Case Note & Summary
The Supreme Court dismissed the appeals filed by the State of Andhra Pradesh challenging the classification of Medical Oxygen IP and Nitrous Oxide IP as drugs under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act, 2005. The respondent, Linde India Ltd, a manufacturer and trader of industrial gases, was assessed for tax on these products at the higher rate applicable to unclassified goods under Schedule V. The Commercial Tax Officer and Appellate Deputy Commissioner upheld the higher rate, but the Sales Tax Appellate Tribunal and the High Court ruled in favor of the respondent, relying on the definition of 'drug' under Section 3(b)(i) of the Drugs and Cosmetics Act, 1940. The Supreme Court affirmed that both products are substances intended for treatment, mitigation or prevention of disease or disorder, as they are used as emergency medicine and anesthetic respectively. The Court rejected the State's argument that the principle of ejusdem generis should exclude gases from Entry 88, noting that the products fall under the first part of the entry as 'drugs' rather than as 'similar articles'. The Court also noted that several High Courts have uniformly held the same view. Consequently, the products are taxable at 4%/5% under Entry 88, not at 14.5% under Schedule V.
Headnote
A) VAT - Classification of Goods - Entry 88 Schedule IV - Drugs and Medicines - Medical Oxygen IP and Nitrous Oxide IP are 'drugs' under Section 3(b)(i) of Drugs and Cosmetics Act, 1940 as they are substances intended for treatment, mitigation or prevention of disease or disorder - Held that they fall within Entry 88 and are taxable at 4%/5% (Paras 10-12).
B) Interpretation of Statutes - Ejusdem Generis - Entry 88 includes 'similar articles' to surgical items - Gases like Medical Oxygen and Nitrous Oxide are not similar to hypodermic syringes etc., but they are covered as 'drugs' under the first part of Entry 88 - Held that ejusdem generis does not apply to exclude them (Paras 10, 13).
C) Drugs and Cosmetics Act, 1940 - Section 3(b)(i) - Definition of 'drug' includes all medicines and substances intended for diagnosis, treatment, mitigation or prevention of disease - Medical Oxygen IP and Nitrous Oxide IP are used for treatment and anesthesia - Held that they are drugs (Paras 12-13).
Issue of Consideration
Whether Medical Oxygen IP and Nitrous Oxide IP are taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act, 2005 as 'drugs' or as 'unclassified goods' under Schedule V.
Final Decision
The Supreme Court dismissed the appeals, holding that Medical Oxygen IP and Nitrous Oxide IP are taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act, 2005 at the rate of 4%/5%.
Law Points
- Classification of goods under VAT
- Interpretation of 'drug' under Drugs and Cosmetics Act
- 1940
- Ejusdem generis
- Common parlance test
- User test
- Functional test
Case Details
Civil Appeal No 2230 of 2020 (arising out of SLP (C) No 19208 of 2016) and connected appeals
Dr Dhananjaya Y Chandrachud
The State of Andhra Pradesh
M/s Linde India Ltd. (Formerly BOC India Ltd)
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Nature of Litigation
Civil appeals against the judgment of the High Court for the State of Telangana and the State of Andhra Pradesh dismissing the State's appeal regarding classification of Medical Oxygen IP and Nitrous Oxide IP under the Andhra Pradesh Value Added Tax Act, 2005.
Remedy Sought
The State of Andhra Pradesh sought reversal of the High Court's decision holding that Medical Oxygen IP and Nitrous Oxide IP are taxable under Entry 88 of Schedule IV at 4%/5% instead of as unclassified goods under Schedule V at 14.5%.
Filing Reason
The State of Andhra Pradesh was aggrieved by the High Court's judgment affirming the Sales Tax Appellate Tribunal's order that classified Medical Oxygen IP and Nitrous Oxide IP as drugs under Entry 88 of Schedule IV of the Andhra Pradesh VAT Act, 2005.
Previous Decisions
The Commercial Tax Officer assessed the respondent for tax at higher rate; the Appellate Deputy Commissioner affirmed; the Sales Tax Appellate Tribunal allowed the respondent's appeal; the High Court dismissed the State's appeal.
Issues
Whether Medical Oxygen IP and Nitrous Oxide IP are 'drugs' under Section 3(b)(i) of the Drugs and Cosmetics Act, 1940.
Whether these products fall under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act, 2005.
Whether the principle of ejusdem generis excludes gases from Entry 88.
Submissions/Arguments
Appellant (State): Medical Oxygen IP and Nitrous Oxide IP are not 'similar articles' to those listed in Entry 88; ejusdem generis excludes gases; Section 3(b)(i) does not broaden Entry 88; Entry 100(36) excludes medical grade oxygen; not every substance used for medicinal purposes falls under Entry 88.
Respondent (Linde India Ltd): The products are drugs under Section 3(b)(i) as they are used for treatment and anesthesia; included in Indian Pharmacopoeia; common parlance test supports classification as medicines; several High Courts have held similarly; National List of Essential Medicines includes oxygen and nitrous oxide.
Ratio Decidendi
Medical Oxygen IP and Nitrous Oxide IP are 'substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder' under Section 3(b)(i) of the Drugs and Cosmetics Act, 1940, and therefore fall within the definition of 'drugs' in Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act, 2005, attracting a lower tax rate.
Judgment Excerpts
The short point of law that arises in the present appeals is whether 'Medical Oxygen IP' and 'Nitrous Oxide IP' are taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005 or as 'unclassified goods' under Schedule V.
Entry 88 includes drugs and medicines, whether patent or proprietary as defined in clauses (i), (ii) and (iii) of Section 3(b) of the 1940 Act.
Clause (i) of Section 3(b) defines a drug as 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 being, or animals'.
Procedural History
The Commercial Tax Officer assessed the respondent for tax at higher rate for the period August 2005. The respondent appealed to the Appellate Deputy Commissioner, who affirmed the assessment. The respondent then appealed to the Sales Tax Appellate Tribunal, which allowed the appeal on 25 November 2014. The State appealed to the High Court for the State of Telangana and the State of Andhra Pradesh, which dismissed the appeal. The State then appealed to the Supreme Court by special leave.
Acts & Sections
- Andhra Pradesh Value Added Tax Act, 2005: Entry 88 of Schedule IV, Schedule V
- Drugs and Cosmetics Act, 1940: Section 3(b)(i), Section 3(b)(ii), Section 3(b)(iii), Section 3(b)(iv), Section 16
