State Taxation Tribunal - West Bengal
Alembic Chemical Works Co. Ltd. And Anr. vs Commercial Tax Officer, Assessment ... on 23 March, 1994
Equivalent citations: [1994]95STC44(TRIBUNAL)
JUDGMENT
L.N. Ray, Judicial Member.
1. This is an application under Section 8 of the West Bengal Taxation Tribunal Act, 1987, enacted with the aid of Article 423B of the Constitution of India. In other words, this is an application under Articles 226/227 of the Constitution of India, in the form of one under Section 8 of the 1987 Act, the jurisdiction relating to the subject-matter in question having been transferred to this Tribunal to the exclusion of the High Court.
2. The point for decision is whether a product called "Protinules", manufactured and sold by the applicant-company, is taxable under the West Bengal Sales Tax Act, 1954 (in short, "the 1954 Act") as a "drug" or patent or proprietary medicine, or as powdered milk, or otherwise, or it is taxable under the Bengal Finance (Sales Tax) Act, 1941 (in short, "the 1941 Act").
3. The case of the applicants is that applicant No. 1 is a public limited company having its registered office and factory at Vadodara in Gujarat and it sells the said product throughout India and abroad including in West Bengal. The company is a registered dealer under the sales tax laws of West Bengal. It claims that "Protinules" is a medicinal formulation in powdered form containing high biological value (85-90) and high protein efficiency ratio (2.67) and is made from powdered milk, cane sugar, vitamins and inositol with chocolate flavour in very small quantity. Percentage of powdered milk including skimmed milk powder is 55.79 per cent. According to the company, Protinules satisfies the definition of "drug" in Section 3(b) of the Drugs and Cosmetics Act, 1940. By Notification No. 1658 F.T. dated August 1, 1956, issued under Section 25 of the 1954 Act, drug was made a notified commodity under the 1954 Act. Rate of sales tax applicable to drugs has varied from time to time by issuance of notifications under the 1954 Act. In 1956, the rate was 3 per cent. It was subsequently increased or decreased so that the rate was 6 per cent for the period from September 1, 1977 to March 31, 1979, and 7 per cent for the period from May 1, 1979 to March 31, 1981, while it was reduced to 4 per cent for the period from April 1, 1981 till date of the application. It is claimed that Protinules is used in the treatment, mitigation, prevention and cure of various diseases and disorders in human beings, such as, wasting diseases, anaemia, nutritional oedemas, gastrointestinal diseases and disorders, cirrhosis and other liver dysfunctions, kwashiorkor, marasmus, ferbrile diseases, certain kidney diseases like nephritis and nephrosis, beriberi, pellagra, haemorrhages, toxaemia, oedema of legs, xerosis, etc., and also in pregnancy. Protinules is claimed to be the only medicinal cure for kwashiorkor and marasmus which are the diseases generally found in children, resulting from severe protein deficiency or protein energy malnutrition. Protinules is used allegedly on the prescriptions of doctors. A clinical study was conducted in the paediatric Out-patient Department of the Sassoon Hospital, Poona, on children suffering from malnutrition and the attendant diseases and disorders. The result of the study was published in the Maharashtra Medical Journal authored by Dr. V.S. Joshi and Dr. S.G. Sardesai. The Government of West Bengal approved purchase of Protinules for Government hospitals and medical colleges under entry No. 20.54 of the Catalogue of Drugs of the Directorate of Health Services, Central Medical Stores, 1977-78, the entry being titled as "Protein Hydrolysate Powder with vitamins, 500G". So, it is contended that the Directorate of Health Services of the Government of West Bengal considered Protinules to be a drug. Protinules was allegedly accepted by the Health Directorate of the State Government as drug under general tender for 1972-73, 1973-74 and 1977-78. In the Indian Pharmaceutical Guide, 1970, at page 1037, Protinules has been included together with other similar drugs like Protinex, manufactured by Pfizer Ltd. In the National Formulary of India published by the Ministry of Health, Government of India, protein hydrolysate powder has been included under the head, "Drugs affecting nutrition and metabolism". Several affidavits and prescriptions of doctors have been annexed. Applicant-company claims that Protinules is sold by druggists and chemists having retail drug licences and it is not sold by a grocery or stationery shop. Certain certificates have been annexed to this effect. It is said that Protinules is not marketed as a consumer product and sales promotion is done through the medical profession. It is allegedly an "ethical" product, not advertised in the lay media as in the cases of Horlicks, Viva, Complan, Lactogen, Amul, Maltova, etc. In trade, commercial, common and technical parlances Protinules is treated and understood as a drug. It has a definite life-period and manufacturing and expiry dates are mentioned on every lot. Vitamins are themselves drugs and have therapeutic value. Respondent No. 1, Commercial Tax Officer, has all along been allegedly issuing sales tax permits under the provisions of the 1954 Act to the applicant-company for importing Protinules into the State of West Bengal. The inclusive definition of "drug" is wide enough to encompass Protinules. The registration certificate of the applicant-company specifies medicines under the 1954 Act. It is further claimed that Protinules also satisfies the definition of patent and proprietary medicine contained in Section 3(h) of the Drugs and Cosmetics Act, 1940 and it satisfies the relevant entry in Notification No. 1658 F.T. dated August 1, 1956, issued under Section 25 of the 1954 Act.
4. Applicants have stated that the concept of drugs and medicines has undergone change. Substances which were previously not considered to be drugs or medicines are being considered at present as such. The predominant use of Protinules is said to be as a drug or medicine. As Protinules contains powdered milk at more than 50 per cent by weight, it satisfies also the entry in Notification No. 886 dated May 1, 1955, as amended from time to time and issued under Section 25 of the 1954 Act. For the last few decades the company has been marketing Protinules in West Bengal. It is claimed that all along the product was treated as medicine and sales tax permits for importation thereof have been issued. Returns have always been submitted showing the sales of Protinules as taxable at the rate applicable to drug. Just as rate of tax of drug has undergone variations, the latest being 4 per cent, the general rate of tax under Section 5(1)(e) of the 1941 Act has also varied from time to time, the latest being 8 per cent. It is complained that because of the difference in rate of tax, the respondents out of an ill motive, have started taxing the sales of Protinules at the higher rate merely for collecting more and more revenue. Till the year 1978, for which assessment was done in the year 1982, Protinules was being treated as drug for the purpose of tax. For the first time during the assessment for the year ending December 31, 1979, respondent No. 1 raised the question whether the product was a drug and should be governed by the 1954 Act. In spite of explaining that it was a drug or a patent or proprietary medicine or a powdered milk taxable under the 1954 Act, respondent No. 1 assessed tax at the general rate of 8 per cent under the 1941 Act. The appeal filed by applicants before respondent No. 2 against that assessment was dismissed. Even after 1978, for the period from January 2, 1986 to January 13, 1986 and from January 14, 1986 to May 31, 1986, sale of Protinules was assessed under the 1954 Act as drug and tax was imposed at the rate of 4 per cent. But the same officer raised the question of taxing Protinules at higher rate for the period of 12 months ending May 31, 1987. Although returns were filed by the applicants claiming Protinules to be drug taxable at the rate of 4 per cent, tax was actually paid by the applicant-company at the rate of 8 per cent under the 1954 Act as a measure of abundant caution and safety and without prejudice to the contention of the applicant-company and also to avoid any liability of interest. Without considering the claim of the company, respondent No. 1 arbitrarily observed that Protinules was a commodity taxable at 11 per cent, being covered by Notification No. 1022 F.T. dated March 29, 1984, issued under Section 25 of the 1954 Act, which relates to food drinks having cocoa or chocolate and malt as major ingredients. The assessment order was received by the company on August 2, 1991, along with a demand notice. Respondent No. 1 also stated in the course of the assessment order that Protinules cannot be treated as a general goods taxable at the rate of 8 per cent under the 1941 Act. This observation is contrary to those made by respondent Nos. 1 and 2 in respect of assessments for the years 1979 onwards except 1980, when it was held that Protinules fell within the general category of goods under the 1941 Act and were taxable at 8 per cent. At no point of time, applicant claimed that Protinules was taxable under the 1941 Act. In 1983, assessment for the year 1979 was made, when for the first time the Commercial Tax Officer held that Protinules was not taxable as a drug. When tax was levied at 8 per cent under the 1941 Act, there was an appeal against a similar assessment for the year 1980, in which respondent No. 2 upheld the company's stand and held that Protinules was a drug. In spite of that, the Commercial Tax Officer continued to tax the commodity at 8 per cent under the 1941 Act, merely for the sake of collecting more tax. However, there were two assessments for the period from January 2, 1986 to May 31, 1986, when the Commercial Tax Officer reverted to the old rate of 4 per cent, treating the commodity as a drug taxable under the 1954 Act. Then again the Commercial Tax Officer was of the opinion during assessment for the year ending May 31, 1987 that Protinules was taxable at 11 per cent and not at 8 per cent under the 1941 Act. In this manner, allegedly the authorities below have been arbitrarily taxing Protinules at different rates under different laws, merely for increasing collection of tax from the applicant-company. But rival products like Protinex, GRD, Syu, Alprovit, etc., are being taxed as drugs at 4 per cent. Thus, Protinules is facing resistance from the consuming patients as well as doctors because of higher tax rate imposed on it.
