Andhra HC (Pre-Telangana)
M/S.Inox Air Products Ltd vs The Assistant Commissioner (Ct)-Ix, ... on 29 October, 2014
Author: Ramesh Ranganathan
Bench: Ramesh Ranganathan
THE HONBLE SRI JUSTICE RAMESH RANGANATHAN AND THE HONBLE SRI JUSTICE M.SATYANARAYANA MURTHY WRIT PETITION NOs.13418 OF 2014 and batch 29-10-2014 M/s.Inox Air Products Ltd.Petitioner The Assistant Commissioner (CT)-IX, Enforcement Wing, Hyderabad and others. . Respondents Counsel for the petitioner:Sri Karan Talwar Counsel for respondents: Sri P. Balaji Varma, Learned Special Standing Counsel for Commercial Taxes <GIST: >HEAD NOTE: ? Citations: 1) (2005) 139 STC 504 (Kerala HC DB) 2) (2010) Vol.35 VST 478 (Madras High Court DB) 3) (2014) NTN (Vol.54) 164 = (2014) VIL 38-ALH- (judgment in Writ Tax No.1098 of 2007 dated 11.02.2014 4) AIR 1963 SC 665 5) (2004) 137 STC 68 6) (2011) 45 VST 47 7) (2003) 7 SCC 517 8) (2008) 14 SCC 171 9) (1972) 1 W.L.R. 241 (H.L) 10) (1997) 105 STC 318 11) AIR 1989 SC 622 12) AIR 1980 SC 611 13) (2004) 6 SCC 281 14) (1990) 79 STC 351 THE HONBLE SRI JUSTICE RAMESH RANGANATHAN AND THE HONBLE SRI JUSTICE M.SATYANARAYANA MURTHY WRIT PETITION Nos.13418 & 16782 Of 2014 COMMON ORDER:
(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.