1995 (1) TMI 376 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Reopening of assessments under Section 12(8) of the Orissa Sales Tax Act, 1947.
2. Classification of "Lal Dantamanjan" (red tooth powder) for tax purposes.
3. Applicability of entry No. 37 and entry No. 105 in the tax notification.
4. Interpretation of "drugs" under Section 3(b) of the Drugs and Cosmetics Act, 1940.
5. Relevance of judicial precedents in determining tax classification.
6. Procedural fairness in tax assessment and reassessment.

Detailed Analysis:

1. Reopening of Assessments:
The petitioner was assessed to extra demands of sales tax for the assessment years 1990-91, 1991-92, and 1992-93. For the years 1990-91 and 1991-92, assessments completed under Section 12(4) of the Orissa Sales Tax Act, 1947, were reopened and reassessments were made under Section 12(8) of the Act. The assessment for the year 1992-93 was made under Section 12(4) of the Act. The reopening was based on the view that "Lal Dantamanjan" should be taxed at 12% as a non-classified item instead of 4% as claimed by the petitioner.

2. Classification of "Lal Dantamanjan":
The primary dispute was whether "Lal Dantamanjan" should be taxed at 4% under entry No. 37 of the tax notification, which covers "Drugs as defined in clause (b) of section 3 of the Drugs and Cosmetics Act, 1940, and ayurvedic, homoeopathic, and unani medicines," or at 12% under entry No. 105, which is residuary in nature and relates to "all other articles." The assessing officer held that "Lal Dantamanjan" should be taxed as a non-classified item at 12%, while the petitioner argued it should be taxed at 4% as a drug.

3. Applicability of Entry No. 37 and Entry No. 105:
The court noted that the applicability of entry No. 37, which includes drugs and certain traditional medicines, was central to the case. The assessing officer's reliance on a Supreme Court decision from Ishwar Singh Bindra v. State of UP was deemed misplaced, as it referred to the pre-amendment definition of drugs under the Drugs Act. The court clarified that if "Lal Dantamanjan" is covered by the unamended entry, the tax rate would be 4%.

4. Interpretation of "Drugs" under Section 3(b) of the Drugs and Cosmetics Act:
The court examined the definition of "drugs" under Section 3(b) of the Drugs Act, noting that the definition is comprehensive and includes all medicines for internal or external use and substances intended for diagnosis, treatment, mitigation, or prevention of disease. The court emphasized that the definition of "drugs" is inclusive and covers substances used for treatment, even if not strictly medicines.

5. Relevance of Judicial Precedents:
The court addressed the relevance of judicial precedents, particularly the Supreme Court's decision in Sarin Chemical Laboratory v. Commissioner of Sales Tax, which classified tooth powder as a toilet product. The court distinguished this case, noting that it did not address whether the product was covered by Section 3(b) of the Drugs Act. The court also dismissed reliance on the Madras High Court's decision in VP. Somasundara Mudaliar v. State of Madras, emphasizing that judicial decisions should not be construed as statutes.

6. Procedural Fairness in Tax Assessment and Reassessment:
The court set aside the orders of assessment and directed the assessing officer to re-do the assessments, allowing the petitioner to present relevant materials in support of its claim. The court noted that the assessing officer's conclusions were based on an outdated legal position and did not consider the amendments to the Drugs Act. The court instructed the petitioner to appear before the assessing officer on a specified date to expedite the reassessment process.

Conclusion:
The writ applications were allowed, and the court directed the assessing officer to reassess the tax liability of "Lal Dantamanjan" in light of the observations made. The court emphasized the need for a fair and accurate determination of the product's classification under the relevant tax entries and statutory definitions. The reassessment was to be completed by the end of July 1995.