>HEAD NOTE:
? Citations:
: (per Honble Sri Justice Ramesh Ranganathan)
The assessment orders, passed by the assessing authority,
are under challenge in both these Writ Petitions. The question,
which arises for consideration in these Writ Petitions, is whether
Liquid Medical Oxygen IP, Medical Grade Oxygen and Nitrous
Oxide IP fall under Entry 88 of the IV Schedule to the A.P. VAT
Act, 2005 (hereinafter called the Act) or are they liable to tax as
unclassified goods under Schedule-V to the Act.
Sri Shaik Jeelani Basha, Learned Counsel for the petitioner
in W.P.No.16782 of 2014, Sri Karan Talwar, Learned Counsel for
the petitioner in W.P.No.13418 of 2014, and Sri P.Baliji Varma,
Learned Special Standing Counsel for Commercial Taxes, would
agree that, for the purpose of disposal of both these Writ Petitions,
it would suffice if the facts in W.P.No.13418 of 2014 are noted.
The petitioner, in W.P.No.13418 of 2014, is a public limited
company engaged in the manufacture and sale of various gasses
including Medical Oxygen IP, and Nitrous Oxide IP. They are
dealers on the rolls of the Commercial Tax Officer, Gajuwaka
Circle, Visakhapatnam. By assessment order, in Form VAT 305
dated 07.04.2014, the petitioner was assessed to VAT for
Rs.1,73,01,306/- classifying Medical Oxygen IP, and Nitrous
Oxide IP, sold by them as unclassified goods under Schedule V to
the Act; and tax at the higher rate of 12.5%/14.5%, instead of
4%/5% under Entry 88 of Schedule IV to the Act, was levied
thereon.
It is the petitioners case that they manufacture the aforesaid
products under a licence granted to them under the Drugs and
Cosmetics Rules, 1945; the subject goods are used only in the
treatment of patients in hospitals; the petitioner had classified
these goods as drugs and medicines under Entry 88 of the IV
Schedule, and had paid VAT at 4%/5% as applicable during the
relevant period; they submitted an application to the Authority for
Clarification and Advance Ruling on 02.05.2005 seeking
clarification regarding the rate of tax applicable on Medical Oxygen
IP and Nitrous Oxide IP; the Advance Ruling Authority had, by its
ruling dated 29.07.2005, opined that Medical Oxygen IP and
Nitrous Oxide IP were not included in the HSN Codes notified by
the Government; even, according to common parlance, they cannot
be treated as medicines under Section 3(b)(i) of the Drugs and
Cosmetics Act (hereinafter called the Drugs Act); and these items
would attract tax at 12.5% under the Act. Aggrieved thereby, the
petitioner preferred an appeal, in T.A.No.891 of 2005, to the Sales
Tax Appellate Tribunal, Visakhapatnam (STAT for short) on
01.10.2005, and the said appeal is said to pending adjudication
before the STAT even as on date. The Advance Ruling Authority
had issued another clarification, in the case of M/s.Simhapuri
Carbonic Gas Company, Nellore, on 20.06.2013 that Medical
Oxygen IP was taxable @ 12.5% from 01.04.2005 to 14.01.2010,
and at 14.5% thereafter. Since the said clarification had a direct
bearing on them, the petitioner claims to have filed a review
petition before the Advance Ruling Authority on 14.11.2013 which
is said to be still pending consideration before the Authority itself.
The first respondent issued show cause notice dated
19.12.2013 proposing to levy VAT on Medical Oxygen IP and
Nitrous Oxide IP at 12.5%/14.5%. In the reply filed thereto on
23.01.2014, the petitioner contended that these goods were drugs
and medicines under Entry 88 of the IV Schedule; and no
proceedings could be initiated in terms of Section 67(3) of the Act
as their review petition was pending adjudication before the
Advance Ruling Authority. It is the petitioners case that the
assessing authority, without considering their submission with
respect to classification of the goods, had, by his assessment order
dated 07.04.2014, confirmed the demand of VAT, treating liquid
Medical Oxygen IP and Nitrous Oxide IP and Oxygen IP as
unclassified goods under Schedule V to the Act.
The assessment orders are under challenge before us, among
others, on grounds that, as the petitioner had preferred an appeal,
against the earlier ruling of the Advance Ruling Authority, before
the STAT, and had filed a review petition before the Advance Ruling
Authority against the subsequent advance ruling, the assessment
order is without jurisdiction, having been passed in violation of
Section 67(3) of the Act; the assessment order is a vague and non-
speaking order; it has not dealt with the submissions put forth on
behalf of the petitioner; the demand is barred by limitation for the
period from April, 2009 to February, 2010; and Liquid Medical
Oxygen IP and Nitrous Oxide IP should be classified as drugs and
medicines under Entry 88 of the IV Schedule to the Act.
