1989 (3) TMI 187 - SC - VAT and Sales Tax

whether the two medicines, Arishtams and Asavas attract different considerations from those applied to other medicinal preparations? Held that - The two preparations, Arishtams and Asavas, are medicinal preparations, and even though they contain a high alcohol content, so long as they continue to be identified as medicinal preparations they must be treated, for the purposes of the Sales Tax Law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol. On this ground alone the appellants are entitled to succeed. The appellants held entitled to a refund of the excess paid as sales tax on account of the turnover being treated under Item 135 rather than under Item 95

Summary

Issues:
1. Challenge to the levy of 30% tax on Arishtams and Asavas under the Tamil Nadu General Sales Tax Act, 1959.
2. Allegation of discrimination against Ayurvedic medicines under Art. 14 of the Constitution.
3. Allegation of infringement of Art. 19(1)(g) of the Constitution.
4. Allegation of violation of Art. 301 of the Constitution.

Analysis:

Issue 1:
The appellants contested the imposition of a 30% tax on Arishtams and Asavas under the Tamil Nadu General Sales Tax Act, 1959. The High Court dismissed the writ petitions challenging the levy. The State justified the higher tax rate as a measure to curb abuse by drink addicts and eliminate sub-standard Ayurvedic Pharmacies. However, the Supreme Court found no rational basis for treating Arishtams and Asavas differently from other Ayurvedic medicines taxed at a lower rate of 7% (now 8%). The Court held that as long as Arishtams and Asavas are identified as medicinal preparations, they must be treated similarly for sales tax purposes.

Issue 2:
The appellants argued that the differential tax rate on Arishtams and Asavas violated Art. 14 of the Constitution, alleging discrimination against Ayurvedic medicines. The Supreme Court referenced a previous case where medicinal preparations with high alcohol content were considered medicinal preparations and not subject to different treatment. The Court held that Arishtams and Asavas, despite their alcohol content, are medicinal preparations and should be treated as such for sales tax purposes, supporting the appellants' claim.

Issue 3:
The appellants contended that the tax rate on Arishtams and Asavas infringed Art. 19(1)(g) of the Constitution. The High Court had rejected this argument, stating the tax was primarily for revenue generation. However, the Supreme Court disagreed, emphasizing the need for a rational basis for differential taxation within the same category of commodities. The Court found no justification for the higher tax rate on Arishtams and Asavas compared to other Ayurvedic medicines, thereby supporting the appellants' position.

Issue 4:
Regarding the alleged violation of Art. 301 of the Constitution, the Supreme Court did not delve into this issue as the appellants succeeded on the grounds of differential treatment and classification of Arishtams and Asavas as medicinal preparations. Consequently, the Court allowed the appeals, directing a refund of excess tax paid and setting aside the High Court's judgment. The Sales Tax Authorities were instructed to reassess the turnover of Arishtams and Asavas at the lower tax rate and refund the excess amount paid by the appellants.

In conclusion, the Supreme Court ruled in favor of the appellants, highlighting the need for consistent treatment of medicinal preparations under the sales tax law and rejecting the differential tax rate imposed on Arishtams and Asavas. The judgment emphasized the importance of a rational basis for differential taxation within the same category of commodities, ensuring compliance with constitutional principles.