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State Of Goa And Others v. Leukoplast (India) Ltd. .
Factual and Procedural Background
Leukoplast (India) Ltd. held a licence under the Drugs and Cosmetics Act, 1940 to manufacture several products, including Zinc Oxide Adhesive Plaster (Leukoplast), Surgical Wound Dressing (Handyplast), Belladona Plaster, Capsicum Plaster and Cotton Crape Bandages (Leukocrapes). Prior to 1 November 1981 these goods attracted 6 % local sales tax and 4 % Central sales tax. A State notification dated 28 August 1981 limited local tax on “drugs and medicines” to 3 %, which, according to the assessee, also reduced Central tax to 3 % under section 8(2-A) of the Central Sales Tax Act.
Despite this, the assessee continued to pay 6 % local tax and 4 % Central tax until 1 April 1987. A further State notification dated 2 April 1987 entirely exempted “drugs and medicines” from local tax, after which no Central tax was collected on the products. Claiming that its goods were always “drugs and medicines,” the assessee sought refund of excess tax paid between 1 November 1981 and 1 April 1987 and filed revised returns for 1985 and 1986.
The Sales Tax Officer rejected the refund on 24 December 1987, invoking unjust enrichment. The assessee filed two writ petitions before the High Court: one questioning classification of its products and another seeking refund. The High Court held the goods to be “drugs and medicines” and ordered relief. The State of Goa appealed to the Supreme Court, leading to the present decision in Civil Appeal No. 2461 of 1988 (with connected appeals Nos. 2462-63).
Legal Issues Presented
- Whether the assessee’s products—various adhesive plasters, wound dressings and bandages—qualify as “drugs and medicines” under the relevant State notifications of 1981 and 1987.
- If so, whether the assessee is entitled to a refund of local and Central sales tax paid in excess during 1 November 1981 – 1 April 1987.
- Whether the High Court erred in entertaining writ petitions when statutory appellate remedies against assessment orders were available.
Arguments of the Parties
Assessee-Company (Respondent)
- The products are manufactured under a licence issued by the Drugs Controller; their production is monitored at every stage, indicating their character as “drugs and medicines.”
- State notifications limiting or exempting tax on “drugs and medicines” applied, making the correct tax rate 3 % (and later 0 %).
- Excess tax was paid under a mistake of law and must be refunded.
State of Goa (Appellant)
- The items are not understood in ordinary commercial parlance as “drugs and medicines”; e.g., a bandage is not a medicine.
- Because the products are not “drugs and medicines,” no refund arises.
- The assessee should have pursued statutory appeals instead of filing writ petitions; questions of fact cannot be decided in writ jurisdiction.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Customs and Excise Commrs. v. Beecham Foods Ltd. (1972) 1 WLR 241; (1972) 1 All ER 498 | Difficulties in defining “medicine”; classification must be based on ordinary usage, not technical composition alone. | Used to illustrate that the mere presence of medicinal ingredients does not automatically turn a product into a “drug or medicine.” |
| Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433 | Writ jurisdiction should not be invoked when a complete statutory appellate hierarchy exists for tax assessments. | Cited to emphasise that the assessee ought to have exhausted statutory remedies; High Court should not have entertained the writ petitions. |
Court's Reasoning and Analysis
The Supreme Court observed that neither the Central nor the Goa Local Sales Tax Acts define “drugs and medicines.” Consequently, classification must rest on how the goods are perceived in ordinary trade and by consumers. Determining whether medicated plasters and bandages function as medicaments involves factual enquiries into their medicinal content, curative or preventive properties and market understanding—questions unsuitable for determination in writ proceedings.
Relying on Beecham Foods, the Court reiterated that the presence of a medicinal element does not ipso facto convert a product into a medicine. The Court further invoked Titaghur Paper Mills to underline that a statutory hierarchy of remedies exists for challenging sales-tax assessments. Allowing writ petitions to bypass that framework is improper, especially where contested issues are predominantly factual.
Because the assessee sidestepped the appellate mechanism, the High Court's adjudication on factual classification and consequent refund was held to be inappropriate. The Supreme Court therefore set aside the High Court’s judgment and directed the assessee to pursue statutory appeals, signalling that both factual and legal questions should be resolved there.
Holding and Implications
APPEALS ALLOWED; HIGH COURT JUDGMENT SET ASIDE.
The assessee may file statutory appeals against the assessment orders within six weeks; appellate authorities must entertain the appeals without raising limitation objections. All factual and legal issues, including product classification and refund entitlement, remain open for determination.