Sri Shaik Jeelani Basha, Learned Counsel for the petitioner
in W.P.No.16782 of 2014, would submit that the Government had,
by G.O.Ms.No.1615 dated 31.08.2005, prescribed HSN Codes in
respect of 70 items in Schedule-IV, whereunder Oxygen - medicinal
grade was referred to in sub-entry 14 of Entry 88; the government
had, by G.O.Ms.No.140 dated 19.03.2013, rescinded the earlier
notification issued in G.O.Ms.No.1615 dated 31.08.2005; later the
Government had, by G.O.Ms.No.76 dated 14.02.2014, validated
the orders passed, advance rulings and clarifications issued by the
authorities of the Commercial Taxes Department following the
classification of goods in G.O.Ms.No.1615 dated 31.08.2005 till it
was rescinded by G.O.Ms.No.140 dated 19.03.2013; as the
assessment order relates to the period, from February, 2008 to
October, 2012, prior to the date on which G.O.Ms.No.140 dated
19.03.2013 was issued, the HSN Codes prescribed in
G.O.Ms.No.1615 dated 31.08.2005 are applicable; and the subject
goods must, therefore, be classified as drugs and medicines
under Entry 88 of Schedule-IV to the Act.
Sri Karan Talwar, Learned Counsel for the petitioner in
W.P.No.13418 of 2014, would submit that Entry-88 of the IV
Schedule to the Act relates to drugs and medicines; the petitioner
manufactures medical oxygen both in gaseous and liquid forms;
they also manufacture Nitrous Oxide IP; both Medical Oxygen IP
and Nitrous Oxide IP are included in the Indian Pharmacopoeia;
they have been classified as drugs and medicines under the
drugs act and the rules made thereunder; they fall within the
definition of drugs and medicines under Section 3(b)(i) of the
Drugs Act; all the enumerated items in Entry 88 are surgical aids;
the words similar articles used therein would include goods which
are similar to surgical aids; Medical Oxygen IP and Nitrous Oxide
IP, manufactured by the petitioner, are also surgical aids; while
the assessment order was passed on 07.04.2014, the period of
assessment is from April, 2009 to March, 2013; in view of Section
21(4) of the Act, the assessment order, in so far as it relates to the
period prior to 06.04.2010, is barred by limitation; the mere fact
that medical oxygen is excluded from Entry 100 (36) of the IV
Schedule would not remove it from the ambit of drugs and
medicines under Entry 88; mere exclusion of goods from one
entry, would not automatically result in its exclusion from another
entry in the Schedule; Mosquito Repellants, which are excluded
from Entry 20, are excluded from Entry 88 also; if the Legislature
intended that medical oxygen should be excluded from Entry 88, in
addition to its exclusion from Entry 100(36), there would have
been a specific exclusion in Entry 88 also; and as Medical Oxygen
IP has not been specifically excluded from Entry 88, and they are
medical/surgical aids, they must be treated as drugs and/or
medicines under Entry 88 of the IV Schedule to the Act. Learned
Counsel would rely on Southern Gas Ltd. v. State of Kerala ;
State of Tamil Nadu v. Ram Oxygen (P) Ltd. ; Panki Oxygen v.
State of Uttar Pradesh ; Chimanlal Jagjivan Das Sheth v. State
of Maharashtra ; and Southern Gas Ltd. v. State of Karnataka .
Sri P.Balaji Varma, Learned Special Standing Counsel for
Commercial Taxes, would submit that the clarification given by the
Advance Ruling Authority is binding; Entry 100(36) of Schedule IV
specifically excludes medical grade oxygen; as medical grade
oxygen has been specifically excluded from Entry 100 of Schedule
IV, and has not been specifically included in Entry 88 thereof, they
must be held to be unclassified goods taxable under Schedule V to
the Act; and, if the Legislature intended to bring them within the
ambit of Entry 88, a specific entry would have been made therein,
more so, as they have been excluded from Entry 100 of Schedule
IV to the Act.