5. Apart from assessing at different rates as above, the Commercial Tax Officer allegedly committed the mistake of calculating turnover tax without deducting the amount of turnover deductible under Section 2(e)(ii) of the 1954 Act. This contention of the company was accepted by respondent No. 2 in the appeals from assessment orders for the years 1979 and 1980. The Commercial Tax Officer also imposed penalty in course of the assessment order without issuing any prior show cause notice regarding imposition of penalty. The assessment for the year ending May 31, 1987, was initiated after lapse of three and a half years, thereby denying the company the opportunity to recover the differential amount of tax and interest from the buyers. Notice of demand in form VII and VII-H are allegedly illegal, not being in compliance of Section 10(1) of 1954 Act and Rules 24E(2) and 25 of the Rules, framed under the 1954 Act, as a minimum period of 30 days was not allowed. The assessment orders and determination of interest are allegedly violative of Articles 14, 19(1)(g) and 300A of the Constitution. It is claimed that Protinules does not satisfy the description of the commodity in Notification No. 790 F.T. dated April 2, 1957, as amended by Notification No. 1022 dated March 29, 1984, nor does it resemble the products like Milo, Ovaltine, Bournvita and Tono. Among the many reasons stated in the application as to why Protinules should be treated as a drug or patent or proprietary medicine within the meaning of the 1954 Act, the applicant-company has stated that the commodity contains partially pre-digested proteins, specially formulated for patients, because during illness their digestive power gets reduced. In order to advance the curative and medicinal function of the commodity, it should be easily absorbed by the patient, and, therefore, protein is supplied in a pre-digested form. In ground No. (h) the applicants have stated that by virtue of Section 8 of the West Bengal Taxation Tribunal Act, 1987, this Tribunal exercises its jurisdiction under Article 226 and also the power of superintendence under Article 227 of the Constitution of India. The prayers include those for cancellation of impugned orders of assessment of tax and determination of interest on the impugned notice/direction dated August 5, 1991, in all the connected proceedings and for a direction upon respondents to treat Protinules as drug or patent or proprietary medicine and make assessments/reassessments accordingly. There is an alternative prayer that if this Tribunal does not hold that Protinules is a drug or a medicine, it may be declared to be powdered milk taxable at 8 per cent under the 1954 Act. Directions for issuing statutory forms like permits, form F and sales tax clearance certificates are also prayed for. There is also a prayer for issuance of refund orders together with interest, wherever refund will be admissible to the applicant-company on the basis of the decision in this case.
6. The application has been resisted by the respondents through an affidavit-in-opposition in which their case is that Protinules is not a medicinal formulation, but a "flavoured drink" containing "sufficient proteins". The current Index of Medical Specialities relied on by the applicants in paragraph 13 of the application is said to be not much dependable, since it was compiled from information furnished by manufacturers. The claim that Protinules comes within the statutory definition of "drug" or within the purview of Notification No. 1658-F.T. dated August 1, 1956, has been denied. It is asserted that Protinules is "a nourishing drink with chocolate flavour" and may at best be termed as a beverage like Horlicks, Viva, Bournvita, Maltova, etc. The claim of the applicants that the product is used in the treatment, mitigation, prevention and cure of many a disease listed in paragraph 17 of the application is inconceivable. Similarly, respondents have denied the claim that it is the only medicinal cure of kwashiorkor and marasmus, which are different forms of malnutrition. The importance of protein in the formulation of human body, particularly in children, has been underlined in paragraph 14 of the opposition. The fact that Protinules is prescribed by doctors, does not establish that it is a drug, because even Horlicks, Viva, Complan, etc., are prescribed by doctors. By analysing the report of the study conducted at Sassoon Hospital, Poona, the respondents have submitted that the study did not conclusively prove that Protinules is a drug. It is a "drink which contains considerable amount of proteins and which serves the same purpose as that of milk, legumes, nuts, pulses, beans, cheese, meat, fish and eggs", and it can "at best be termed as a leisure-hour non-alcoholic drink for the rich people of our society and has no use in removing the dangerous effect of malnutrition of poor children of our country". Respondents have said that the Directorate of Health Services of the Government of West Bengal did not treat Protinules as a drug, but treated it only as an item or article. Even if "Protinules" was inadvertently recognised as a "drug", the taxing authorities were not bound by that view and they themselves were required to be satisfied whether it was a "drug". The Indian Pharmaceutical Guide relied on in paragraph 24 of the application, is said to be not dependable, since it is neither an authority nor an empowered publication on the question whether a certain product is a "drug" and since it merely gives a list of medicines and foods including Complan, Farex, Glaxo, Ostermilk and Threptin biscuits. Since applicants referred to only four lines from the National Formulary of India in annexure "J" regarding protein hydrolysate powder, respondents have submitted that they could not make any comment on such incomplete data, and this may be treated as their specific denial. Applicants have cited the Extra Pharmacopoeia by Martindale in support of their case. According to the respondents, mention of an item in the book does not make it a "drug" ; for example, though Complan, Farex Fingers and Ostermilk, etc., are mentioned in that book, those are not treated as "drug" for the purpose of sales tax. (It may be noted that the annexed extracts from Martindale's Extra Pharmacopoeia and Goodman and Oilman's Pharmacological Basis of Therapeutics, 3rd Edition do not mention Protinules by name, but mention protein hydrolysates which are said to be one of the substances of Protinules.) As regards paragraph 27 of the application, the reply of the respondents is that protein may be more in demand in pregnant women, but that does not make protein a "drug" inasmuch as sugar is not a "drug", though for want of it there may be a collapse of human body. Similarly, on account of presence of vitamins and amino acids in Protinules it cannot be a "drug". Complan, Viva, etc., and even some tooth-pastes and hair tonics contain vitamins and amino acids but those are not "drug". Affidavits and prescriptions made annexures "L" and "M" to the application, are said to be opinions of only few medical practitioners out of several lakhs including many who are of the view that Protinules is only a chocolate-flavoured nourishing drink. It is stated that doctors prescribe not only medicines but also nourishing food during convalescence. Respondents have relied on a letter dated February 22, 1992, from Dr. A.K. Nag, Secretary, Vivekananda International Health Centre, annexure "X", in which the opinion expressed is that Protinules is not a "drug" and is unnecessary, the purpose being well served by intake of protein-rich food.
