Gujarat High Court
State Of Gujarat vs C.K. Gauze Bandage Manufacturing ... on 13 March, 1991
Author: G.T. Nanavati
Bench: G.T. Nanavati
JUDGMENT S.D. Shah, J.
1. On the application filed by the State of Gujarat under section 69(1) of the Gujarat Sales Tax Act, 1969, for reference, the Tribunal has referred the following question of law for our decision :
"Whether, on the facts and in the circumstances of this case, the Tribunal was right in law in holding that the opponent's sales of cotton rolled bandages were sales of 'handloom fabrics of all varieties' covered by enrty 33 of Schedule I to the Gujarat Sales Tax Act, 1969 and, therefore, free from all taxes and that they were not sales of 'drugs and medicines' covered by entry 26(1) of Schedule II, Part A to the said Act and, therefore, not taxable at the rate prescribed therein ?"
2. In order to answer the question referred for our decision, it is necessary to set out briefly the facts giving rise to the reference of question referred to us :
(i) The opponent is a dealer registered under the Gujarat Sales Tax Act, 1969, and he carries on the business to sell (i) cotton bandage cloth, (ii) cotton gauze absorbent cloth and (iii) cotton rolled bandages. The opponent sells cotton bandage cloth and cotton gauze absorbent cloth in the same form of "taka" in which it purchased them, after bleaching the same with bleaching solution. However, in the case of cotton rolled bandages after bleaching cotton bandage cloth the opponent cuts them into pieces which are 3 metres in length and either 2 inches or 3 inches or 4 inches in width. The opponent, thereafter, sells the cotton rolled bandages of the above three sizes as packed in bundles of 10 pieces each.
(ii) The opponent sold the said articles since he believed that the articles were "handloom fabrics of all varieties" when sold at a price less than Rs. 10 per metre within the meaning of entry 33 of Schedule I to the Gujarat Sales Tax Act, hereinafter referred to as "the said Act", and therefore, according to the opponent their purchases as well as sales were free from all taxes in terms of section 5 of the said Act.
(iii) The sales tax authorities visited the business premises of the opponent and found that the opponent was dealing in cotton bandage cloth, cotton gauze absorbent cloth and cotton rolled bandages. They also found that the opponent had obtained and was holding licence under the "Drugs and Cosmetics Act, 1940" for the purpose of manufacturing the said articles. The Sales Tax Officer was of the view that the said articles fall within the entry "drugs and medicines", i.e., entry No. 26(1) of Schedule II, Part A of the said Act. He, therefore, assessed the opponent to tax as an unregistered dealer for the period from 1st July, 1972 to 4th August, 1975, holding that the opponent has effected sales of three varieties of goods as being sales of drugs and medicines within the meaning of entry 26(1) of Schedule II, Part A.
(iv) Being aggrieved by the said order of the Sales Tax Officer, the opponent herein, preferred appeal to the Assistant Commissioner, Sales Tax. In the said appeal, the Assistant Commissioner confirmed the findings of the Sales Tax Officer and held that the three articles in question fall within the entry No. 26(1) of Schedule II, Part A to the said Act. He, therefore, dismissed the appeal.
(v) The opponent, thereafter, carried the matter to the Tribunal and contended that the articles sold by it squarely fall within entry No. 33 of Schedule I, i.e., "handloom fabrics of all varieties" and not within entry No. 26(1) of Schedule II, Part A to the said Act, i.e., "drugs and medicines". The Tribunal by its judgment and order dated 6th October, 1978, accepted the plea of the opponent by holding that the sales of three items by the opponent were the sales of "handloom fabrics of all varieties" covered by entry No. 33 of Schedule I to the said Act, and therefore, free from all taxes, and that they were not sales of drugs and medicines covered by entry No. 26(1) of Schedule II, Part A to the said Act.
(vi) The State of Gujarat was, in fact, not aggrieved by the aforesaid decision of the Tribunal in so far as it relates to the opponent's sales of cotton bandage cloth and cotton gauze absorbent cloth. However, the State was aggrieved by the judgment and order of the Tribunal in so far as it related to the opponent's sales of cotton rolled bandages, and therefore, it applied for reference under section 69(1) of the said Act and on the said application the Tribunal having found that the question of law did arise out of its impugned judgment, it has referred the question of law reproduced hereinabove for our decision.