By G.O.Ms.No.1615, dated 31.08.2005, HSN Codes were
prescribed for various goods in the Schedules to the Act. The said
G.O. was issued in the exercise of the powers conferred on the
government under Section 76(2) of the Act. The HSN Code,
prescribed for oxygen medical grade in G.O.Ms.No.1615 dated
31.08.2005, was 2804.40.10; and oxygen medical grade was
shown therein to fall under Entry 88 of Schedule IV to the Act. In
MGRM Medicare Limited v. Commercial Tax Officer , a Division
Bench of this Court held:
.While the submission of the learned standing counsel cannot
be said without merit, more so as the VAT Act places onus on the assessee to
prove that the goods in question are exempt from tax under the First Schedule
to the VAT Act, we are satisfied that the impugned order of assessment must be
set aside as entry 2 of the First Schedule can neither be amended nor
circumscribed except in accordance with section 79 of the vat act, or by way of
a legislative amendment. A Division Bench of this Court, in Espi Industries &
Chemicals Pvt. Ltd. V. Commercial Tax Officer, Tarnaka: (2008) 12 VST 112
(AP, held that the power conferred on the Government to alter, add or cancel
any of the Schedules to the act, under section 79(1), can be exercised only for
a
limited period till the amendment to the Schedule is either approved or rejected
by the State Legislature; the power under Section 79(1) is hedged and
circumscribed by the conditions stipulated in sub-section (2) thereof; the
notification, issued under Section 79(1) amending the Schedule, is required to
be introduced in the legislative Assembly at the earliest and, in any case,
during
the next session of the legislative Assembly following the date on which the
notification is issued, introduction of the notification, in the legislative
Assembly, is to be by way of a Bill giving effect to the alteration, addition or
cancellation of the Schedule specified in the notification; and on the Bill
becoming law, with or without modification, the notification issued under
Section 79(1) ceases to have effect.
A Schedule to an enactment forms an integral part of the said Act.
It is only if the Schedule is amended following the procedure stipulated in
section 79 of the vat act, or by way of a legislative exercise, would it be
valid and not by mere issuance of a notification under Section 76(2) of the
VAT Act. It is not even the case of the respondents that the notification in
G.O.Ms.No.1615 is a legislative exercise. The power to remove difficulties
under Section 76(2) of the VAT Act, by issuance of an
executive/administrative order, can neither nullify nor circumscribe
entries in the Schedules to the VAT Act. Reliance placed by the respondent
assessing authority on the HSN Codes to restrict the scope of entry 2 of the
First
Schedule to the VAT Act is, therefore, illegal. We consider it appropriate,
therefore, to quash the impugned order of assessment, and remand the matter
back to the first respondent assessing authority who shall, after giving the
petitioner an opportunity of being heard, pas a fresh order of assessment in
accordance with law without reference to the HSN Codes mentioned in
G.O.Ms.No.1615 dated August, 31, 2005 as relatable to entry 2 of the first
Schedule to the VAT Act (emphasis supplied)
As G.O.Ms.No.1615 dated 31.08.2005, issued in exercise of
the powers conferred under Section 76(2) of the Act, was neither a
legislative exercise nor was it issued under Section 79 of the Act,
this Court held that no reliance could be placed on these HSN
Codes to restrict the scope of the Entries in the Schedules to the
Act and, in view thereof, the assessing authority could not have
relied upon G.O.Ms.No.1615, dated 31.08.2005. The law declared
by the Court is presumed to be the law at all times. The decision of
a Court, enunciating a principle of law, is applicable to all cases
irrespective of its stage of pendency because it is assumed that
what is enunciated by the Court is, in fact, the law from the
inception. (M.A. Murthy v. State of Karnataka ). A judicial
decision acts retrospectively. According to Blackstonian theory, it
is not the function of the Court to pronounce a new rule but to
maintain and expound the old one. In other words, Judges do not
make law, they only discover or find the correct law. The law has
always been the same. If a subsequent decision alters the earlier
one, it (the later decision) does not make new law. It only discovers
the correct principle of law which has to be applied retrospectively.
To put it differently, even where an earlier decision of the Court
operated for quite some time, the decision rendered later on would
have retrospective effect clarifying the legal position which was
earlier not correctly understood. (Assistant Commissioner,
Income Tax, Rajkot v. Saurashtra Kutch Stock Exchange
Limited ). The judgment of this Court, in MGRM Medicare
Limited6, would apply from 31.08.2005 when G.O.Ms. No.1615
was issued, and cannot be made applicable from a future date
several years thereafter.