7. The further case of the respondents is that the applicant-company itself has described Protinules on the body of the packing as a nourishing drink and in common parlance it is so understood. "It is a readily digestible and absorbable milk-protein food". Respondents think that apparently no drug licence was obtained for manufacture of Protinules, as no drug licence is mentioned on the packing (which is generally done in case of a medicine). No drug licence was allegedly required for manufacture of the product. It is supported by the fact that at the time of entry of the commodity into Calcutta, the company paid entry tax at 7 per cent on the value, while a medicine does not attract entry tax. The company has also been charging sales tax at 11 per cent on sales of Protinules and a further additional sales tax at 15 per cent. Had Protinules been a drug, the rate of tax would have been only 4 per cent. Some entry tax documents and invoices have been made annexure "Y" to the affidavit-in-opposition. Protinules is said to be neither a drug nor a patent or proprietary medicine. Respondents say that Protinules was wrongly subjected to tax as a "drug" and action has been initiated to rectify the mistake. While admitting that during assessment for the year 1979, sales of Protinules were, for the first time, treated as sales of a commodity other than a drug or a patent or proprietary medicine, the respondents have asserted that during the assessments for the periods from January 2, 1986 to January 13, 1986 and from January 14, 1986 to May 31, 1986, the applicant-company claimed that it was a dealer of medicines only, without separately showing sales of Protinules, which caused the escape of sales of Protinules from the notice of respondent No. 1. This came to his notice allegedly during assessment for the period of 12 months ending May 31, 1987. Then he realised that Protinules had earlier been wrongly assessed to tax as a drug, while it was really covered by Notification No. 790-F.T. dated April 2, 1957 and was taxable during the relevant period at 11 per cent under Notification No. 1022-F.T. dated March 29, 1984. According to the respondents, the mistake can be rectified, as Protinules is really a food like Bournvita, Tono, etc. The claim that major ingredients of Protinules are milk, cane sugar and vitamins, is denied. It is asserted that powdered milk with chpcolate flavour is the major ingredient, the amount of vitamins being very small. Imposition of interest and penalty is defended on the ground that the company failed to pay due tax at 11 per cent in due time. The allegation of contravention of Articles 14, 19(1)(g) and 300A of the Constitution has been denied. Actions regarding products of other dealers mentioned in paragraph 85 of the application have allegedly been initiated. By referring to the prayer in paragraph 90 of the application, the respondents have contended that the applicants are unsure whether Protinules can be a drug or medicine.
8. The applicants used an affidavit-in-reply, chiefly denying what was stated in the opposition filed by the respondents. It has also been stated in the reply that the presence of sufficient protein in Protinules does not preclude it from being a drug or medicine. The current Index of Medical Specialities is claimed to be meant for use only by registered medical practitioners, pharmacists and laboratories and the journal itself declared, as a standard practice, that every effort was made to ensure accuracy of data but no responsibility for any error or omission was accepted by the publishers and printers. It is stated that even in common parlance Protinules is a drug, as will appear from affidavits and certificates, etc., annexed to the application. The applicants claim that possession of a drug licence is not a pre-condition for the product being a drug, because the relevant notification under the 1954 Act only adopted the definition of "drug" from the Drugs Act. According to them, there are certain items which are drugs, but do not require a drug licence for manufacture (paragraph 25 of the reply). While admitting that the applicant-company charged sales tax at 11 per cent on sales of Protinules, it is said that such sales tax was recovered by way of abundant caution and sound financial management, without prejudice to its claim that Protinules is a drug. Only drugs, according to the applicants, are prescribed by doctors but they also advise taking of particular diet by the patient. As regards Protinules, it is allegedly prescribed as drug, particularly for patients suffering from kwashiorkor or marasmus. Since Protinules does not contain any malt, Notification No. 790-F.T. dated April 2, 1957 is not applicable to it, according to the applicants.
9. The general law relating to sales tax in the State of West Bengal is contained in the 1941 Act. The West Bengal Sales Tax Act, 1954, deals with imposition of sales tax, etc., in respect of certain specified commodities, called notified commodities, when notified under Section 25 thereof, which reads as follows :
"If the State Government is at any time of opinion that it would be in the public interest that any commodity which is liable to taxation under the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act 6 of 1941), should be taxed under this Act, it may, by notification in the Official Gazette, specify such commodity and direct that with effect from such date as may be fixed in the notification, the Bengal Finance (Sales Tax) Act, 1941, shall cease to apply to such commodity and this Act shall apply to such commodity."
From the above it will appear that if any commodity is notified under Section 25 of the 1954 Act, in that case, it will be governed by the 1954 Act and shall cease to be governed by the 1941 Act. In the present case, the points for decision are whether Protinules is governed by the 1941 Act or by the 1954 Act, and if it is governed by the 1954 Act, then it falls within which item or entry and under which notification issued under Section 25 of the 1954 Act. If it is found that Protinules does not fall within any item or entry of any of the notifications issued under Section 25 of the 1954 Act, the natural answer will be that it is governed by the 1941 Act. On behalf of the applicants a typed note of submissions was filed before us. In paragraph 3 of the same, it was stated that respondent No. 1 observed in course of the assessment order dated June 28, 1991, in respect of the period of 12 months ending May 31, 1987, that it is a powder for food drinks, a notified commodity, as per Notification No. 1022-F.T. dated March 29, 1984 having contents like--protein (from milk), carbohydrate (from cane and milk sugar) and vitamins in powder form with chocolate flavour and he assessed tax on sales thereof at 11 per cent under the 1954 Act. This finding has been challenged by the applicants. It appears, however, that Notification No. 1022-F.T. dated March 29, 1984, was an amendment of an earlier notification specifying the rates of tax. It is stated in paragraph 69 of the application that Notification No. 1022-F.T. dated March 29, 1984, issued under Section 25 of the 1954 Act is but an amending notification by which earlier Notification No. 790-F.T. dated April 2, 1957, issued under Section 25 was amended. That notification of April 2, 1957, is quoted below :
"Powders for food drinks having cocoa or chocolate and malt as major ingredients, sold under various trade names and descriptions such as Milo, Ovaltine, Bournvita, Tono or any other name or description whatsoever."
It has been contended on behalf of the applicants that this item of Notification No. 790-F.T. dated April 2, 1957, as amended, does not include Protinules, because it does not contain malt and it does not contain cocoa or chocolate and malt as "major ingredients". The case of the applicants is that the major ingredients, accounting for 55.79 per cent by weight, are skimmed milk powder and powdered milk in the form of casein (being source of high protein content). The rest of the ingredients of Protinules are carbohydrate (cane sugar), Inositol, vitamins and chocolate flavour containing a minor proportion of chocolate. The applicants have not specified the percentage of carbohydrate or cane sugar by weight. But from their pleading it appears that out of the remaining 44.21 per cent by weight, not more than 5 per cent will account for vitamins, Inositol, etc., the balance around 40 per cent by weight representing carbohydrate (sugar). Therefore, carbohydrate is also one major ingredient of Protinules. The composition of Protinules having not been disputed by the respondents, it is clear that powdered milk and carbohydrate are the two major ingredients. A question may arise whether "malt", as mentioned in Notification No. 790-F.T. dated April 2, 1957, read with Notification No. 1022-F.T. dated March 29, 1984 issued under the 1954 Act, is the same as carbohydrate which is a major ingredient of Protinules. The following are extracts from New Webster's Dictionary of the English Language, 1981 Edition :
Page-577 - "malt,.........Grain, usu. barley, steeped in water, germinated, dried in a kiln, and then used in brewing and distilling ;
a beverage produced from malt, as beer, ale, or whisky ........."