3. The learned Assistant Government Pleader appearing on behalf of the applicant submits that the cotton rolled bandages manufactured and sold by the opponent squarely fall within entry No. 26(1) of Schedule II, Part A of the said Act, and in his submission the "cotton rolled bandages" would fall within the meaning of the word "drug". He further submits that the cotton rolled bandages cannot be appropriately described or classified as goods of "handloom fabrics of all varieties" under entry No. 33 of Schedule I to the said Act. He submits that the "cotton rolled bandages" in the popular parlance or common parlance are understood as substances which are used for the purpose of treating and/or mitigating the diseases. In his submission the use to which the cotton rolled bandages are put is a material factor to be kept in mind. He submits that in the popular parlance "cotton rolled bandage" is not understood as "handloom fabric" but he submits that they can be classified under the entry "drugs and medicines". The opponent as a manufacturer knows that by bleaching cotton bandage cloth with relevent bleaching solution and after cutting the said cotton bandage cloth into pieces of length of 3 metres and of the width of 2, 3 or 4 inches the manufacturer is manufacturing a substance which can be classified as "drug or medicine". With that knowledge in his mind the manufacturer even applied for licence to manufacture the said articles and to stock the said articles under the provisions of the "Drugs and Cosmetics Act, 1940". When such a manufacturer sells the articles he sells it as "cotton rolled bandage" and not as "handloom fabric" or "varieties of handloom fabrics". The buyer who buys "cotton rolled bandage" purchases the same as "cotton rolled bandage" and not as "handloom fabric". The use to which the "cotton rolled bandage" is put is also one of covering cuts or wounds, and therefore, he submits that in popular or common parlance "cotton rolled bandage" can be properly described as "drug and medicine", and not as "handloom fabric of all varieties". On the other hand, Mr. R. D. Pathak, learned counsel for the opponent submits that the "cotton rolled bandage cloth" which was bleached and sold in the form of taka remains "handloom fabric" so as to be covered by entry 33 of Schedule I to the Act, and mere bleaching of such cloth or cutting such cloth into pieces of specific size would not convert the handloom cloth so as to cease to be "handloom cloth" and to fall within entry 26(1) of "drugs and medicines".
4. In order to answer the question referred to us it is necessary to refer to the nature of the article and how it is described in the popular parlance. The opponent is manufacturing "cotton rolled bandages" and he describes the said article as "bandages". It is admitted position that after bleaching cotton bandage cloth with bleaching solution the opponent cuts cloth into pieces which are of 3 metres in length and 2, 3 or 4 inches in width. He, thereafter, packs them in bundles of 10 pieces each and sells them at a sale price not exceeding Rs. 2 per metre. As a manufacturer, the opponent describes the article as "bandages" and when sells them he sells them as bandage. The buyer or purchaser who purchases the same gets them as bandages and the principal or primary use of such bandages is that of covering the cut or wound so as to be used as "drug or medicine" as described in entry 26(1) of Schedule II, Part A of the said Act. Applying the common parlance test to the "cotton rolled bandages" we are of the opinion that from the point of view of the manufacturer, the seller, buyer and the user, the cotton rolled bandages are understood as "bandages" used for the purpose of covering cuts or wounds which are used as substance which treat or heal the wounds or cuts.
5. The words "drug" and "medicine" are not defined by any of the provisions of the said Act. It is the accepted principle of interpretation of fiscal statute that when the word or term is not defined by the statute it is the court which should try to find out the meaning in the popular parlance or in the common parlance. How is the commodity known amongst the persons dealing with the commodity is the question required to be asked. Primary test for determining the nature of article would be the test of common or popular parlance. Cotton rolled bandage is always regarded by the manufacturers as "bandage" and the opponent is not an exception. He describes his produce as "cotton rolled bandages" and not as "handloom fabric". He stocks and sells the cotton rolled bandages as "bandages" and not as "handloom fabric". They are marketed as "cotton, rolled bandages". Purchaser would necessarily ask for "bandages" and the supplier or the stockist, would in answer to the demand, supply the "cotton rolled bandages" manufactured by the opponent. Normally, a person in need of bandages would go to the pharmacist or druggist. He would not go to the shop of handloom fabric. Therefore, applying the test of common or popular parlance as understood by the persons dealing with the bandages we are of the opinion that the "cotton rolled bandages" cannot be classified as "handloom fabric of all varieties".