The notification in G.O.Ms.No.76 dated 14.02.2014,
validating the orders passed, advance rulings and classifications
issued by the authority following G.O.Ms. No.1615, dated
31.08.2005, till it was rescinded by G.O.Ms.140 dated 19.03.2013,
in effect, gives the judgment, in MGRM Medicare Limited6,
prospective application, that too from a date more than a year after
the judgment was pronounced on 19.07.2011. The Executive
cannot sit either in appeal or in judgment over the orders of this
Court and choose not to apply the law declared by it, or to apply it
prospectively. Reliance placed by the petitioner on G.O.Ms.No.76
dated 14.02.2014 to contend that, since the assessment period in
question is prior to G.O.Ms.140 dated 19.03.2013, the HSN codes
in G.O.Ms. No.1615 dated 31.08.2005 would apply is, therefore,
misplaced. The impugned order cannot be faulted to the extent the
assessing authority refused to extend the benefit of
G.O.Ms.No.1615, dated 31.08.2005 to the petitioner, relying on the
judgment of this Court in MGRM Medicare Limited6.
The question which, however, remains to be examined is
whether medical oxygen IP and Nitrous Oxide IP are drugs or
medicines falling under Entry 88 of the IV Schedule to the Act.
Section 4(3) of the Act requires every VAT dealer to pay tax on
every sale of goods taxable under the Act on the sale price at the
rates specified in Schedules III, IV and V subject to the provisions
of Section 13. Schedule IV is the list of goods taxable at 4% prior
to 14.09.2011, and at 5% thereafter. Entry 88 thereof reads as
under:
88. Drugs and medicines whether patent or proprietory as
defined in clauses (i), (ii) and (iii) of Section 3(b) of Drugs and Cosmetics
Act, 1940 (Central Act 23 of 1940), and hypodermic syringes, hypodermic
needles, perfusion sets, urine bags, catguts, sutures, surgical cotton,
dressing, plasters, catheters, cannulae, bandages and similar articles,
but not including :-
(a) Medicated goods;
(b) Products capable of being used as cosmetics and toilet
preparations including Tooth Pastes, Tooth powders, cosmetics, Toilet
articles and soaps;
[c] Mosquito Repellants in any form.
Entry 100 of the IV Schedule relates to goods when sold as
industrial inputs. Sub-entry (36), thereunder, reads thus:-
Hydrogen, rare gases other non-metals excluding medicinal grade
oxygen.
Under Schedule V to the Act all goods, other than those
specified in Schedules I, III, IV and VI, are taxable at the standard
rate of 12.5% prior to 15.01.2010, and at 14.5% thereafter. If
Medical Oxygen IP and Nitrous Oxygen IP fall under Entry 88 of
Schedule IV, they are then liable to be taxed at 4% or 5%. If not,
they are taxable, as unclassified goods, at 12.5% or 14.5% under
Schedule V to the Act.
As noted hereinabove Entry 88 relates to drugs and
medicines as defined in clauses (i), (ii), and (iii) of Section 3(b) of
the Drugs Act. Section 3(b) of the Drugs Act defines drug to
include all medicines 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 any disease or
disorder in human beings or animals, including preparations
applied on human body for the purpose of repelling insects like
mosquitoes. As it is the petitioners case that the subject goods fall
under the definition of drugs under Section 3(b)(i), it is not
necessary for us to note clauses (ii) & (iii) of Section 3(b) of the
Drugs Act.
As the word "Medicine" has not been defined in the Act, it
has to be understood as an ordinary word of English language. The
dictionary definition of medicine (when used in a sense other than
a substance) is "the science and art concerned with the cure,
alleviation, and prevention of disease, and with the restoration and
preservation of health." A fair approach is to regard a medicine as
a medicament which is used to cure or to alleviate or to prevent
disease or to restore health or to preserve health. (Customs and
Excise Commissioner v. Beecham Food Ltd ; State of Goa v.
Leukoplast (India) Ltd. ). The tests to be applied are (i) What is
the medicinal content of the product has to be ascertained; (ii) its
curative function has to be found out to decide whether the
product can be called a medicament at all; and (iii) it should be
verified whether it is used to cure or alleviate or to prevent disease
or to restore health or to preserve health. (Ram Oxygen Pvt.
Ltd.2). Whether or not the products in question, are treated as
drugs or medicines in common parlance, are basically questions of
fact. (Leukoplast (India) Ltd10).