Page-150 "carbohydrate,...........A chemical compound made of carbon, hydrogen, and oxygen............; one member of several groups of compounds including simple sugars such as glucose, double sugars such as sucrose, and polymers such as starch and cellulose, especially one of the edible carbohydrates, one of the major sources of food for human and animals,"
It wilt appear from the above that "malt" is not the same thing as "carbohydrate". Notification No. 790-F.T. dated April 2, 1957, issued under the 1954 Act has used the expressions--"cocoa or chocolate and malt" as major ingredients. Therefore, unless these are found to be major ingredients of Protinules, it cannot be said to be "powders for food drinks" within the meaning of Notification No. 790-F.T. dated April 2, 1957 and accordingly it cannot be said to be a notified commodity under the 1954 Act because of the said notification. A commodity should satisfy the following conditions if it is to be treated as one under Notification No. 790-F.T. dated April 2, 1957 :
(i) It must be a powder. In other words, it should be a substance in the form of powders.
(ii) Such powders should be for food drinks.
(iii) Such food drinks should have cocoa or chocolate and malt as major ingredients.
(iv) Such a commodity should be sold under some trade name or description like Milo, Ovaltine, etc. Protinules is a commodity which satisfies all the above criteria except (iii) relating to the major ingredients. Therefore, we are of the opinion that Protinules is a commodity not covered by Notification No. 790-F.T. dated April 2, 1957 read with No. 1022-F.T. dated March 29, 1984. Accordingly, the Commercial Tax Officer was in error in treating it as taxable at 11 per cent under Notification No: 1022-F.T. dated March 29, 1984.
10. During hearing of arguments it was demonstrated by producing samples of the product called Protinules and also it was submitted by the learned State Representative, Mr. D. Majumdar that Protinules is marketed by the applicants in liquid form as well as in powder form. It was also shown by Mr. Majumdar that the label affixed on the container of liquid Protinules describes the ingredients as sugar, casein hydrolysate, lysine, iron, vitamin and Inositol. It is described as a "balanced food supplement containing milk protein, carbohydrates, vitamins, lysine and iron for the health of entire family". It is also stated on the label that it is "not for medicinal use". Directions for use are :
"1 to 2 table-spoonfuls can be taken by adults and 1 to 2 teaspoonfuls may be given to children, twice or thrice a day after food. It can be taken directly or may be diluted with water or fruit juice, but not with milk."
The ingredients are stated on the label as below :
"Each 15 ml. contains protein hydrolysate 1 g., lysine monohydrochloride 50 mg., iron choline citrate 45 mg., inositol 12.5 mg., niacinamide 10 mg., di-panthenol 4 mg., vitamin B1? 1 mg., riboflavine 5', phosphate sodium equivalent to 1 mg. of riboflavine (vitamin B2?), vitamin B6? 0.5 mg., vitamin B12? 0.5 mg., flavoured syrupy base Q.S. contains added flavours."
In paragraph 33 of the typed notes of submissions of the applicants it is stated that the present application involves only Protinules in powder form and it does not concern Protinules in liquid form. In the manner in which the pleadings have been presented to us, it appears that the dispute in the present application is confined to Protinules in powder form only.
11. Mr. D. Majumdar, learned State Representative drew our attention to the statement made by the applicants on the label on the container of Protinules in powder form. The label reads as follows :
"A readily digestible and absorbable milk-protein food.
Calorific value : 30g. of Protinules provides about 100 calories.
Direction for use : Add 2 teaspoonfuls of Protinules to the required quantity of milk. Add sugar to taste. Stir well to make a homogeneous drink. Protinules can be taken 3 to 4 times a day as desired."
The label further runs in the following manner :
"Protinules -- 1OOg. net -- Protein -- Carbohydrate -- Vitamins."
"Nourishing drink with chocolate flavour. Each 30g. contains : Partially pre-digested milk-proteins (containing 1.5 g. of total nitrogen) 9.4 g., carbohydrates derived from cane and milk sugars 15 g., Inositol 25 mg., Niacinamide 20 mg., vitamin B1? 2 mg., vitamin B2? 2 mg., calcium pantothenate 1.5 mg,, vitamin B6? 1 mg., vitamin B12? 15 mcg., vitamin A 5000 I.U., cholecalciferol (vitamin D3?) 500 I.U., contains added flavours and permitted colours."
"Ingredients : Cane sugar, casein, skim-milk powder, inositol and vitamins."
During arguments, when our attention was drawn to the aforesaid label describing the nature of the commodity and its ingredients, there was no opposition from the applicants. In other words, it was not contended on behalf of the applicants that what was described on the label of protinules (powder) was not correct. Accordingly, milk protein content is about 33 per cent and sugar content (both cane and milk sugar) is 50 per cent. This proportion of ingredients is apparently somewhat different from the proportions discussed earlier on the basis of the pleadings in the application. However, the description on the label of Protinules (powder), also confirms that only milk protein and carbohydrate are the major ingredients and neither cocoa nor chocolate nor malt is a major ingredient of Protinules. Therefore, our finding regarding non-application of Notification No. 790-F.T. dated April 2, 1957, issued under Section 25 of the 1954 Act to Protinules (powder), is supported by the description on the label.
12. The alternative case of the applicants in prayer (c) in the application as well as in paragraph 34 of the typed note of submissions on behalf of the applicants is that if Protinules is not treated as drug or patent or proprietary medicine, it should be treated as powdered or condensed milk taxable at 8 per cent under the 1954 Act. Notification No. 886-F.T. dated May 1, 1955, issued under Section 25 of the 1954 Act specifies the following item :
"Powdered or condensed milk, whether skimmed or not, or whether mixed with any other substance or not, or whether in tablet form or not, sold under various trade names and descriptions such as Milkmaid brand condensed milk, Nestomalt, Nespray, Lactogen, Eledon, Horlicks Malted Milk, Glaxo, Ostermilk....... or any other name or description whatsoever but not including cheese and cream :
Provided that where powdered or condensed milk whether in tablet form or not, is mixed with any other substance the percentage by weight of the powdered or condensed milk in the said mixture shall exceed 50 per cent."