Implications: The decision reinforces the principle that taxpayers must exhaust prescribed statutory remedies in tax matters before approaching constitutional courts. It also clarifies that classification of goods as “drugs and medicines” hinges on factual market perception, not merely regulatory licences or ingredients, but establishes no new substantive precedent beyond the procedural point.
C. Sen, J.— Leukoplast (India) Limited, the assessee-Company was granted a licence by the Drugs Controller under the Drugs and Cosmetics Act, 1940. It was amended on 7-9-1987. Under this licence, the assessee was entitled to produce inter alia Zinc Oxide Adhesive Plaster BPC (Leukoplast), Surgical Wound Dressing (Handyplast); Belladona Plaster BPC; Capsicum Plaster BPC and Cotton Crape Bandages BPC (Leukocrapes).
2. The aforesaid goods or products were liable to local sales tax as well as Central sales tax and prior to 1-11-1981, the rate of the local sales tax leviable on them was at the rate of 6 per cent and under Section 8(2-A) of the Central Sales Tax Act, the rate of tax was 4 per cent. By Notification No. 14/41/81-Fin (R&C), dated 28-8-1981, drugs and medicines were exempted from the levy of local sales tax in excess of 3 per cent and thus, according to the assessee-Company, as a result of this exemption, the Central sales tax leviable under Section 8(2-A) of the Central Sales Tax Act was also reduced to 3 per cent.
3. The assessee-Company, however, had been paying Central sales tax at the rate of 4 per cent on the sale of the goods and also local sales tax at the rate of 6 per cent from 1-11-1981 to 1-4-1987.
4. By another Notification No. 5/5/87 (R&C)-8, the State of Goa in exercise of the powers under Section 10 of the Local Sales Tax Act, amended the Second Schedule to the Local Sales Tax Act, inter alia, inserting Entry No. 77 which speaks of “drugs and medicines, including all I.V Drips”. By the said notification, the goods were totally exempted from levy of the local sales tax, and consequently, the Sales Tax Authorities, ceased to collect Central sales tax from 2-4-1987 on the above-mentioned products or goods manufactured by the assessee-Company.
5. Further, the case of the assessee is that the sales tax payable from 1-11-1981 to 1-4-1987 was at the rate of 3 per cent only and as such by two letters both dated 3-4-1987, they pointed out to the Sales Tax Officer that the goods in question were “drugs and medicines”, and on and from 1-11-1981 to 1-4-1987 the said goods were liable to local and Central sales tax at the rate of 3 per cent. They further prayed for refund of the duty paid in excess of local and Central sales tax levied and collected as a result of the sales tax assessment which had been completed. They also filed revised sales tax returns for the assessment periods, 1-1-1985 to 31-12-1985 and 1-1-1986 to 31-12-1986. However, despite these two letters, no action was taken by the State of Goa as regards the claim for refund of the Central and local sales tax collected in excess. They further prayed for the completion of the assessment proceedings which were still pending for the subsequent periods, that is, from 1-1-1983 to 31-12-1986.
6. They further contended that after the admission of the writ petition, the Assistant Sales Tax Officer made orders dated 24-12-1987 for the period commencing on 1-1-1983 and ending on 31-12-1983. He rejected the claim for refund, applying the doctrine of unjust enrichment.
7. Thereupon, the assessee-Company filed a writ petition challenging the decision of the Assistant Sales Tax Officer. The contention of the assessee was that the assessment orders should be set aside and it was entitled to the refund of the tax paid under a mistake of law and collected by the State without the authority of law. On behalf of the State, however, it was contended that the products were not “drugs and medicines” and as such no question of refund of tax paid did arise. The Court formulated two questions which had to be decided in the writ petition. The questions were:
“(a) Whether the products manufactured by the petitioners and listed in paras 2 and 4 of the petition are ‘drugs and medicines’ within the purview of the aforesaid Notifications No. 14/41/81-Fin (R&C) and No. 5/5/87 (R&C)-8, and
(b) whether the petitioners are entitled to the refund sought.”
8. After a long discussion about the nature of the products of the assessee-Company and after referring to Pharmaceutical Codex incorporating the British Pharmaceutical Codex, the meaning given to “drugs and medicines” in Drugs and Cosmetics Act and also to the understanding of the phrase “drugs and medicines” by the Excise Authorities, and several affidavits filed on behalf of the assessee, the High Court came to the decision that the products manufactured by the assessee-Company had to be treated as “drugs and medicines” and the writ petition was entitled to succeed.
9. There was a second writ petition in which the dispute was in respect of entitlement to refund of tax payable under a mistake of law. Following the decision in the first writ petition, the second writ petition was also decided in favour of the assessee-Company with some modifications.