6. Over and above the test of popular or common parlance, there is another test of primary or principal use of the article. Very often, by applying the test of primary or principal use of the article in question, the courts have tried to determine the nature of the article. Cotton rolled bandages of the specification stated hereinabove are primarily and principally manufactured and used for one purpose alone, i.e., for the purpose of covering wounds or cuts. The opponent does not dispute the fact that the primary and principal use of the cotton rolled bandages is that of covering the wounds or cuts. Even the Tribunal has also recorded the finding that the cotton rolled bandages have one and only use. If the product in question is used as bandage for the purpose of covering wounds or cuts its principal use being that of bandage, it cannot be classified as "handloom fabrics". After bleaching of cotton bandage cloth the opponent cuts them into sizes of length of 3 metres and width of either 1, 2 or 3 inches. After such cutting they become distinct marketable commodity and are thereafter known, sold, purchased and used as "bandages" and not as "cotton fabric" or "handloom fabric". Having cut into pieces of specific sizes they become distinct marketable commodity and are called as "cotton bandages". In our opinion, "cotton bandages" cannot be, thereafter, classified as "handloom fabric" or an article of "handloom fabric" they having acquired the status of distinct marketable commodity so as to be called, sold, purchased and used as "bandages".
7. Having thus applied the test of popular or common parlance and the test of primary or predominant use we can usefully refer to the entry of "drug and medicine". As stated, the words "drug" and "medicine" are not defined in the Act. We, therefore, refer to the ordinary meaning of the words. The word "medicine" has been defined to mean substantial preparation used in treating diseases. In Stedman's Medical Dictionary, the term "medicine' is defined to mean (i) A drug; (ii) the art of preventing or curing diseases, the science that treats of diseases in all its relations; (iii) the study and treatment of general diseases or those affecting the internal parts of the body, distinguished from surgery. However, the concept of "medicine" is not stated. In the case of Rashtra Deep Laboratory v. Commissioner of Sales Tax reported in [1983] 53 STC 419, the Allahabad High Court was called upon to decide as to whether water for injection would fall within the entry of "medicine and pharmaceutical preparations". It was the case of the Commissioner of Sales Tax before the Allahabad High Court that water for injection is nothing but distilled water in the broad sense of the word and that it cannot be classified as medicine and pharmaceutical preparation. While holding that water for injection is "medicines and pharmaceutical preparations" the court observed as under :
"The concept of medicine is not static. It is a changing concept linked with the advancing human knowledge and its endeavour to alleviate human suffering. It is also changing with the change in social thinking of a community with a view to solve its problems. Thus viewed, the term 'medicine' cannot be confined within the traditional concept of an article which, by itself, is enough to cure a human ailment. This Court has accepted departure from the traditional concept of medicine for purposes of U.P. Sales Tax Act when it held that tartaric acid which, in the broader sense, is a chemical, is medicine (see Commissioner of Sales Tax, U.P. v. Fadral Chemical Works Ltd. printed at page 425 infra; 1980 UPTC 552) and is taxable as a medicine and not as a chemical."
In Berry v. Henderson (1870) 5 QB 296 it has been observed as under :
"The word 'medicine' is comprehensive enough to include everything which is to be applied for the purpose of healing, whether externally or internally".
The word "drug" is not defined in the Act but section 3, clause (b)(i) of "Drugs and Cosmetics Act, 1940" defined "drug" as under :
"3(b)(i). All medicines for internal or external use of human being 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."