It is not necessary for us to dwell on whether or not medical
oxygen IP and nitrous oxide IP are medicines, for the definition
of a "drug", under Section 3(b)(i) of the Drugs Act, takes within its
ambit not only medicines, but also substances intended to be
used for or in the treatment of diseases of human beings or
animals. This artificial definition introduces a distinction between
medicines, and substances which are not medicines strictly so-
called. The expression "substances", therefore, must be something
other than medicines but which are used for treatment. The
appropriate meaning of the expression "substances" in the Section
is "things". The Legislature designedly extended the definition of
"'drug" so as to take in substances which are necessary aids for
treating surgical or other cases. The main object of the Drugs Act,
which is to prevent usage of substandard drugs for maintaining
high standards of medical treatment, would be defeated if the
necessary concomitants of medical or surgical treatment were
allowed to be diluted and consequently the very same evil, which
the Drugs Act intends to eradicate, would continue to subsist.
(Chimanlal Jagjivan Das Sheth4).
The words used for or in, in Section 3(b)(i) of the Drugs Act,
are significant. The definition of a drug therein would take within
its fold (1) all substances used for the diagnosis, treatment,
mitigation or prevention of any disease or disorder in human
beings; and (2) all substances used in the diagnosis, treatment,
mitigation or prevention of any disease or disorder in human
beings. Thus any substance either used for, or used in, the
diagnosis, treatment, mitigation or prevention of any disease or
disorder in human beings would fall within the definition of a
drug under Section 3(b)(i) of the Drugs Act. It is also not
necessary that the substance should be used either for or in the
treatment, mitigation or prevention of any disease in human
beings, and it would suffice if the substance is used for or in the
treatment, mitigation or prevention of any disorder in human
beings, for them to fall within the definition of a drug under
Section 3(b)(i) of the Drugs Act. If medical oxygen IP or Nitrous
Oxide IP are used for or in the treatment, mitigation or prevention
of any disorder in human beings, these substances be drugs
under Section 3(b)(i) of the Drugs Act.
Section 16 of the Drugs Act prescribes the standards of
quality and, under sub-section (i) thereof for the purpose of
Chapter-IV, the expression standard quality means (a) in relation
to a drug, that the drug complies with the standard set out in the
Second Schedule to the Act. The Second Schedule to the Drugs Act
prescribes the standards to be complied with by drugs
manufactured for sale, stocked or exhibited for sale or distributed.
Entry 5 thereunder relates to other drugs and, under Entry 5(a),
are the drugs included in the Indian Pharmacopoeia. The
standards to be complied with, for such drugs, are the standards
of identity, purity and strength specified in the edition of the
Indian Pharmacopoeia for the time being in force, and such other
standards as may be prescribed. The Indian Pharmacopoeia, 1996
Edition, published by the Government of India, Ministry of Health
and Family Welfare, includes medical oxygen, and the standard
prescribed therein is that the oxygen should contain not less than
99.0 per cent v/v of O2. The Indian Pharmacopoeia, 1996 also
includes nitrous oxide, and categorizes it as a general anaesthetic.
It is described as a colourless gas and to be odourless. As the
drugs, referred to in the Second Schedule to the Drugs Act, are
required to fulfil the standards specified in the Indian
Pharmacopoeia, inclusion of a substance in the Indian
Pharmacopoeia would, ordinarily, mean that it is a drug under
the Drugs Act.
In the exercise of the powers conferred by Section 3 of the
Essential Commodities Act, 1955, the Central Government made
the Drugs (Prices Control) Order, 2013, (2013 order for short),
which came into force, on its publication in the Official Gazette, on
15.05.2013. Para 2(d) thereunder defined ceiling price to mean a
price fixed by the Government for Scheduled formulations in
accordance with the provisions of the Order. Para 2(t) defines
National List of Essential Medicines to mean National List of
Essential Medicines, 2011 published by the Ministry of Health and
Family Welfare as updated or revised from time to time, and
included in the first schedule of the Order. Para 2(zb) defines
scheduled formulation to mean any formulation, included in the
First Schedule, whether referred to by generic versions or brand
name. Para 2(2) stipulates that all other words and expressions
used therein and not defined, but defined in the Drugs and
Cosmetics Act, 1940, shall have the meanings respectively
assigned to them in the said Act. As such, for the purpose of the
Drugs (Prices Control) Order, 2013, the definition of a drug under
Section 3(b) of the Drugs Act would apply. Section 1 of Schedule I
to the 2013 order relates to anesthesia, and Clause 1.1 thereunder
relates to general anesthetics and oxygen. Among the medicines
categorized thereunder are Nitrous Oxide and Oxygen, and the
route of administration, of both these substances, is said to be by
inhalation. In the exercise of powers, conferred under the 2013
order, the Government of India, by order dated 20.12.2013,
prescribed the selling price for both Nitrous Oxide Inhalation and
Oxygen Inhalation. Exercise of the power to fix prices, under the
2013 order, is to ensure availability of drugs to the general public
at reasonable prices. It is only if medical oxygen IP or Nitrous
Oxide IP are either drugs or medicines could the Central
Government have prescribed prices therefor under the 2013 order.
