Madhya Pradesh High Court
M/S Erawat Pharma Limited Thru.Shri ... vs Commercial Taxes Department on 4 July, 2018
HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE
Writ Petition No.1267/2017
(M/s. Erawat Pharma Ltd. Vs. State of M. P. & Another)
-1-
Indore, dated 04/07/2018
Shri Akhilesh Sharma, learned counsel for the petitioner.
Shri Pushyamitra Bhargava, learned Deputy Advocate
General for the respondent/State.
The petitioner before this Court is a Company registered under the Companies Act engaged in manufacturing process of Empty Har Gelatin Capsules, has filed present petition being aggrieved by order dated 31/12/2016 passed by the Commissioner, Commercial Tax holding that HPMC (Hydroxy Propyl Methyl Cellulose) Capsule Shells are taxable as per entry No.5 of Part-IV of Schedule-II of Madhya Pradesh VAT Act, 2002 and therefore, taxable @ 14%.
02- The facts of the case reveal that the petitioner is manufacturer of empty hard gelatin capsules (Empty Hydroxy Propyl Methyl Cellulose Capsule Shell) (hereinafter referred as 'Empty HPMC Capsule Shell'). The office of the Controller, Food and Drug Administration, M. P. has granted permission to the petitioner Company to manufacture EHPMC Capsule Shell as additional product under the Drugs Manufacturing Licence No.28/13/97 (Form No.28).
03- The contention of the petitioner is that empty HPMC Capsule Shell are made of Hydroxy Propyl Methyl Cellulose and are used by HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE Writ Petition No.1267/2017 (M/s. Erawat Pharma Ltd. Vs. State of M. P. & Another) -2- Pharmaceutical Industries for filling medicines. The petitioner on 04/02/2016 moved an application under Section 70 of the Madhya Pradesh VAT Act, 2002 for seeking clarification / opinion in respect of rate of tax of Empty HPMC Capsule Shell to the Commissioner, Commercial Tax, Indore (M.P.).
04- Along with the application enclosed the details of manufacturing process, details of manufacturing process in respect of Empty HPMC Capsule Shell, details of manufacturing process of Empty Gelatin Capsule Shell, details of process flow chart of Empty HPMC Capsule Shell and details of process flow chart of Gelatin Capsule Shell as well as Product Flow Chart of Empty HPMC Capsule Shell. Along with the application, Composition Certificate in respect of Empty HPMC Capsule Shell and Empty Gelatin Capsule Shell was also enclosed.
05- In the application under Section 70, a prayer was made that HPMC Capsule should be taxable under the entry (Entry 19-A of Part-II of Schedule-II) of Drugs and Medicines or any other entry and therefore, tax should be levied @ 5%. In support of the contention the petitioner Company has stated before the learned Commissioner that HPMC Capsules are being manufactured under Drug Licence and they are used for filling medicines, a patient consumes the capsule with drug and the Empty Hard Gelatin HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE Writ Petition No.1267/2017 (M/s. Erawat Pharma Ltd. Vs. State of M. P. & Another) -3- Capsule Shell is covered under the Entry of Drug and Medicine and therefore, as the purpose of HPMC Capsule is same like Gelatin Capsule, it should be treated at par for the purposes of taxation like Gelatin Capsule Shell only.
06- Various other grounds were also raised, however, the learned Commissioner has passed an order dated 31/12/2016 holding that the Empty HPMC Capsule cannot be included under the category of drug and medicines, thus, is liable for taxation @ 14% per annum. 07- Learned counsel has placed heavy reliance upon the Drugs and Cosmetics Act, 1946 and has referred to definition of Drug. Section 3(b) of Drugs and Cosmetics Act, 1946 reads as under:-
"Section 3(b) - "drug" includes -
(i) 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;
(ii) such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of 1[vermin] or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette;
(iii) all substances intended for use as components of a drug including empty gelatin capsules; and
(iv) such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette, after consultation with the Board."
08- Learned counsel has also placed reliance upon judgment delivered in the case of The State of Andhra Pradesh Vs. Raja HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE Writ Petition No.1267/2017 (M/s. Erawat Pharma Ltd. Vs. State of M. P. & Another) -4- Medical Stores reported in 1983 53 STC 428 AP, Porritts & Spencer (Asia) Ltd. Vs. State of Haryana reported in 1979 AIR 300, Rashtra Deep Laboratory Vs. Commissioner of Sales Tax reported in 1983 53 STC 419 All and Ramavatar Budhaiprasad Etc Vs. Assistant Sales Tax Officer reported in 1961 AIR 1325. He has also placed reliance upon a judgment delivered in the case of Medicaps Ltd. & Another Vs. State of M. P. & Another reported in (2008) 13 STJ 161 (MP).
09- This Court has carefully gone through the statutory provision governing the field. Section 70 certainly empowers the learned Commissioner to pass an order in case of inclusion / exclusion of a particular entry / clarification in respect of a particular entry in the matter of payment of rate of VAT.
10- In the Madhya Pradesh VAT Act, 2002 there are three schedules covering variety of products and application of tax is as under:-
Schedule Part No. of Product Description Entries I - 89 Tax Free Goods II I 5 1% rate of tax II 110 5% fate of tax III 5 Product wise different rate of tax III-A 10 Product wise different rate of tax IV Residuary Entry All other Goods, not covered by Schedule-I and HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE Writ Petition No.1267/2017 (M/s. Erawat Pharma Ltd. Vs. State of M. P. & Another) -5- any other part of this schedule.
14% rate of tax.
Entry No.19 and 19-A of Part-II of Schedule-II of Madhya Pradesh VAT Act, 2002 reads as under:-
S.No. Description of Good Rate of tax
u/s 9 (%)
(1) (2) (3)
19. Bulk Drugs 5
19A. Drugs and medicines including 5
vaccines, syringes, dressings,
medicated ointments produced under
drug licence and light liquid paraffin of IP grade Schedule-II Part-IV of Madhya Pradesh VAT Act, 2002 reads as under:-
S.No. Description of Good Rate of tax
u/s 9 (%)
(1) (2) (3)
1. All other goods, not covered by 13
Schedule-I and any other part of this
Schedule.
11- This Court in light of the aforesaid statutory provisions is of the opinion that merely because the capsules manufactured by the petitioner is being manufactured on account of inclusion of the same in the drug licence, it can never be said that its a drug. The learned Commissioner has observed that certain cosmetics are also manufactured under the drug licence and therefore, if the analogy given by the petitioner is accepted then all cosmetics will have to be HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE Writ Petition No.1267/2017 (M/s. Erawat Pharma Ltd. Vs. State of M. P. & Another) -6- included under the heading of drug.
12- This Court after hearing learned counsel for the parties, as it is not established that the capsule in question is exclusively used for the purpose of drugs only, is of the opinion that the learned Commissioner was justified by rejecting the prayer of the petitioner and the entries under the VAT Act as reflected in the schedule are very clear, once the capsule manufacture by the petitioner is not included under the category of drugs, it has to be charged under the residuary entry. This Court does not find any reason to interfere with the order passed by the Commissioner. Accordingly, the petition deserves to be dismissed and is hereby dismissed.
Certified copy as per rules.
(S. C. SHARMA) (S. K. AWASTHI)
JUDGE JUDGE
Tej
Digitally signed by
Tej Prakash Vyas
Date: 2018.07.10
14:46:46 +05'30'