Under the said definition, that substance intended to be used for treatment, mitigation or prevention of any disease in human being can be described as "drug". It is undoubtedly true that this definition is given by the Drugs and Cosmetics Act, 1940. We are also conscious of the fact that the word "drug" is not defined by the Gujarat Sales Tax Act. However, it is required to be noted that the Drugs and Cosmetics Act is an Act of 1940 and the concept of "drug" is defined by the said Act. The amended definition of "drug" for the purpose of the said Act is at least in vogue and known to the persons dealing in drugs since 1955 inasmuch as the amended definition came to be substituted by Act 11 of 1955. The question that arises for our consideration, therefore, is as to whether "cotton rolled bandages" can be said to be "drug" as defined by the said Act. In the case of Chimanlal Jagjivandas Sheth v. State of Maharashtra reported in AIR 1963 SC 665 in the context of Drugs and Cosmetics Act, 1940, the Supreme Court was called upon to decide as to whether absorbent cotton wool, roller bandages and gauze which were found from the premises of the appellant before the Supreme Court would fall within the definition of "drug' as defined by the said Act. In that case the Supreme Court has observed as under :
"The said definition of 'drugs' is comprehensive enough to take in 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 part of the definition which is material for the present case is 'substances intended to be used for or in the treatment'. The appropriate meaning of the expression 'substances' in the section is 'things'. It cannot be disputed, and indeed, it is not disputed, that absorbent cotton wool, roller bandages, and gauze are 'substances' within the meaning of the said expression. If so, the next question is whether they are used for or in 'treatment'. The said articles are sterilized or otherwise treated to make them disinfectant and then used for surgical dressing; they are essential materials for treatment in surgical cases. Besides being aseptic these articles have to possess those qualities which are utilised in the treatment of diseases. Thus, for instance, in the case of gauze - one of the articles concerned in this appeal - it has to conform to a standard of absorbency in order that it might serve its purpose;, otherwise, the fluid which oozes is left to accumulate at the site of the wound or sore. 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 Act is to prevent substandards in drugs, presumably for maintaining high standards of medical treatment. That would certainly be defeated if the necessary concomitants of medical or surgical treatment were allowed to be diluted; the very same evil which the Act intends to eradicate would continue to subsist."
8. The meaning of the expression "substances" is "things". It is the substance or thing which is used for or in the treatment. The court found that roller bandages would be substances within the meaning of the said expression. The question that would arise would be as to whether such roller bandages are used for or used in treatment. If the bandages are used in or for treatment, they can be said to be substances so as to fall within the definition of "drug" as defined by the said Act. In that context, the Supreme Court found that the bandages and gauze are essential materials for treatment in surgical cases. The court found that, in fact, they are the substances which are necessary aids for treating surgical or other cases. It is required to be noted that the observations quoted hereinabove not only interpret the meaning of the word "substance" widely, but thereafter the court has applied the said meaning to the articles in question before the court. With respect to roller bandages, absorbent cotton wool and gauze it is found that they are essential materials for treatment in surgical cases and they are necessary aids for treating surgical or other cases. Cotton rolled bandages can, thus, be described as "drug" intended to be used for treatment mitigation or prevention of any disease. A bandage is used to cover wound or cut, and thereby, it helps in mitigating the disease by covering it and by protecting it from outside elements. It provides safe coverage against exposure to wind, dust, and other infectious elements, and it thereby mitigates the possibility of spread of wound or prevents the wound from getting septic. Bandage positively helps in prevention of any disease at least by preventing the wound to be infected and thereby it helps the healing process. Cotton rolled bandages thus assist in healing wounds. They can, therefore, be classified as "drug and medicine" in common or popular parlance. Person in trade dealing with its manufacture and sales also treats the bandage as "drug or medicine". The respondent-manufacturer manufactures them as bandages. We are fortified in our conclusion by the fact that the respondent has applied for licence to manufacture bandages under the provisions of the "Drugs and Cosmetics Act". On the package containing bandages the article is described as "bandage" and its batch number is also stated. Such bandage is required to conform to the standards prescribed in the provisions of the "Drugs and Cosmetics Act" for the purpose of manufacturing bandages. The respondent sells them as bandages. The class of purchaser being either surgeons or patients purchases them as bandages. They are being used as bandages for the purpose of covering wounds or cuts. They, as such, cannot be used and are, in fact, not being used for any other purpose except that of covering wounds or cuts. We are, therefore, of the opinion that the "cotton rolled bandages" manufactured by and sold by the opponent would fall within the entry of "drugs and medicines" and they cannot be classified as "handloom fabric of all varieties".