The very fact that prices have been prescribed for these two
substances also goes to show that both of them are understood to
be drugs/medicines.
In incorporating items in sales tax statutes, whose primary
object is to raise revenue and for which to classify diverse
products, articles and substances, resort should be had not to the
scientific and technical meaning of a substance but to their
popular meaning, viz., the meaning attached to these expressions
by those dealing in them. (United Offset Process Pvt. Ltd. v.
Assistant Collector of Customs ; Southern Gas Ltd.5). The
words used in the entries must be construed not in any technical
sense nor from the scientific point of view but as understood in
common parlance. We must give the words used by the Legislature
their popular sense meaning 'that sense which people conversant
with the subject-matter with which the statute is dealing would
attribute to it'. (Southern Gas Ltd.5; Deputy Commissioner of
Sales Tax (Law) v. G.S. Pai & Co. ). In determining the meaning
or connotation of words and expressions describing an article in a
Schedule, those words and expressions should be construed in the
sense in which they are understood in the trade by the dealer and
the consumer. The reason is that it is they who are concerned with
it, and it is the sense in which they understand it which
constitutes the definitive index of legislative intention. The true
test for classification is the test of commercial identity and not the
functional test. If the word has acquired a particular meaning in
the trade or commercial circles that meaning becomes the popular
meaning in the context and should normally be accepted. The
words, having a special meaning in the context of a particular field
of art or science, ought to be understood in that sense. Such a
special meaning i.e. the technical meaning shall be assigned as
distinguished from the more common meaning that the word may
have. (National Mineral Development Corpn. Ltd. v. State of
M.P., ).
Martindale - the Complete Drug Reference, (Thirty Sixth Edition,
edited by Sean C.Sweetman), defines Oxygen as a colourless,
odourless gas, soluble one in about 32 of water by volume at 20
and a pressure of 101 KPa. It stipulates that Oxygen should be
kept in approved metal cylinders, the shoulders of which are
painted white, and the remainder black; the cylinder should carry
a label stating Oxygen; and, in addition, Oxygen or symbol O2
should be stenciled in paint on the shoulder of the cylinder. With
regards its uses in administration, it is stated that Oxygen is
given by inhalation to correct hypoxaemia in conditions causing
respiratory failure, and in conditions where the oxygen content of
the air breathed is inadequate such as high altitude disorders;
oxygen is of value in the treatment of poisoning with a number of
substances, including carbon monoxide, cyanides, and
dichloromethane; it provides enhanced oxygenation in inhalation
injury; oxygen is also given by inhalation to subjects working in
pressurized spaces, and to divers to reduce the concentration of
the nitrogen inhaled; and it is used as a diluent of volatile and
gaseous anaesthetics. Martindale - the Complete Drug Reference, (Thirty
Sixth Edition, edited by Sean C.Sweetman) also details the uses in
the administration of Nitrous Oxide. It is stated therein that
Nitrous Oxide is an anaesthetic given by inhalation; it is a weak
anaesthetic with a minimum alveolar concentration value; it has
strong analgesic properties, but produces little muscle relaxation;
and Nitrous Oxide must be given with oxygen, otherwise hypoxia
would occur.
In Southern Gas Ltd.5, a Division bench of the Karnataka
High Court held:-
The petitioner admitted before the assessing authority and
before us, the nitrous oxide is sold mainly to hospitals and nursing homes, for
being used as an anaesthetic. This makes it clear that nitrous oxide is
treated as a surgical aid in trade circles and common parlance. The items
illustratively enumerated in entry No. 21 (Part S) of the Second Schedule under
"surgical and dental instruments, tools and aids" include "medicinal oxygen"
and the like. Medicinal oxygen is used to enrich gaseous anaesthetics,
during general anaesthesia. "Nitrous oxide" is used as an anaesthetic.
Though both "nitrous oxide" and "medical oxygen" may answer the general
and wider definition of "chemicals" they are clearly identifiable and used as
surgical aids. "Nitrous oxide" would therefore definitely fall under "surgical
and dental aids including....medicinal oxygen...and the like"..
(emphasis supplied).
