nicotine pouches as ‘drugs’ under the Drugs and Cosmetics Act. 

The enforcement action was triggered by a complaint from an anti-tobacco advocacy organization named Mothers Against Vaping. 

A report by CDSCO concluded that nicotine pouches are 'drugs' under Section 3(b) of the Drugs and Cosmetics Act, making registration certificates and import licences mandatory.

However, the retailers said that the domestic regulatory regime would not apply to the sale of nicotine pouches as they are meant only for consumption by the outbound travellers in the International Departure Terminal. It was argued that it was a case of re-export.

On September, the Court ruled that ‘import’ takes place as soon as goods enter Indian territorial waters and thus statutory prohibitions under domestic law apply across Indian territory, regardless of whether goods are stored in customs warehouses or sold in departure lounges. 

On the question of whether nicotine pouches specifically fall under the definition of a ‘drug’, the Court said that all forms of nicotine may not necessarily be “restricted” or “prohibited” and hence may not come within the ambit of definition of “drug”.

The Court added that it was not clear on what basis the authorities had reached the conclusion that nicotine pouches are drugs.  

Since the retailers had not furnished the product specification to authorities, the Court said that the exact nature of composition of the product, insofar as its nicotine content is concerned, was not clear.

Therefore, it declined to record any finding on the question.

“This Court does not have the expertise either to embark on such a factual inquiry or to express any opinion in the matter. Therefore, these are not matters that can be determined or adjudicated in a writ petition,” it said.

The Court granted the retailers four weeks to submit detailed representations, including product specifications, to the CDSCO for deciding whether nicotine pouches fall within the category of those drugs that cannot be imported to India without without a valid import licence and/or registration certificate.

The authority has been directed to decide the matter via a reasoned order within 30 days.

Senior Advocates Janak Dwarkadas, Arunabh Chowdhury, Ashish Kamat and Prakash Shah with advocates Simantini Mohite, Abhay Jadeja, Dhanyashree Jadeja, Urvi Gulechha and Ishani Saxena briefed by Jadejas & Partners appeared for the retailers. 

Additional Solicitor General Anil Singh with advocates Rui Rodrigues, Jainendra Sheth, Adiya Vyas and Leena Patil appeared for the Ministry of Health and Family Welfare. 

Advocates Siddharth Chandrashekhar and Abhishek R Mishra appeared for the Commissioner of Customs. 

[Read Judgment]