The current tax rate of such powdered or condensed milk under the 1954 Act is 8 per cent. In paragraphs 8 to 11 in the main application the applicants have maintained that total percentage of powdered milk in the form of skimmed milk powder and casein is 55.79 per cent by weight, namely, is more than 50 per cent by weight, as required by the proviso to the item of powdered or condensed milk described in Notification No. 886-F.T. dated May 1, 1955, quoted above. The label, which has also been reproduced, gives the proportion of chemical composition like milk protein and carbohydrate. Therefore, it cannot be said for certain that the description on the label of Protinules (powder) does not tally with the claim of the applicants stated in paragraphs 8 to 11 of the application. Respondents dealt with the said paragraphs 8 to 11 in paragraph 8 of their affidavit-in-opposition. There is no denial of the claim regarding percentage. Merely a statement that the contentions are not admitted, does not amount to a denial. Therefore, it is beyond controversy that the percentage of powdered milk in the form of skimmed milk powder and milk powder in the form of casein, is 55.79 per cent by weight in Protinules (powder). That being so, the percentage by weight exceeds 50 per cent, thus satisfying the requirement in the proviso to the item described in Notification No. 886-F.T. dated May 1, 1955. The said notification lays down the following requirements :
(i) The commodity must be powdered or condensed milk,
(ii) Such milk may be skimmed or not,
(iii) Such milk may or may not be mixed with other substance,
(iv) It may be in tablet form or any other form,
(v) It is sold under some trade name or description, some such names being mentioned in the notification. The name or description may also be any other,
(vi) But the product must not include cheese and cream, and
(vii) Percentage by weight of powdered or condensed milk in the mixture must exceed 50 per cent (see the proviso).
In the present case, Protinules (powder) is a mixture of powdered milk with cane sugar, vitamins, inositol and chocolate flavour and permitted colour. All the requirements of Notification No. 886-F.T. dated May 1, 1955, are fully satisfied in the case of Protinules (powder). We are, therefore, of the opinion that Protinules (powder) is a notified commodity under Notification No. 886-F.T. dated May 1, 1955, issued under Section 25 of the 1954 Act and is taxable at the prescribed rate for the said item.
13. Before we proceed to examine the primary contention of the applicants that Protinules (powder) is a drug or patent or proprietary medicine and should be exigible to tax as such under the 1954 Act, we may examine the contentions of the applicants as well as the respondents to the effect that their respective conduct in treating Protinules in a particular manner for the purpose of tax, supports either the contention of the applicants to the effect that it is a drug or medicine, or that of the respondents to the effect that it is not so. According to the applicants, up to the year 1978 assessments were made treating Protinules as a drug (see paragraph 60 of the application). During assessment for the year ending December 31, 1979, the applicant contended that Protinules was a drug, or in the alternative, powdered milk under Notification No. 886-F.T. dated May 1, 1955. It has been contended before us that having treated the commodity as a drug up to 1978, the respondents could not change its stand. But, the assessing officer assessed the sales for the year 1979 as those of general goods under the 1941 Act and that was confirmed in appeal by the Assistant Commissioner (ibid, same paragraph). The assessment for the year ending December 31, 1980, was similarly made. In appeal, the Assistant Commissioner by his order dated June 4, 1988, confirmed it (see annexure "O"). Such assessment proceeded on the basis that Protinules was a protein-supplementing food, composed of milk proteins, carbohydrates and vitamins. From paragraphs 64, 65 and 66 of the application, we know that similar assessments were made for the periods of 12 months each ending December 31, 1981 and December 31, 1983. But paragraph 67 (ibid) informs us that assessments for the brief periods from January 2, 1986 to January 13, 1986 and from January 14, 1986 to May 31, 1986 were, however, made, treating Protinules as a drug. But assessment for the period of 12 months ending May 31, 1987 was made, treating it as powders for food drinks. Such changing views of the Revenue have been adversely commented upon in the application as well as during arguments. According to the learned State Representative, the assessments as drug were clearly erroneous, and each assessment being an independent proceeding, a departure from the earlier view could not be questioned merely for the sake of it. The Revenue, it was contended, could not be pegged down to a view erroneously taken even for a few years. Learned State Representative further submitted that at different points of time, the applicant-company collected sales tax from buyers at 8 per cent or 11 per cent and even paid sales tax at such rates as per returns furnished, although the rate of tax for drugs and medicines was much lower. The answer given by learned Advocate for the company is that such higher rates of tax were collected from buyers or deposited in favour of sales tax authorities as a measure of abundant caution and sound financial management without prejudice to the claim that Protinules is a drug. Having regard to the conduct of the company and the Revenue, it is clear to us that both of them were not sure under which Act (the 1941 Act or the 1954 Act) or under which entry the commodity should be treated for the purpose of sales tax. Somewhere in the application it has been stated that the varying rates of tax imposed on sales of Protinules had adversely affected sales, since similar products of rival manufacturers were being taxed at a lower rate. But this point was not urged during arguments, and no supporting evidence was furnished. In such, circumstances, the varying rates of tax imposed by the Revenue during different periods and the varying rates of tax collected or deposited by the applicant-company, do not support the plea of the one or the other.
14. If, as claimed by the applicant-company, Protinules can be treated as a drug or patent or proprietary medicine, the rate of tax would be much less, and at the current rate would be only 4 per cent. That is the basic reason for which the product is claimed to be a drug or a medicine. Notification No. 1658-F.T. dated August 1, 1956, issued under Section 25 of the 1954 Act, specifies "drug" and "patent or proprietary medicine", as defined in Clauses (b) and (h) of Section 3 of the Drugs and Cosmetics Act, 1940. Without specifying in the said notification what is a drug or what is a patent or proprietary medicine, the definitions in the Drugs and Cosmetics Act, 1940 were adopted, thereby denoting that only those commodities will be considered as drug and medicine for the purpose of the notification, which fulfil the requirements of the statutory definitions in the Drugs and Cosmetics Act, 1940 (in short, "the 1940 Act").
15. Clause (b) of Section 3 of the 1940 Act lays down that "drug" includes 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, and 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 vermin or insects which cause diseases in human beings or animals as may be specified from time to time by the Central Government by notification in the Official Gazette and, inter alia, all substances intended for use as components of a drug including empty gelatin capsules.
Clause (h) of Section 3 of the 1940 Act defines "patent or proprietary medicine" as certain things according to Ayurvedic, Siddha or Unani Tibb systems of medicine and a drug (in relation to any other system of medicine) which is a remedy or prescription presented in a form ready for internal or external administration on human beings or animals and which is not included in the edition of the Indian Pharmacopoeia for the time being or any other such pharmacopoeia authorised in this behalf by the Central Government after consulting the Drugs Technical Advisory Board constituted under Section 5.