In Southern Gas Ltd.1, a Division bench of the Kerala High
Court observed:-
.The common user of the gases in question is also relevant in
applying the common parlance theory. In the instant case, as already noted, the
assessee, who is the manufacturer of "medical oxygen" and "nitrous oxide", has
clearly stated that these two items are manufactured only for the use in
hospitals and that the dominant user of these two items are only as medicines.
There is also a well-known test to be applied in interpreting the entry,
which is the functional test. There is no dispute that "medical oxygen" is
used for administering it on patients. Similarly, the function of "nitrous
oxide" is to act as an anesthetic agent. Thus, going by the user test and the
functional test, it is evident that "medical oxygen" and "nitrous oxide" are
served as medicines..
In a case where an item falls under two entries in the
Schedule in order to decide the taxable entry the question is as to which of the
two is the special entry, for the special entry will exclude the general entry.
[Importex International (P) Ltd. v. State of Kerala [1991] 81 STC 351 (Ker) and
Deputy Commissioner of Sales Tax v. Food Specialities Ltd. [1991] 82 STC 298
(Ker)]. The Kamataka High Court in Indian Oxygen Ltd.'s case [1990] 79 STC
351, took the view that "medical oxygen" is distinct from "industrial oxygen".
Entry No. 85 deals with all kinds of gases. If as a matter of fact a particular
category of gas, in the instant case, "medical oxygen", has got the
exclusive user as a medicine and if there is an entry relating to medicine,
the item so carved out from the general entry relating to "gases" will have
to be brought under the entry medicine and it has to be assessed under
that entry. Here, as we have already noted, entry No. 85 deals with all kinds of
gases, "medical oxygen" is one of the items of gases dealt with in entry No. 85.
However, "medical oxygen" being medicine, certainly, it has to be assessed
as a special item falling under the entry relating to medicine. Thus
"medical oxygen" and "nitrous oxide" are to be treated as a special category
falling under entry medicine in entry No. 116 of the First Schedule to the
Act. In this view of the matter, the above two items are to be assessed only
at the rate applicable to medicines.. (emphasis supplied)
In Ram Oxygen (P) Ltd.2, a Division bench of the Madras
High Court opined:-
.Subsequently, when Entry 20-A came to be inserted in the Schedule-I,
Part-C in the year 1993, the reading of the said entry shows that in effect, the
definition of "drug" has been more or less bodily lifted into the said entry. It
is
also not in dispute that the "medical oxygen" has got 99.9% purity of
purified oxygen and that its use is only for treatment of patients and to
mitigate contrary intensity of any disease or disorders in human being. It
is common knowledge at times of emergency, the application of "medical
oxygen" to a patient is resorted to in order to prevent any sudden collapse
of a patient, which process is nothing but part of a treatment meted out to
a patient to recoup the deterioration of health condition (emphasis
supplied).
In Panki Oxygen3, a Division bench of the Allahabad High
Court held:-
..There is no dispute between the parties that petitioner has been
selling oxygen (IP) as well as industrial oxygen which have been noted in the
assessment order. The question is that whether oxygen (IP) i.e. medicinal oxygen
is also to be taxed at the rate prescribed under Entry 47 i.e. 'oxygen and other
gases'. The oxygen (IP) is an oxygen for which licence is required for
manufacture of drug under the Drugs and Cosmetic Rules, 1946. The
oxygen (IP) which is also referred as medicinal oxygen is used in the
hospitals and nursing homes as a medicine for curing the ailment of
human beings. It is used medicinally in the cases of pneumonia and gas
poisoning and mixed with nitrous oxide, ether vapour or other anaesthetic.
The licence of manufacturing of oxygen (IP) under the Drugs and Cosmetic
Act and the Rules framed thereunder clearly indicates that oxygen (IP) is a
drug. Entry 26 of the notification dated 15.1.2000 uses the words
"medicines and pharmaceutical preparation". Looking to the use of oxygen
(IP) and its properties, it cannot be denied that it is a medicine and a
pharmaceutical preparation since the use of abbreviation 'IP' against the
word 'oxygen' means that it is included in the Indian
Pharmacopoeia (emphasis supplied).
As is evident, from the aforesaid judgments, "Medical
oxygen" has 99.9% purity of purified oxygen and its use is only for
treatment of patients and to mitigate contrary intensity of any
disease or disorders in human beings. At times of emergency, the
application of "medical oxygen" to a patient is resorted to in order
to prevent any sudden collapse of a patient, which process is a
part of the treatment given to a patient to recoup from a
deterioration in his health condition. (Ram Oxygen (P) Ltd.2). The
principal use of nitrous oxide (laughing gas) is as an anaesthetic in
surgical operation procedures of short duration. (Southern Gas
Ltd.5). Nitrous oxide is sold mainly to hospitals and nursing
homes, for being used as an anaesthetic. It is treated as a surgical
aid in trade circles and common parlance. Medicinal oxygen is
used to enrich gaseous anaesthetics, during general anaesthesia.
