2020 (4) TMI 413 - SC - VAT and Sales Tax

Classification of goods - rate of tax - Medical Oxygen IP - Nitrous Oxide IP - taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005 or as unclassified goods under Schedule V? - HELD THAT - Entry 88 includes drugs and medicines, whether patent or proprietary as defined in clauses (i), (ii) and (iii) of Section 3(b) of the 1940 Act. Any drug or medicine that falls within the ambit of clauses (i), (ii) and (iii) of Section 3(b) falls within the ambit of Schedule IV. Entry 88 also stipulates that hypodermic syringes, hypodermic needles, catguts, sutures, surgical cotton, dressing, plasters, catherters, cannulae, bandages and similar articles are also included, save and except for the three specified exclusions. The judgments in PANKI OXYGEN THRU' PARTNER SUMIT BABBAR VERSUS STATE OF UP. THRU' PRINCIPAL SECRETARY TAX REGD. ORS. 2014 (2) TMI 764 - ALLAHABAD HIGH COURT and THE STATE OF TAMIL NADU, REPRESENTED BY THE DEPUTY COMMISSIONER (COMMERCIAL TAXES) VERSUS RAM OXYGEN (PVT.) LTD. 2010 (6) TMI 710 - MADRAS HIGH COURT highlight the curative and instrumental use of Medical Oxygen IP and Nitrous Oxide IP in the mitigation and prevention of disease or disorder. Nitrous Oxide is used as anesthetic agent. Medical oxygen with 99.9% purity is predominantly used in hospitals. Medical Oxygen is also used for the treatment of patients and to mitigate the intensity of disease or disorder in human beings. It is utilised to prevent a sudden collapse of patients and to aid in the recovery of health. As stated in the Counter Affidavit filed by the respondents, in order to carry out critical surgical procedures, supplemental oxygen is administered to patients. Medical Oxygen is also administered in resuscitation, major trauma, anaphylaxis, major hemorrhage, shock and active convulsions, amongst other conditions. There is no doubt that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act. Medical Oxygen IP and Nitrous Oxide IP fall within the ambit of Section 3(b)(i) of the 1940 Act and are consequently covered in Entry 88 of the 2005 Act. The impugned judgment of the High Court, to the extent it held that Medical Oxygen IP and Nitrous Oxide IP fall within Entry 88 of the 2005 Act is upheld - appeal dismissed.

Issues Involved:
1. Taxability of "Medical Oxygen IP" and "Nitrous Oxide IP" under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005 or as "unclassified goods" under Schedule V.
2. Interpretation of the term "drug" under Section 3(b)(i) of the Drugs and Cosmetics Act 1940.
3. Applicability of the ejusdem generis principle to the classification of gases under Entry 88.
4. Consideration of the exclusion clause in Entry 100(36) of Schedule IV.
5. Common parlance test for classification of goods for tax purposes.
6. Reliance on judgments from various High Courts regarding the classification of Medical Oxygen IP and Nitrous Oxide IP.

Detailed Analysis:

1. Taxability under Entry 88 or Schedule V:
The court examined whether "Medical Oxygen IP" and "Nitrous Oxide IP" should be taxed at a lower rate of 4%/5% under Entry 88 of Schedule IV or at a higher rate of 12.5%/14.5% under Schedule V. Entry 88 includes drugs and medicines defined under Section 3(b) of the Drugs and Cosmetics Act 1940, along with certain medical instruments and excludes medicated goods, cosmetics, and mosquito repellents.

2. Definition of "Drug" under Section 3(b)(i):
The court emphasized that Section 3(b)(i) of the 1940 Act defines a "drug" to include all medicines and substances used for or in the diagnosis, treatment, mitigation, or prevention of any disease or disorder in human beings or animals. The court clarified that "substances" include products other than medicines that serve a medicinal purpose, such as diagnostic agents like barium.

3. Ejusdem Generis Principle:
The appellant argued that applying the principle of ejusdem generis, gases like Medical Oxygen IP and Nitrous Oxide IP could not be considered "similar articles" to those listed in Entry 88. However, the court found this argument unconvincing, noting that the ejusdem generis principle did not apply as the items listed in Entry 88 were not of the same genus or category.

4. Exclusion Clause in Entry 100(36):
The appellant contended that Entry 100(36) of Schedule IV, which specifically excludes "medical grade oxygen," implies that Medical Oxygen IP and Nitrous Oxide IP should be classified under Schedule V. The court rejected this argument, stating that the exclusion of "medical grade oxygen" did not automatically exclude Medical Oxygen IP and Nitrous Oxide IP from Entry 88.

5. Common Parlance Test:
The court applied the common parlance test, which requires goods to be classified according to their popular meaning or how they are understood in their commercial sense. The court noted that Medical Oxygen IP and Nitrous Oxide IP are widely recognized for their medicinal properties and are used extensively in medical treatments, thus falling within the ambit of Entry 88.

6. Reliance on High Court Judgments:
The court referenced several judgments from various High Courts, including Southern Gas Ltd. v State of Kerala, Indian Oxygen Ltd v State of Karnataka, and State of Tamil Nadu v Ram Oxygen, which uniformly held that Medical Oxygen IP and Nitrous Oxide IP are medicines within the meaning of their respective state enactments. These judgments supported the classification of these gases under Entry 88.

Conclusion:
The Supreme Court upheld the High Court's judgment that Medical Oxygen IP and Nitrous Oxide IP fall within Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005. The court dismissed the appeals, confirming that these gases are to be taxed at the lower rate specified in Entry 88, aligning with the definition of "drug" under Section 3(b)(i) of the Drugs and Cosmetics Act 1940. The court found no merit in the appellant's arguments regarding the ejusdem generis principle, the exclusion clause, and the broader interpretation of "substances" under the 1940 Act. The appeals were dismissed with no order as to costs, and any pending applications were disposed of.

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