1987 (2) TMI 324 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the products manufactured by the petitioner are 'drugs and medicines' within the purview of the exemption Notifications No. 14/41/81-Fin. (R&C) and No. 5/5/87 (R&C)-8.
2. Whether the petitioners are entitled to the refund sought.

Summary:

Issue 1: Classification of Products as 'Drugs and Medicines'

Petitioners manufacture products under a license issued by the Drugs Controller under the Drugs and Cosmetics Act, 1940. They contended that these products fall within the definition of 'drugs' u/s 3(b) of the Drugs and Cosmetics Act, 1940, and thus qualify for tax exemptions under Notifications No. 14/41/81-Fin. (R&C) and No. 5/5/87 (R&C)-8. The respondents argued that the products are not 'drugs and medicines' and therefore do not qualify for exemptions. The court held that the definition of 'drug' in the Drugs and Cosmetics Act is relevant for determining the commercial understanding of the products. The court concluded that the products are indeed 'drugs and medicines' within the meaning of the said notifications.

Issue 2: Entitlement to Refund

Petitioners sought a refund of the excess Central and Local Sales Tax paid, arguing that the tax was paid under a mistake of law. The court referred to previous judgments, including Rapidur (India) Ltd. v. Union of India, which held that when duty is paid under a mistake of law and collected without authority, the party is entitled to a refund. The court rejected the respondents' argument based on the doctrine of unjust enrichment, citing binding precedents that the doctrine does not apply in such cases.

Additional Considerations:

The court addressed the respondents' argument that the notification did not reduce the rate of duty but only the tax payable. The court found this argument unpersuasive, stating that the key issue is the amount of tax payable, not the rate. The court also dismissed the respondents' request for cross-examination of witnesses and held that the definition of 'drug' in the Drugs and Cosmetics Act is most relevant for determining its meaning in trade.

Conclusion:

The court directed the respondents to refund the excess tax paid by the petitioners within three months, without interest. If the refund is not made within this period, it will accrue interest at the rate of 6% per annum from the expiry of the three months.