10. The State has come up in appeal. We have heard the case in extenso. The dispute basically centres around the contention of the assessee that its products like Zinc Oxide Adhesive Plaster BPC (Leukoplast), Surgical Wound Dressing (Handyplast); Belladona Plaster BPC; Capsicum Plaster BPC and Cotton Crape Bandages BPC (Leukocrapes) can be treated as “drugs and medicines”. The assessee's contention that it has got a licence to manufacture these products under the Drugs and Cosmetics Act and its production is controlled at every stage by the Drug Control Authorities does not conclude the matter. The question is how these terms are understood by people generally? For example, can a bandage be treated as a drug or a medicine? Will the position be different if the bandage is medicated? These questions cannot be decided by reference to any definition of the Drugs and Cosmetics Act or product control licence issued by the Drugs Controller. There is no definition given in the Local Sales Tax Act or in the Central Sales Tax Act of these terms. It has to be found out how these products are understood and treated in the market. In the ordinary commercial sense, are these articles considered as drugs or medicines? These are basically questions of fact.
11. In fact, the difficulty of defining what are drugs and medicines was discussed in the case of Customs and Excise Commrs. v. Beecham Foods Ltd. (1972) 1 WLR 241, (1972) 1 All ER 498, where the question was whether Ribena black currant juice BPC could be treated as a drug or medicine. The plaintiff's case was that this product consisted of syrup of black currant made in accordance with the British Pharmaceutical Codex and containing some natural Vitamin C and a syrup made in accordance with the British Pharmacopoeia and synthesised Vitamin C. It had a prophylactic function when taken by those who needed Vitamin C. It was sold and advertised on the basis of that function. The plaintiffs sought a declaration that Ribena was a “drug or medicine” and was entitled to the benefit of exemption from Purchase Tax Act, 1936. It was held by the House of Lords that Ribena could not be treated as a drug or medicine. In coming to this decision certain interesting observations were made which have to be borne in mind.
12. Lord Reid pointed out that in the Purchase Tax Act, “medicine” had not been defined. So it had to be understood as an ordinary word of English language. Lord Reid observed:
“As with so many English nouns there is no clear limit to the denotation of the word medicine. All the circumstances must be considered and there may be cases where it is extremely difficult to decide whether or not the term medicine is properly applicable. But here I think that however one approaches the matter it would be a misuse of language to call Ribena a medicine and I would therefore allow the appeal.”
13. Lord Morris who delivered a dissenting judgment tried to define the term “medicine” in the following manner:
“What then is a medicine? The learned Judge (1969) 1 WLR 1518 (1969) 1 WLR 1518, (1969) 3 All ER 135, at p. 1527 pointed to a dictionary definition of medicine (when used in a sense other than a substance) as ‘the science and art concerned with the cure, alleviation, and prevention of disease, and with the restoration and preservation of health’. In line with the learned Judge I think that 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.”
14. Lord Wilberforce, who agreed with Lord Reid, pointed out that the fact that a drug was present in something did not convert that preparation as a whole into a drug. Merely because Vitamin C was present in Ribena, it did not become a drug.
15. In our view, whether the products manufactured by the assessee can be treated as “drugs or medicines” cannot be answered straightaway. The medicinal content of the products, if any, has to be ascertained. Its curative function has to be found out. Can the product be called a medicament at all? Is it used to cure or alleviate or to prevent disease or to restore health or to preserve health? Are these products treated as drugs or medicines in common parlance? These are basically questions of fact. There was no reason for the assessee-Company to bypass the statutory remedy and come to the court with a writ petition. These questions basically of fact should be agitated before the statutory appellate authority.
16. In the case of Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433, (1983) 142 ITR 663 a Bench of three Judges of this Court pointed out the inadvisability of entertaining a writ petition questioning a sales tax assessment. This Court held:
“Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the prescribed authority under sub-section (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under sub-section (3) of Section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution.”
17. We are of the view that the assessee should not have been allowed to bypass the statutory remedies where the questions of fact could have been properly agitated and ascertained.
18. The appeal, therefore, is allowed. The impugned order of the High Court is set aside.
19. The assessee-Company will be at liberty to prefer appeal against the assessment order in accordance with law within a period of six weeks from date. If such appeal is preferred within the said period of six weeks, the appellate authority will entertain the appeal without raising any question of limitation. All the questions of fact and law are left to be decided by the appellate authority.
20. There will be no order as to costs.
Civil Appeals Nos. 2462-63 of 1988
21. In view of our decision in Civil Appeal No. 2461 of 1988, the above appeals are also allowed. There will be no order as to costs.
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