"Nitrous oxide" is used as an anaesthetic. Both "nitrous oxide" and
"medical oxygen" are clearly identifiable, and are used as surgical
aids. (Indian Oxygen Ltd. v. State of Karnataka ; Southern Gas
Ltd.5). Going by the user test and the functional test, it is evident
that medical oxygen and nitrous oxide serve as medicines.
(Southern Gas Ltd.1). As medical oxygen IP and Nitrous Oxide IP
are used in the treatment and mitigation of disorders in human
beings, and as they are generally understood in the trade to be
surgical aids, both these substances would fall under the definition
of drug under Section 3(b)(i) of the Drugs Act and, consequently,
fall under Entry 88 of Schedule IV to the Act liable to tax only at
4%/5%.
Entry 100 of the IV Schedule to the Act relate to goods
when sold as industrial inputs. Under sub-entry (36) thereof,
Hydrogen, rare gases and other non-metals, when sold as
industrial inputs, fall within Entry 100 of Schedule IV and are
liable to be taxed at 4%/5%. However, in view of its specific
exclusion, medical grade oxygen, when it is sold as an industrial
input, would not fall within the purview of Entry 100 of Schedule
IV to the Act. Exclusion of medical oxygen from the ambit of
Entry 100(36) does not mean that it is, automatically, excluded
from all other Entries in Schedule IV for, if the Legislature had so
intended, medical oxygen would then have been excluded from
Entry 88 of Schedule IV also. Entry 88 specifically excludes (a)
medicated goods; (b) products capable of being used as cosmetics
and toilet preparations including Tooth Pastes, Tooth powders,
cosmetics, Toilet articles and soaps; and (c) mosquito repellants in
any form.
Entry 20 of Schedule IV to the Act relates to pesticides,
insecticides, fungicides, herbicides, weedicides and other plant
protection equipment and accessories thereof including drip and
sprinkle irrigation systems but excludes mosquito repellants in any
form. As a result, mosquito repellants in any form would not be
pesticides, insecticides etc. falling under Entry 20 of the IV
Schedule to the Act. The specific exclusion of mosquito repellants
from the ambit of Entry 20, would not result in its automatic
exclusion from all other entries in Schedule IV. It is only because
mosquito repellants have also been specifically excluded, under
Clause (c) of Entry 88, do they also fall outside the ambit of Entry
88. Unlike mosquito repellants, which are excluded from the
ambit of both Entries 20 and 88 of Schedule IV, medical oxygen IP
has only been excluded from Entry 100, and not from the ambit of
Entry 88 of the IV Schedule to the Act.
Entry 88 not only includes drugs and medicines as defined
in Section 3(b)(i), (ii), and (iii) of the Drugs Act, but also includes
hypodermic syringes, hypodermic needles, perfusion sets, urine
bags, catguts, sutures, surgical cotton, dressings, plasters,
catheters, cannulae, bandages and similar articles. All articles,
similar to the goods aforementioned, would also fall within the
ambit of Entry 88. There is no reason why medical oxygen IP and
Nitrous Oxide IP, which are admittedly surgical aids used for or in
the treatment and mitigation of disorders in human beings, would
not fall under similar articles in Entry 88 of Schedule IV to the Act.
Viewed from any angle, both medical oxygen IP and Nitrous
Oxide IP fall under Entry 88 of Schedule IV, and are liable to tax
only at 4%/5%, and not at 12.5%/14.5%. As the impugned orders
are liable to be set aside on this ground alone, it is wholly
unnecessary for us to examine whether or not the assessment
order passed in W.P.No.13418 of 2014, for the period prior to
06.04.2010, is barred by limitation; or whether the clarification
given by the Advanced Ruling Authorities could have been applied
when an appeal has been filed, before the STAT, thereagainst, and
an application has been filed before the Authorities seeking review
of the earlier clarification.
The assessment orders, impugned in both these Writ
Petitions, are set aside. Both the Writ Petitions are allowed.
However, in the circumstances, without costs. The Miscellaneous
Petitions pending, if any, shall also stand disposed of.
______________________________
(RAMESH RANGANATHAN, J)
___________________________________
(M. SATYANARAYANA MURTHY, J)
Date: 29.10.2014.