2014 (2) TMI 764 - HC - VAT and Sales Tax

Whether on oxygen IP (Indian Pharmacopoeia) the tax under the U.P. Trade Tax Act, 1948 is to levy under Entry Medicine and Pharmaceutical Preparation or under Entry Oxygen and other gases - Held that - oxygen (IP) is fully covered by Entry 26 of the notification dated 15.1.2000 i.e. medicines and pharmaceutical preparation and shall not be covered by Entry 47 of the notification dated 29.1.2001 which relates to oxygen and other gases . The oxygen (IP) i.e. medicinal oxygen being a drug fully covered by Entry 26 of the notification dated 15.1.2000 cannot be included in the general entry i.e. Entry 47 of the notification dated 29.1.2001. It is relevant to note that in Entry 47 there is an exclusion clause which excludes such other gases as are included in any other notification issued under the Uttar Pradesh Trade Tax Act, 1948 . The tax liability on oxygen (IP) i.e. medicinal oxygen, was only 8% and the assessment orders were correctly passed levying tax liability at the rate of 8% insofar as on oxygen (IP) is concerned and at the rate of 12% insofar as oxygen for industrial use is concerned. - Decided in favor of assessee. Reassessment proceedings - Held that - We proceed with the assumption that respondents could have initiated the reassessment proceedings there being doubt regarding levying of tax on oxygen (IP) i.e. medicinal oxygen but we having already held that tax liability on oxygen (IP)/medicinal oxygen was only 8% which was rightly levied in the assessment order, the order granting permission for reassessment proceedings and the reassessment orders are unsustainable.

Issues Involved:
1. Classification of Oxygen IP under U.P. Trade Tax Act, 1948.
2. Validity of reassessment proceedings under Section 21 of the U.P. Trade Tax Act, 1948.
3. Applicability of specific vs. general entries in tax notifications.
4. Interpretation of statutory provisions and notifications.

Detailed Analysis:

1. Classification of Oxygen IP under U.P. Trade Tax Act, 1948:
The primary issue was whether Oxygen IP (Indian Pharmacopoeia) should be taxed under the entry "Medicine and Pharmaceutical Preparation" at 8% or under "Oxygen and other gases" at 12%. The petitioner, a manufacturer of both industrial and medicinal oxygen, argued that medicinal oxygen is a drug used in medical treatment and should be taxed at 8% as per the notification dated 15.1.2000. The court agreed, noting that Oxygen IP is a drug under the Drugs and Cosmetics Act, 1940, and is used medicinally in hospitals. The court concluded that Oxygen IP falls under the specific entry for "medicines and pharmaceutical preparations" and not the general entry for "oxygen and other gases."

2. Validity of Reassessment Proceedings under Section 21 of the U.P. Trade Tax Act, 1948:
The reassessment proceedings were initiated on the grounds that medicinal oxygen should be taxed at 12%. The petitioner contended that the reassessment was merely a change of opinion without any new material. The court observed that the initial assessment correctly levied tax at 8% for medicinal oxygen and 12% for industrial oxygen. Given the court's conclusion that medicinal oxygen is a drug, the reassessment orders were deemed unsustainable. The court also noted procedural issues, such as the lack of communication regarding objections filed by the petitioner and the ex-parte nature of the reassessment orders.

3. Applicability of Specific vs. General Entries in Tax Notifications:
The court emphasized that specific entries should prevail over general ones. Entry 26 of the notification dated 15.1.2000 specifically covers "medicines and pharmaceutical preparations," which includes Oxygen IP. Entry 47 of the notification dated 29.1.2001, which covers "oxygen and other gases," explicitly excludes gases included in other notifications. Therefore, Oxygen IP, being a medicinal product, falls under the specific entry for medicines and is excluded from the general entry for gases.

4. Interpretation of Statutory Provisions and Notifications:
The court referred to various judgments to interpret the relevant statutory provisions and notifications. It relied on the definitions provided in the Drugs and Cosmetics Act, 1940, and previous judicial interpretations that distinguished between industrial and medicinal uses of oxygen. The court also considered the principles laid down by the Supreme Court regarding the classification of goods in taxing statutes, emphasizing that doubts should be resolved in favor of the assessee.

Conclusion:
The court held that Oxygen IP is a medicinal product and should be taxed at 8% under the entry for "medicines and pharmaceutical preparations." The reassessment orders imposing a 12% tax were set aside as they were based on an incorrect interpretation of the applicable tax entries. The court also highlighted procedural lapses in the reassessment process, further invalidating the reassessment orders. The writ petition was allowed, and the reassessment orders were quashed.

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