1989 (3) TMI 355 - SC - VAT and Sales Tax

Taxability on ayurvedic drugs and medicines, including arishtams and asavas - Held that - Appeal allowed. The judgment and order of the High Court on each writ petition are set aside and the sales tax authorities are directed to reassess the turnover of the arishtams and asavas at the rate mentioned in item No. 95 and to refund to the appellants the amount of tax paid in excess. The appellants, in their turn, on obtaining such refund will, within one month thereof, serve notice on the customers from whom such excess has been recovered to obtain a refund from the appellants of such corresponding excess. In the event of any balance of the excess remaining unrefunded by the appellants to the customers upon the expiry of three months from such notice, the balance will be paid over by the appellants to the Arya Vaidya Rama Varier Educational Foundation of Ayurveda.

Summary

Issues:
1. Challenge of levy at 30% on arishtams and asavas.
2. Constitutionality of the higher levy of sales tax on arishtams and asavas.
3. Discrimination against manufacturers of ayurvedic preparations.
4. Justification for the higher rate of tax on arishtams and asavas.
5. Comparison of arishtams and asavas with other medicinal preparations.
6. Application of tax rates to different categories of medicinal preparations.
7. Interpretation of medicinal preparations containing alcohol.
8. Entitlement to refund of excess sales tax paid.
9. Directions for refund process and handling of unrefunded amounts.

Analysis:

The Supreme Court addressed the challenge to the levy at 30% on arishtams and asavas, emphasizing the essentiality of alcohol in these ayurvedic medicines for absorption and preservation. The State of Tamil Nadu had imposed a higher tax rate on arishtams and asavas to curb abuse and substandard production. The appellants contended that this levy discriminated against them and violated constitutional provisions. The High Court had dismissed the writ petitions, viewing the tax imposition as primarily revenue-focused and rejecting claims of discrimination or ulterior motives.

The Court examined whether arishtams and asavas warranted differential treatment from other medicinal preparations due to their alcohol content. It was established that both categories fell under medicinal preparations, and thus, should be treated similarly for tax purposes. Referring to a previous case, the Court emphasized that the mere presence of alcohol did not justify differential treatment. Consequently, the Court ruled in favor of the appellants, entitling them to a refund of excess sales tax paid due to the incorrect categorization under a higher tax rate.

In conclusion, the Court allowed the appeals, set aside the High Court's judgment, and directed the reassessment of tax at the lower rate for arishtams and asavas. The appellants were instructed to inform customers of the refund entitlement and handle any unrefunded amounts appropriately. The decision highlighted the need for consistent treatment of medicinal preparations and upheld the appellants' right to a refund based on the incorrect tax categorization.