1968 (8) TMI 116 - SC - VAT and Sales Tax

Whether the preparation of medicines on prescriptions of the applicant amounted to a manufacture of 'medicines and pharmaceutical preparations' within the meaning of Notification No. ST-3504/X dated 10th May, 1956, and whether the applicant was assessable to tax on the turnover of the medicines so dispensed? Held that - Appeal dismissed. Acceptance of the contention by the revenue would imply that a medical practitioner supplying to his patients medicines and pharmaceutical preparations separately is not liable to tax when under his direction they are mixed by his employees for the special use of a patient under his treatment and to achieve a specific purpose, the turnover from the resultant mixture is taxable. In the absence of clearer phraseology, the Court would not in a taxing provision be willing to give that interpretation.

Summary

Issues:
Interpretation of a notification exempting turnover from tax for medicines and pharmaceutical preparations; Whether the preparation of medicines by a medical practitioner constitutes manufacturing under the notification; Applicability of exemption clauses for importers and manufacturers of medicines.

Analysis:
The case involved a dispute regarding the applicability of a notification exempting turnover from tax for medicines and pharmaceutical preparations. The High Court held that the respondent, a medical practitioner, was not a manufacturer of medicines within the meaning of the notification. The core issue was whether the respondent was exempt from tax liability under the notification. The notification specified that turnover for medicines and pharmaceutical preparations would not be liable to tax, except for sales by importers or manufacturers. The respondent, not being an importer, was assessed by the revenue authorities for manufacturing medicines in his dispensary. The key question was whether the preparation of medicines by the respondent constituted manufacturing under the notification.

The Court analyzed the definition of "manufacture" and emphasized that it involves making articles commercially different from basic components through physical labor or mechanical processes. The notification exempted sales of medicines but withdrew the exemption for sales by importers or manufacturers. The tax was to be levied at a single point for medicines manufactured in Uttar Pradesh. The Court concluded that when a medical practitioner prepares a mixture of drugs based on a prescription for a patient's treatment, it does not amount to manufacturing under the notification. Therefore, the exemption under the notification does not apply to such cases.

The revenue's argument, if accepted, would lead to an absurd interpretation where a medical practitioner supplying separate medicines is not taxed, but if they are mixed for a specific patient's use, the turnover becomes taxable. The Court highlighted the lack of clarity in the provision and refused to interpret it in favor of taxation without explicit language. Consequently, the Court dismissed the appeal, stating that the respondent was not liable to tax for preparing medicines in his dispensary. The delay in filing the respondent's statement was condoned, and no costs were awarded in the appeal.

In conclusion, the judgment clarified the scope of manufacturing under the notification for medicines and pharmaceutical preparations, emphasizing that the preparation of medicines by a medical practitioner for specific patient needs does not constitute manufacturing under the exemption clauses. The Court's interpretation aimed to prevent unjust taxation and ensure clarity in applying tax provisions.