Case Note & Summary
The dispute arose between the State of Goa and Leukoplast (India) Limited, a manufacturer of medical products such as Zinc Oxide Adhesive Plaster B.P.C., Surgical Wound Dressing (Handyplast), Belladona Plaster B.P.C., Capsicum Plaster B.P.C., and Cotton Crape Bandages B.P.C. The assessee held a licence under the Drugs and Cosmetics Act and its production was controlled by drug control authorities. The core issue related to the rate of local and central sales tax applicable to these products. Prior to 1 November 1981, local sales tax was levied at 6% and central sales tax under Section 8(2A) of the Central Sales Tax Act at 4%. By Notification No. 14/41/81-Fin (R&C) dated 28 August 1981, drugs and medicines were exempted from local sales tax in excess of 3%, which according to the assessee reduced central sales tax to 3%. The assessee, however, continued paying the higher rates from 1 November 1981 to 1 April 1987. A subsequent notification dated 2 April 1987 inserted Entry No. 77 in the Second Schedule to the local Sales Tax Act, totally exempting drugs and medicines from local sales tax. The assessee wrote two letters dated 3 April 1987 asserting that its products were drugs and medicines and sought refund of the excess tax paid, and also filed revised sales tax returns for the assessment periods 1985 and 1986. The Sales Tax Officer passed an assessment order dated 24 December 1987 for the year 1983, rejecting the refund claim by applying the doctrine of unjust enrichment. The assessee then filed a writ petition challenging this order. The High Court formulated two questions: whether the products were drugs and medicines within the notifications, and whether the assessee was entitled to refund. After considering the Pharmaceutical Codex, the meaning of 'drugs and medicines' under the Drugs and Cosmetics Act, and several affidavits, the High Court held that the products were drugs and medicines and allowed the writ petition with modifications in a second writ petition. The State appealed to the Supreme Court. The Supreme Court observed that the question whether products are drugs or medicines is essentially one of fact, to be determined by examining their medicinal content, curative function, and common parlance. Merely holding a licence under the Drugs and Cosmetics Act does not conclude the matter. The court referred to Customs and Excise Commissioner v. Beecham Food Ltd, where Ribena blackcurrant juice containing vitamin C was held not to be a medicine. The Supreme Court also relied on Titaghur Paper Mill Co. Ltd. v. State of Orissa to emphasize that writ petitions should not bypass statutory remedies, especially where questions of fact are involved. Consequently, the court set aside the High Court's order, allowed the appeals, and granted the assessee liberty to prefer a statutory appeal within six weeks from the date of judgment, with the appellate authority directed not to raise any question of limitation. All questions of fact and law were left open for decision by the appellate authority. No order as to costs was made, and the connected civil appeals were also allowed.
Headnote
A) Sales Tax - Classification of Goods - Products like Zinc Oxide Adhesive Plaster and Surgical Dressings are not automatically 'drugs and medicines' merely because licensed under Drugs and Cosmetics Act; classification depends on common parlance and curative function - Central Sales Tax Act, 1956, Section 8(2A); Local Sales Tax Act, Section 10 - Assessee claimed exemption from higher sales tax on products as drugs/medicines under Notifications dated 28.8.1981 and 2.4.1987; High Court held them to be drugs and medicines after considering Pharmaceutical Codex and affidavits, but Supreme Court held this is a question of fact requiring determination by statutory authorities - Held that classification cannot be decided by writ court based on definitions or licences; medicinal content and common parlance must be examined by appellate authority (Paras 1-5). B) Writ Jurisdiction - Alternative Statutory Remedy - High Court should not entertain writ petition challenging sales tax assessment when complete statutory appeal machinery exists under Sales Tax Act - Constitution of India, Article 226 - Assessee bypassed statutory appellate remedies and filed writ petition; Supreme Court relied on Titaghur Paper Mill case to hold that questions of fact in assessment should be agitated before prescribed appellate forums - Held that writ petition was not maintainable and assessee directed to prefer statutory appeal within six weeks, with limitation waived (Paras 1-5). C) Interpretation - 'Drugs and Medicines' - Test of common parlance and curative/preventive function determines whether a product is a medicament, not presence of medicinal ingredients or licence - Drugs and Cosmetics Act, 1940 - The court referred to Customs and Excise Commissioner v. Beecham Food Ltd where Ribena was not medicine despite Vitamin C content; similarly, medicated bandages may or may not be drugs depending on how marketed and understood - Held that all questions of fact regarding medicinal content and common parlance are left to appellate authority (Paras 1-5). D) Refund of Tax - Mistake of Law - Claim for refund of excess sales tax paid cannot be adjudicated in writ when assessment orders exist and statutory appeals are available - Central Sales Tax Act, 1956; Local Sales Tax Act - Assessee sought refund for period 1.11.1981 to 1.4.1987 alleging payment under mistake of law and production of revised returns; sales tax officer rejected refund applying unjust enrichment; High Court allowed refund but Supreme Court set aside, leaving all questions to appellate authority - Held that refund entitlement depends on factual classification and must be decided by statutory forum (Paras 1-5).
Issue of Consideration
Whether products manufactured by assessee (Zinc Oxide Adhesive Plaster B.P.C., Surgical Wound Dressing, Belladona Plaster B.P.C., Capsicum Plaster B.P.C., Cotton Crape Bandages B.P.C.) are 'drugs and medicines' within Notification No. 14/41/81-Fin (R&C) and Notification No. 5/5/87 (R&C)-8; whether assessee is entitled to refund of sales tax paid under mistake of law; whether High Court should entertain writ petition when statutory appeal remedy is available and disputed questions of fact are involved
Final Decision
Supreme Court allowed the appeals, set aside the High Court's order, and granted the assessee liberty to prefer statutory appeal against assessment order within six weeks from date; appellate authority to entertain appeal without raising limitation; all questions of fact and law left open; no order as to costs. Connected civil appeals also allowed.
Law Points
- Classification of goods as drugs and medicines is a question of fact based on common parlance and curative function
- not merely on licence under Drugs and Cosmetics Act
- writ petition not maintainable when statutory remedy available for sales tax assessment
- alternative remedy must be exhausted before invoking Article 226
- refund of tax paid under mistake of law must be decided by statutory appellate authority
- medicinal content and market understanding must be examined
