1991 (3) TMI 370 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of "cotton rolled bandages" under the Gujarat Sales Tax Act, 1969.
2. Determination of whether "cotton rolled bandages" fall under "handloom fabrics of all varieties" or "drugs and medicines".

Detailed Analysis:

1. Classification of "cotton rolled bandages" under the Gujarat Sales Tax Act, 1969:
The core issue revolves around the classification of "cotton rolled bandages" for tax purposes. The opponent, a registered dealer, sells cotton bandage cloth, cotton gauze absorbent cloth, and cotton rolled bandages. The dispute is whether these items should be classified under entry 33 of Schedule I ("handloom fabrics of all varieties") or entry 26(1) of Schedule II, Part A ("drugs and medicines").

2. Determination of whether "cotton rolled bandages" fall under "handloom fabrics of all varieties" or "drugs and medicines":
The Tribunal initially ruled that the opponent's sales of "cotton rolled bandages" were covered by entry 33 of Schedule I, thus exempt from taxes. However, the State of Gujarat contested this decision, arguing that these items fall under entry 26(1) of Schedule II, Part A, making them taxable.

The judgment delves into the nature and common parlance understanding of "cotton rolled bandages." It emphasizes that the classification should be based on how the product is perceived in the market by manufacturers, sellers, and consumers. The court noted that "cotton rolled bandages" are primarily used for covering cuts or wounds, aligning them more with "drugs and medicines" rather than "handloom fabrics."

The court applied the test of popular parlance and the primary use of the article to conclude that "cotton rolled bandages" are understood as bandages used for medical purposes. The judgment referenced definitions from the "Drugs and Cosmetics Act, 1940" and related case law to support this interpretation. It highlighted that the opponent had obtained a license under the "Drugs and Cosmetics Act, 1940" to manufacture these items, further reinforcing their classification as "drugs and medicines."

The court also discussed the broader and evolving concept of "medicine," noting that it includes substances used for treatment, mitigation, or prevention of diseases. The judgment cited various legal precedents to underline that "cotton rolled bandages" fit within this definition due to their medical use.

Ultimately, the court concluded that "cotton rolled bandages" should be classified as "drugs and medicines" under entry 26(1) of Schedule II, Part A, and not as "handloom fabrics of all varieties" under entry 33 of Schedule I. This classification makes them subject to the applicable taxes.

Conclusion:
The court answered the reference in the negative, ruling in favor of the State and against the assessee. The Tribunal's decision that the opponent's sales of "cotton rolled bandages" were exempt from taxes as "handloom fabrics" was overturned. The court held that these sales should be classified as "drugs and medicines," making them taxable under entry 26(1) of Schedule II, Part A of the Gujarat Sales Tax Act, 1969.