9. Mr. R. D. Pathak, learned Advocate for the opponent, submits that since the words "drug and medicine" are not defined by the provisions of the said Act this Court cannot look into the definition of "drug" as contained in the "Drugs and Cosmetics Act, 1940", and according to him, it is not permissible exercise to construe the word "drug" occurring in the said Act by reference to definition given in "Drugs and Cosmetics Act, 1940". In this connection he invites our attention to the case of Commissioner of Sales Tax v. Jaswant Singh Charan Singh reported in [1967] 19 STC 469. In the said case, the Supreme Court was called upon to decide as to what meaning should be given to the word "coal" specified in entry 1 of Part III of Schedule II to the Madhya Pradesh General Sales Tax Act, 1958. The court held that while interpreting items in statutes like the Sales Tax Acts, resort should be had not to the scientific or technical meaning of such terms but to their popular meaning or the meaning attached to them, that is to say, to their commercial sense. We have already undertaken the exercise of ascertaining the popular meaning or the meaning in common parlance, and we have independently reached the conclusion that in the common or popular parlance the "cotton rolled bandages" can be described as "drug". However, in the context of referring to the definition of "coal" as given in Colliery Control Order, 1945, the Supreme Court observed as under :
"It is a well-settled principle that in construing a word in an Act caution is necessary in adopting a meaning ascribed to that word in other statutes. As Lord Loreburn stated in Macbeth v. Chislett [1910] AC 220 at 224, 'it would be a new terror in the construction of Act of Parliament if we were required to limit a word to an unnatural sense because in some Act which is not incorporated or referred to such an interpretation is given to it for the purposes of the Act alone'. The strict sense in which such a word is to be found in another statute may mean the etymological or scientific sense and would not in the context of another statute be applicable."
10. From the above observations of the court, we are of the opinion that what is laid down is that while construing a word in a given Act, the court should be cautious in adopting the meaning ascribed to that word in another statute. An absolutely unnatural sense or meaning which is given to the word in another statute cannot be bodily lifted and applied to a word in another statute. We are of the opinion that the above observations of the Supreme Court do not totally prohibit reference to the meaning of a word as given in another statute for the purpose of ascertaining the meaning of that very word occurring in the statute before the court. The Supreme Court has simply sounded a note of caution. We have, in fact, independently undertaken the exercise of ascertaining the meaning of the word "drug" and as to how in the popular parlance "bandages" is accepted. Having applied the test of commercial parlance as well as test of predominant use we have independently reached the finding that "cotton rolled bandages" can be described as "drug". Our reference to the definition of "drug" is to re-endorse our conclusion and we do not find that the meaning which is given to the word "drug" in the "Drugs and Cosmetics Act, 1940" is, in anyway, artificial or unnatural meaning. In fact, the opponent has treated his product as "drug" and has, in fact, applied for licence for manufacturing the same under the provisions of the "Drugs and Cosmetics Act, 1940". We are, therefore, of the opinion that the exercise of referring to definition of "drug" as given in "Drugs and Cosmetics Act, 1940" is a permissible exercise. In the case of State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. reported in [1958] 9 STC 353, the Supreme Court has applied the definition of "sale" as defined in the Sale of Goods Act, 1930, to the transaction of sale of goods. The court in that case was concerned with the meaning of words "sale of goods" as defined by the Madras General Sales Tax Act and while undertaking that exercise the court made reference to the definition of word "sale" as contained in the Indian Sale of Goods Act, 1930. The court found that the Indian Sale of Goods Act, 1930, was the general law relating to sale of goods. The meaning given to the said expression in the Sale of Goods Act can be used for the purpose of finding out the true meaning of the said word when used in the law dealing with the sales tax. We are, therefore, of the opinion that reference to the meaning of the word "drug" as defined in the Drugs and Cosmetics Act, 1940, so as to support the conclusions independently reached is not prohibited, especially when the definition of "drug" given in the said Act is not artificial or unnatural definition so as to militate against the ordinary meaning of the word "drug" understood in the common parlance. We, therefore, do not find any substance in the objection raised by Mr. Pathak to our reference to the definition of word "drug" contained in the Drugs and Cosmetics Act, 1940.
11. We are, therefore, of the opinion that the sales of "cotton rolled bandages" were sales of "drug and medicine" covered by entry 26(1) of Schedule II, Part A to the said Act, and they were not the sales of "handloom fabrics of all varieties" covered by entry 33 of Schedule I to the said Act so as to be free from all taxes. We, therefore, answer the question referred to us in the negative and hold that the Tribunal was not right in law in holding that the opponent's sales of "cotton rolled bandages" were sales of "handloom fabrics of all varieties" covered by entry 33 of Schedule I to the Gujarat Sales Tax Act and they were not sales of "drugs and medicines" covered by entry 26(1) of Schedule II, Part A to the said Act.
12. We answer the question referred to us in the negative, i.e., in favour of the State and against the assessee. There shall be no order as to costs.
13. Reference answered in the negative.