2009 (5) TMI 879 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of notification regarding tax rate on oxygen and industrial gases.
2. Classification of medicated oxygen as medicine for tax purposes.
3. Application of tax rates based on usage and purpose of the product.

Interpretation of Notification Regarding Tax Rate on Oxygen and Industrial Gases:
The Assistant Commissioner filed a sales tax revision petition against the judgment by the Tax Board, Ajmer, affirming the decision of the Deputy Commissioner (Appeals) regarding the tax rate on oxygen and industrial gases. The dispute arose when a demand was created for a difference amount of four per cent tax and surcharge on medicated oxygen produced by the respondent-dealer. The petitioner argued for a 12 per cent tax rate based on a specific entry in the notification dated March 22, 2002. However, the Tax Board, following a judgment of the Allahabad High Court, concluded that medicated oxygen, used only for human patients in hospitals, should be taxed at eight per cent as it is considered medicine and not an industrial gas.

Classification of Medicated Oxygen as Medicine for Tax Purposes:
The respondent-dealer produced medicated oxygen gas under a license issued as per the Medicated Oxygen and Drugs Rules, 1945, solely for human patients with no commercial use. The petitioner challenged the additional tax demand, which was set aside by the Deputy Commissioner (Appeals) and upheld by the Tax Board. The court agreed that medicated oxygen, used to save the lives of seriously ill patients, falls under the category of medicine. The judgment emphasized the duty of the welfare state to either exempt such critical medical supplies from tax or impose a negligible tax due to their life-saving nature.

Application of Tax Rates Based on Usage and Purpose of the Product:
The court analyzed the purpose and usage of medicated oxygen, highlighting its critical role in saving human lives in hospitals. It differentiated between industrial use of oxygen gas, subject to a 12 per cent tax rate, and medicated oxygen used solely for medical treatment, taxed at eight per cent. The judgment stressed that when a commodity is intended for saving human lives without any industrial or commercial purpose, a lower tax rate or exemption should be considered. The court dismissed the revision petition, stating that no question of law was involved, and upheld the decision to tax medicated oxygen at eight per cent due to its essential role in healthcare and life-saving nature.