16. Applicant-company has adduced various documents to establish its claim that Protinules should be treated as drug or patent or proprietary medicine for the purpose of sales tax. It has relied on the appellate order dated June 4, 1988 passed by Shri P.K. Chakraborti, Assistant Commissioner, in an appeal from assessment for the period of 12 months ending December 31, 1980, in course of which he held that Protinules was a drug. But it also appears from appellate order dated November 7, 1987 passed by Shri P.G. Goswami, Assistant Commissioner, in an appeal from assessment order for the period of 12 months ending December 31, 1981 that Protinules could not be treated as a drug and should be taxed as general goods under the 1941 Act. We have previously seen how frequently views of various Revenue officials differed as to the taxability of Protinules. Moreover, the company itself is the applicant before us to obtain a decision as to whether Protinules can be treated as a drug or a patent or proprietary medicine (in short, medicine) or as a powdered or condensed milk. Therefore, no special importance can be attached to the appellate order dated June 4, 1988, which is in favour of the company's claim. Before we proceed to examine the other documents adduced by the company, it may be noted that where the definition of an entry or commodity has been given in the relevant provision (here, in the relevant notification), it is pointless to search for the common parlance meaning. Generally, where no such definition has been given, but the question is whether a commodity does or does not come within that entry or item, it becomes necessary to find out the common parlance meaning as the guide. In the instant case, although Notification No. 1658-F.T. dated August 1, 1956, incorporates the definition in Clauses (b) and (h) of Section 3 of the 1940 Act, the applicant-company has adduced documents to establish a common parlance meaning to the effect that Protinules is treated as a drug or medicine. It has particularly claimed that Protinules is a drug or medicine for mitigation, treatment and prevention of diseases called kwashiorkor and marasmus. These diseases, it is said, are generally found in children. Kwashiorkor is chronic malignant malnutrition [see paragraph 9(ii) of written notes of argument for the applicants]. Reliance has been placed on photocopy of affidavit at page 112 of the main application, affirmed by Dr. Siba Prosad Chatterjee, in which he said that Protinules manufactured by the applicant-company is a "medicine", prescribed by him to patients as such in cases of protein deficiency diseases, kwashiorkor, etc., and tuberculosis, as an adjuvant. It was rightly contended on behalf of the respondents that physicians are found to prescribe not only drugs and medicines but also certain other articles and food. Dr. Chatterjee, in his affidavit dated September 25, 1991, claims to have prescribed Protinules as a medicine but in the same vein he has stated that it is given as an "adjuvant". The dictionary meaning of "adjuvant" is--"a help : a substance added, e.g. to a medicine, vaccine, etc., to increase its effectiveness (Med.)". (See Chambers 20th Century Dictionary, 1988 reprint of the new edition, page 14). Interestingly, the word "adjuvant" was written by Dr. Chatterjee by hand, whereas the statement in the affidavit that Protinules is prescribed as a medicine, is all typewritten. This seems to be significant, because if Protinules itself is a medicine, it is meaningless to prescribe it also as an "adjuvant". Pages 99 to 111 are photocopies of affidavits affirmed by other doctors. All the affidavits appear to have been typed out in a particular pro forma with the same set of words, paragraphs and expressions. All the affidavits say that Protinules is prescribed as a medicine in indications of malnutrition, pregnancy, anaemia, protein deficiency and convalescence. Annexure pages 113 to 128 are photocopies of certificates issued by doctors, generally suggesting that Protinules is prescribed as an adjuvant in cases of malnutrition, protein deficiency and extra protein-requirement. Annexure pages 129 to 135 are photocopies of typed certificates in the same language given by various medical stores, saying that they sold Protinules against doctor's prescriptions. It may be noted that the certificates are silent whether Protinules is sold even without doctor's prescription. Annexure page 137 is photocopy of a certificate by a stationery shop saying that it does not store Protinules. Identical photocopies of typewritten certificates are to be found at annexure pages 138 and 139. Annexure page 136 is photocopy of a typewritten certificate by a doctor, registered No. 36285, stating that he prescribes Protinules to his patients suffering from "particular diseases", which are not specified. Applicant-company has also relied on Martindale's Extra Pharmacopoeia, 25th Edition, at annexure pages 88 to 98 of the main application. In these pages, there is no mention of Protinules, manufactured by the applicant-company, although products like Ostermilk (Glaxo), Farex Rice Cereal (Glaxo), and Complan (Glaxo) are mentioned chiefly as food supplement or food. At annexure page 95 onwards protein hydrolysates have been dealt with. It appears from Martindale that protein hydrolysate (oral) is used as an adjuvant or a diet supplement.
17. Applicant-company has also relied on the Current Index of Medical Specialities (C.I.M.S.) to prove that Protinules is a drug or medicine. The index is published by a private organisation called Bio-Gard Medical Services of Bangalore. It appears from annexure page 61 that it is a professionally edited and updated index of ethical pharmaceutical preparations. The expression "pharmaceutical" means a chemical used in medicine (see page 959 of Chambers 20th Century Dictionary, ibid). So, the index is not of drugs or medicine as such, but of pharmaceutical preparations. At annexure page 62 we find Protinules, mentioned under "protein", which is a member of a group of complex nitrogenous substances that play an important part in the bodies of plants and animals ; compounds Of carbon, hydrogen, oxygen, nitrogen, usually sulphur, often phosphorus, etc., easily hydrolysed into mixtures of ammo-acids (ibid., page 1034). Interestingly, the applicant-company claims that Protinules contains protein hydrolysates, though it is really mentioned in the index under "protein", and not under "protein hydrolysate", under which Protinex is mentioned. What is mentioned in the index is that Protinules supplies protein. Whether the index can be taken as an authority is a different question, to which we need not pay our attention here. At annexure pages 63 to 66, the applicants furnished extracts from Price's Text Book of the Practice of Medicines, 12th Edition by Dr. Scott. It will appear therefrom that kwashiorkor and marasmus are diseases caused by protein energy malnutrition in children, the former generally occurring in rural children and the latter in urban children. The text book further says that marasmus occurs from chronic semi-starvation and kwashiorkor is a wasting disease caused by malnourishment. It may be noted that patients of such diseases may need sufficient intake of enriching food including protein in an easily digestible form. The company has also furnished at annexure pages 67 to 74 extracts from Maharashtra Medical Journal, August, 1962 by two physicians of paediatric Department of Sassoon Hospital, Poona. It deals with malnutrition which includes kwashiorkor and marasmus. In the introduction it is stated that children require more proteins than adults. Conclusion of the two doctors is that combination of pre-digested milk proteins and vitamins is good in treating malnutrition in children, when regularly taken for at least a period of one month. The last two lines at annexure page 74 refers to samples of Protinules liberally given by the applicant-company for the trials conducted by the two doctors of Sassoon Hospital, Poona. Nevertheless, the conclusion confirms the claim of the respondents that Protinules is a protein-rich food drink. At annexure pages 75 to 77 and 83 the applicants have furnished the Catalogue of Drugs of Central Medical Stores of the Directorate of Health Services of the Government of West Bengal and the order placed by the Deputy Director of Health Services, West Bengal for supply of Protinules, described as protein hydrolysate powder with vitamins. But the order placed at annexure page 83 describes Protinules, as mere "articles". Although at annexure page 75 the name of the catalogue is Catalogue of Drugs (1977-78), annexure page 77 (internal page 43 of the catalogue) mentions, not Protinules by name, but only protein hydrolysate powder with vitamins as item 20.54 under (j)--nutrients. Therefore, the catalogue mentions protein hydrolysate as a nutrient, not as a drug or medicine. Annexure pages 78 and 79 are communication from the Health Directorate of West Bengal to the applicant-company regarding general tender for the year 1972-73. Only some of the specified items are mentioned there as drugs. It does not exclusively deal with drugs ; for example, it includes dispensing agents and chemicals also. At annexure page 80, item 21.50 is Protinules (see remarks column), mentioned as protein hydrolysate powder with vitamins. Similar is the case with annexure pages 81 and 82. Annexure pages 84 and 85 are extracts from the Indian Pharmaceutical Guide, 1970. Under the heading "proteins", among many other preparations of various manufacturers, the name of Protinules is found. Therefore, this document only supports the contention that Protinules supplies proteins. Applicant-company has also relied on an extract from National Formulary of India at annexure pages 86 and 87. Extract from page 64 of the said publication at annexure page 86 does not mention Protinules as such, but under the main heading--"Drugs affecting nutrition and metabolism" and under the sub-heading (B)--"Preparations used for adult nutrition", certain chemicals such as calcium, dextrose, etc., are listed. Protein hydrolysate powder appears under that category. Annexure page 87 is an extract from pages 158 and 161 of the said publication, in which preparation of the powder is briefly mentioned. These extracts do not declare that Protinules is itself a drug or medicine. Applicant has also referred to extract from Pharmacological Basis of Therapeutics, 3rd Edition, by Goodman and Oilman at annexure pages 96 to 98, wherein the importance of protein hydrolysate, particularly in the form of injection has been stressed.
