1988 (2) TMI 434 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the products manufactured by the petitioners are "drugs and medicines" within the purview of the exemption Notifications No. 14/41/81-Fin (R & C) and No. 5/5/87 (R & C)-8.
2. Whether the petitioners are entitled to the refund of the excess Central and local sales tax paid.

Detailed Analysis:

1. Whether the products manufactured by the petitioners are "drugs and medicines" within the purview of the exemption Notifications No. 14/41/81-Fin (R & C) and No. 5/5/87 (R & C)-8.
The petitioners contended that their products, manufactured under a license issued by the Drugs Controller under the Drugs and Cosmetics Act, 1940, fall within the definition of "drugs and medicines" as per section 3(b) of the said Act. The products include zinc oxide adhesive plaster B.P.C. (leukoplast), surgical wound dressing (handyplast), belladonna plaster B.P.C., capsicum plaster B.P.C., and cotton crepe bandages B.P.C. (leukocrepe). They argued that these products are used for the treatment, mitigation, or prevention of diseases and therefore qualify as "drugs and medicines."

The respondents, however, contended that the products do not fall under the category of "drugs and medicines" and hence are not eligible for the exemptions under the notifications. They argued that the definition given in the Drugs and Cosmetics Act is not relevant for the purpose of excise law, which should rely on the commercial and popular understanding of the product.

The court analyzed the definition of "drug" under section 3(b) of the Drugs and Cosmetics Act, 1940, and concluded that the products manufactured by the petitioners are indeed "drugs and medicines." The court emphasized that the popular or commercial meaning of a drug is synonymous with the definition provided in the Drugs and Cosmetics Act, especially considering the comprehensive regulation under Chapter IV of the said Act, which governs the manufacture, sale, and distribution of drugs.

2. Whether the petitioners are entitled to the refund of the excess Central and local sales tax paid.
The petitioners argued that they had paid Central sales tax at the rate of 4% and local sales tax at the rate of 6% from November 1, 1981, to April 1, 1987, under a mistake of law. They contended that the correct rate of tax was 3% due to the exemptions provided under Notifications No. 14/41/81-Fin (R & C) and No. 5/5/87 (R & C)-8. They sought a refund of the excess tax paid along with interest at the rate of 21% per annum from the date of collection till the date of refund.

The court examined the legal precedents, including the decisions in Rapidur (India) Ltd. v. Union of India, Associated Bearing Co. Ltd., Bombay v. Union of India, and Dipsi Chemicals Pvt. Ltd., and concluded that the petitioners are entitled to the refund of the excess tax paid. The court rejected the respondents' argument based on the doctrine of unjust enrichment, holding that the doctrine was not applicable in this case.

However, the court did not grant the relief of interest at the rate of 21% per annum as prayed by the petitioners. Instead, it directed that the refund should be made within three months from the date of the judgment without any interest. If the refund is not made within the stipulated time, the amount will accrue interest at the rate of 6% per annum from the expiry of the three-month period.

Conclusion:
The court held that the products manufactured by the petitioners are "drugs and medicines" within the purview of the exemption notifications. Consequently, the petitioners are entitled to the refund of the excess Central and local sales tax paid. The refund should be made within three months without any interest, failing which interest at the rate of 6% per annum will accrue from the expiry of the three-month period. The rule was made absolute in terms of prayers (a) and (b) with no order as to costs.