1994 (2) TMI 320 - HC - Central Excise

Summary

Issues Involved:
1. Classification of "Balsam Tolu BP" as a drug or food essence.
2. Legality of BMC's change in classification and levy of octroi.
3. Interpretation of taxable goods in fiscal statutes.

Summary:

1. Classification of "Balsam Tolu BP" as a drug or food essence:
The primary issue was whether "Balsam Tolu BP" should be classified as a drug or a food essence under Item 8 of Clause 1 of Schedule `H' to the Bombay Municipal Corporation Act (BMCA). The petitioner, a registered partnership firm dealing in drugs, argued that "Balsam Tolu BP" is a pharmaceutical grade item used in the preparation of medicines and not a food essence. The BMC had historically classified it as a drug exempt from octroi. However, in 1990, the BMC sought to reclassify it as a food essence subject to octroi.

2. Legality of BMC's change in classification and levy of octroi:
The petitioner challenged the BMC's action on the grounds that the BMC had consistently classified "Balsam Tolu BP" as a drug in the past and had no cogent reason or new material to change this classification. The BMC's reliance on a Chemical Analyser's report from 1990, which mentioned both pharmaceutical and food uses for "Balsam Tolu BP," was deemed insufficient to justify the reclassification. The court emphasized that a long-standing interpretation in favor of the taxpayer should not be altered without very cogent reasons, citing the Supreme Court's stance on maintaining consistency in fiscal statutes.

3. Interpretation of taxable goods in fiscal statutes:
The court discussed various principles of interpretation for taxable goods, including the common parlance test, commercial parlance test, and user test. It concluded that "Balsam Tolu BP" is primarily and dominantly used as a pharmaceutical item, as evidenced by its classification in various pharmacopoeias and chemical dictionaries. The court held that the BMC's action to reclassify "Balsam Tolu BP" as a food essence was unjustified and without any new material to support such a departure from the established classification.

Conclusion:
The court ruled in favor of the petitioner, stating that "Balsam Tolu BP" should continue to be classified as a drug exempt from octroi. The BMC's attempt to reclassify it as a food essence was deemed incorrect and unjustified. The writ petition was allowed, and no costs were ordered. The court also addressed the BMC's request for a stay of the order, noting that the petitioner had agreed to maintain a bank guarantee for 60 days and file a bank guarantee for any new consignments within two months.