18. During argument Mr. Somen Bose, learned Senior Counsel for the applicant-company, referred to, inter alia, Butterworths Medical Dictionary and Encyclopaedia Britannica, Micropaedia, 15th Edition, to show what are Inositol (a compound), kwashiorkor (protein malnutrition) and marasmus (extreme loss of weight and wasting away, cause of which may not be always known), and how these malnutritional diseases and disorders can be corrected by appropriate food and nutrients supplied in pre-digested and broken down form. The importance of supply of proteins in a particular manner has been stated at page 411 of Volume XIII of Encyclopaedia Britannica (ibid). In paragraph 16 of the written notes of argument it has been stated that Protinules is rich in pre-digested protein which is broken down into amino acids which are easily digestible. Therefore, clearly it is an easily digestible food and specially prepared for a section of human beings, keeping in view their requirements. The fact emphasised by the applicant-company that it is not advertised in the lay press, television, radio or hoarding, does not appear to indicate that for that reason, it is a drug or medicine. If it is sold in a medicine shop and not in a stationery or grocery as claimed, it does not ipso facto become a drug or medicine. [Learned State Representative submitted that many articles other than drugs are sold in medicine stores, such as baby food, Horlicks, etc.] Similarly, the fact that Protinules contains concentrated and pre-digested protein, and not just bulk protein as in eggs, fish, etc., does not make it a drug or medicine for that reason. It may be found that the definition of "drug" in Clause (b) of Section 3 of the 1940 Act has four sub-clauses. In Sub-clause (ii), food substances have been clearly excluded. Protinules, according to us, is clearly a food substance. From paragraph 23 of the written notes of argument for the applicants, it appears that they rely on Sub-clause (i) which refers to all medicines and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder. Medicine is also any substance used for the treatment or prevention of disease (see Chambers 20th Century Dictionary, ibid, page 781). The expression "treatment" means, in this context, the way of supplying remedies. The expression "mitigation" is derived from the verb--"mitigate" which means to make easily borne or to lessen the severity. It will be found from what is claimed by the applicant-company and from the foregoing discussions that Protinules is supplied to mainly patients suffering from kwashiorkor and marasmus or such other diseases of malnutrition so that supply of food with particular emphasis on pre-digested protein can be made to such patients. There is, and naturally must be, a distinction between purely food items, on the one hand, which sustain and nourish the body, and drugs or medicines, on the other, which urgently and directly control and cure the disease. This broad distinction cannot be ignored. A food is primarily intended to preserve the body, help it to grow and to prevent decay. If arguments of wide amplitude and generality advanced on behalf of the applicant to the effect that concentrated protein is equal to drug or medicine are accepted, ignoring the fundamental distinction, it may be impossible in most cases to distinguish a food from a drug or medicine. Having regard to this distinction, it is not possible to hold that Protinules is a drug or medicine. It is predominantly and basically a food item with a few special features. The case of the applicants themselves is that 55.79 per cent of contents of Protinules by weight is milk powder in one form or another. We have already mentioned that where there is a statutory definition, there is no need to search for a common parlance meaning. From the documents adduced by the applicants it has also not been established that in common parlance, Protinules is treated as a drug or medicine, rather than a food drink or a nourishing drink. The company itself has declared on the label that it is a nourishing drink.
19. It has been contended by the learned counsel for the applicants that it does not matter, if the applicant-company does not possess any drug licence or any licence for manufacture of patent or proprietary medicine for the purpose of manufacturing Protinules which is claimed to be a drug or medicine. It is argued that no such licence is required to manufacture or sell Protinules as a drug or medicine. But, learned State Representative, contended that without a valid licence under the 1940 Act, no drug or patent or proprietary medicine can be legally manufactured. Under Section 18 of the 1940 Act there is prohibition on manufacture and sale of certain drugs and cosmetics. Clause (a) of Section 18 prohibits, inter alia, manufacture for sale or distribution of any drug which is not of a standard quality, or is misbranded, adulterated, spurious. Clause (b) of Section 18 prohibits sale or distribution, inter alia, of any drug which has been imported or manufactured in contravention of the Act or the Rules made thereunder. Clause (c) of Section 18 is more relevant in this case. It is reproduced below :
"From such date as may be fixed by the State Government by notification in the Official Gazette in this behalf, no person shall himself or by any other person on his behalf--
(c) manufacture for sale or for distribution, or sell or stock or exhibit or offer for sale, or distribute any drugs or cosmetic, except under, and in accordance with the conditions of, a licence issued for such purpose under this Chapter :
Provided that nothing in this section shall apply to the manufacturer, subject to prescribed conditions, of small quantities of any drug for the purpose of examination, test, or analysis :
Provided further that the Central Government, may, after consultation with the Boards by notification in the Official Gazette permit, subject to any conditions specified in the notification, the manufacture for sale or for distribution, sale, stocking or exhibiting or offering for sale or distribution of any drug or class of drugs not being of standard quality."
The State Government by a notification fixed the date of commencement of operation of Section 18 as April 1, 1947. Under Rule 70 of the Drugs and Cosmetics Rules, 1945 a licence for manufacture of drugs is to be granted in form 25. Rule 71 lays down the conditions for the grant or renewal of such a licence. Rule 71(6) deals with licences for manufacturing patent or proprietary medicines. It will appear from Section 27(b)(ii) that manufacture, sale or distribution of any drug without a valid licence is liable to punishment by way of imprisonment. It will appear from the definition in Section 3(h)(ii) of the 1940 Act that an article must be a drug first, before it can be classified as a patent or proprietary medicine. Therefore, unless exempted, a valid licence is legally required for manufacture or sale of Protinules either as a drug or as a patent or proprietary medicine. The admitted position is that the applicant-company does not possess any licence for manufacture or sale of Protinules either as a drug or as a patent or proprietary medicine. If now we are invited to hold that absence of a licence for sale or manufacture of a drug or medicine is irrelevant, the desired finding, will be in clear contravention of the provisions of the Drugs, and Cosmetics Act, 1940 and the Rules framed thereunder. In our opinion, no court is expected to do this by a fiat. In this connection we may rely on the following extract from the decision of the Supreme Court in the case of A.P. Christians Medical Educational Society v. Government of Andhra Pradesh AIR 1986 SC 1490 at pages 1496-97 :
"Shri K.K. Venugopal, learned counsel for the students, who have been admitted into the MBBS course of this institution, pleaded that the interests of the students should not be sacrificed because of the conduct or folly of the management and that they should be permitted to appear at the University examination notwithstanding the circumstance that permission and affiliation had not been granted to the institution .................. Shri Venugopal suggested that we might issue appropriate directions to the University to protect the interests of the students. We do not think that we can possibly accede to the request made by Shri Venugopal on behalf of the students. Any direction of the nature sought by Shri Venugopal would be in clear transgression of the provisions of the University Act and the regulations of the University. We cannot by our fiat direct the University to disobey the statute to which it owes its existence and the regulations made by the University itself. We cannot imagine anything more destructive of the rule of law than a direction by the court to disobey the laws."
Therefore, the fact that no licence for manufacture or sale of Protinules as a drug or patent or proprietary medicine is possessed by the applicant-company largely supports our finding that Protinules is a food substance and it is neither a drug nor a medicine. In the case of Commissioner of Commercial Taxes v. West Bengal Commercial Taxes Tribunal (case of Boroline), reported in [1993] 89 STC 355, on which respondents relied, this Tribunal had held that a quasi-judicial authority under the sales tax law is not bound to treat Boroline as a drug merely by virtue of a drug licence possessed by the manufacturer for manufacturing Boroline. It was further held in that case that a drug licence under the 1940 Act is not a conclusive evidence of the fact that, for the purpose of taxation under the 1954 Act, Boroline is a drug, and the drug licence is a piece of evidence which should be considered by the taxing authority in course of making an assessment, but the assessing officer should arrive at his own independent conclusion as a quasi-judicial authority. The above legal position does not dispense with the statutory requirement of possessing a licence for manufacture or sale of a drug or patent or proprietary medicine in terms of the provisions of the 1940 Act and the Rules framed thereunder. In the instant case, no licence was required, as Protinules is merely a food substance.
20. Mr. Somen Bose, learned Senior Counsel for the applicant-company, drew our attention to Schedule K to the Drugs and Cosmetics Rules, 1945 in which certain exceptions are enumerated in accordance with Rule 123 which is quoted below :
"123. The drugs specified in Schedule K shall be exempted from the provisions of Chapter IV of the Act and the Rules made thereunder to the extent and subject to the conditions specified in the Schedule."
Mr. Bose relied on items (i) and (iii) of entry 10 of Schedule K which are reproduced below :
"The following substances which are used both as articles of food as well as drugs--
(i) all condensed or powdered milk whether pure, skimmed or malted, fortified with vitamins and minerals or otherwise...................
(iii) Virol, Bovril, chicken essence and all other similar pre-digested food."
In the case of the above substances, all provisions of chapter IV of the Act and the Rules thereunder are exempted. The discussion will not be complete if we do not refer to entry 1 of Schedule K which is as follows :
Exemption
1. Drugs falling under All the provisions of chapter IV of the Act and the Clause (b)(i) of Rules thereunder, subject to conditions that a drug is Section 3 of the not sold for medicinal use or for use in the Drugs and Cosmetics manufacture of medicines and that each container is Act, not intended for labelled conspicuously with the words "not for medicinal use. medicinal use".
The applicant-company is now clearly taking the stand that Protinules (powder) is a substance which is used both as an article of food as well as drug. In the process, the company has shifted from its earlier stand that Protinules (powder) is taxable as a drug or medicine. Even this modified stand of the company does not mean anything. We have found that Protinules is neither a drug nor a medicine. So, the question of exemption from the provision for possessing a licence for sale or manufacture does not arise at alt, Thus, the claim of the applicant-company that Protinules (powder) is a drug and should be taxed as a drug within the meaning of Notification No. 1658-F.T. dated August 1, 1956 issued under the 1954 Act adopting the definitions in Clauses (b) and (h) of Section 3 of the 1940 Act, is without substance. It is to be noted that the said notification did not adopt the exemptions and exceptions under the 1940 Act and Rules made thereunder. We hold that Protinules (powder) cannot come under the said notification either as a drug or as a patent or proprietary medicine.
21. During arguments on behalf of the applicants reference was made to [1956] 30 ITR 1-81 (SC) ; AIR 1956 SC 554 (Mehta Parikh & Co. v. Commissioner of Income-tax) in support of the contention that the affidavits filed as annexures by the applicants should be relied on regarding the question whether Protinules (powder) is a drug or not. We only say that there may be affidavits and affidavits, but all affidavits cannot be of the same evidentiary value. In course of our discussion, we have not rejected the affidavits but have found what weight can be attached to their contents. Mr. Bose again relied on the case of Vasanji Chela & Co. v. Commissioner of Sales Tax [1977] 40 STC 544 (Bom). In that case it was held by the Bombay High Court that affidavits cannot be rejected without cross-examining the deponents. In the present case, the affidavits, as already said, have not been rejected, but the evidentiary value has been duly appreciated. Referring to the fact that different taxing authorities at different times considered Protinules (powder) to be taxable either as a drug or powders for food drinks or a general goods under the 1941 Act, Mr. Somen Bose, learned Senior Counsel for the applicant-company, referred to the case of Union of India v. Tata Iron and Steel Co. Ltd. AIR 1975 SC 769 at page 772 (paragraph 9). In that case the question arose whether a particular type of strip might be skelp or not. The court was pleased to hold that a fiscal legislation should by all standards adopt a clear definition of an excisable item so that it does not give rise to a confounding controversy. The Supreme Court was of the opinion that the best way is to define the product for the purpose of excise duty in appropriate terms demarcating clearly the distinction between the two items. In the present case the commodity described and specified in Notification No. 886-F.T. dated May 1, 1955, issued under Section 25 of the 1954 Act comprehends Protinules (powder) without any reasonable scope for controversy. We have already noticed how the requirements of the said notification are all fulfilled in the case of Protinules (powder). For reasons best known to them, both the applicant-company and the taxing authorities did not correctly identify the notification by which Protinules (powder) would be covered.
22. While learned State Representative relied on the decision of this Tribunal reported in [1993] 89 STC 355 (Commissioner of Commercial Taxes v. West Bengal Commercial Taxes Tribunal) on the question whether Protinules (powder) should be treated as a drug or patent or proprietary medicine for the purpose of tax, Mr. Somen Bose, learned Senior Counsel for the applicants, submitted that the decision is distinguishable in many respects. We have already referred to some observations in the said decision. In our opinion, a different set of facts was involved in that case where the subject-matter was a cream called Boroline, which was not a food substance. So, it is not necessary to discuss, the said judgment, except the portion we have already mentioned.
23. Therefore, the application is allowed without any order for costs. It is declared that Protinules (powder) sold by the applicant-company with its present composition noted in this judgment, is exigible to sales tax under the 1954 Act as a powdered or condensed milk, as described in Notification No. 886-F.T. dated May 1, 1955, issued under Section 25 of the 1954 Act. It is further declared that for the purpose of sales tax the said commodity is neither powders for food drinks, as described in Notification No. 790-F.T. dated April 2, 1957 read with Notification No. 1022-F.T. dated March 29, 1984, nor drug, nor patent or proprietary medicine, as described in Notification No. 1658-F.T. dated August 1, 1956, all these notifications having been issued under Section 25 (ibid). Let it also be declared that the said commodity is not exigible to tax under the 1941 Act, Accordingly, the order/direction of the Commercial Tax Officer, being Memo No. 152/AW/III/G dated August 5, 1991, at annexure page 206 of the application, is quashed. Having regard to the balance of conveniences and inconveniences of the parties it is directed that the assessments of the applicant-company up to the period of 12 months ending December 31, 1978, shall not be revised or disturbed. All completed assessments of the applicant-company commencing from the period of 12 months ending December 31, 1979 and all appellate or revisional orders therefrom including those dated June 28, 1991 at annexure pages 195 to 203 (see the prayers in the application), are set aside. Respondent No. 1, Commercial Tax Officer, is directed to make revised assessment for those periods for which assessments had been completed, commencing from the period of 12 months ending December 31, 1979, according to law and in accordance with this judgment. All taxes, interest and penalty, if any, deposited or paid for. the said periods by the applicant-company, shall abide the final outcome of the revised assessments. Respondent No. 1 is also directed to follow this judgment in making assessments in respect of the applicant-company for all past periods for which assessments are yet to be made and also for future periods. Respondents will make refund of excess tax, interest or penalty, if any, paid or realised, and recover unpaid tax, interest and penalty, if any, as the case may be, for all these periods. Respondents will henceforth issue all permits, sales tax clearance certificates, etc., according to law by treating taxability of Protinules (powder) in accordance with this judgment.
S.P. Das Ghosh, Chairman.
24. I agree.
P.R. Balasubramanian, Technical Member.
25. I agree.