9911796707
TMI Blog1994 (3) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... d office and factory at Vadodara in Gujarat and it sells the said product throughout India and abroad including in West Bengal. The company is a registered dealer under the sales tax laws of West Bengal. It claims that "Protinules" is a medicinal formulation in powdered form containing high biological value (85-90) and high protein efficiency ratio (2.67) and is made from powdered milk, cane sugar, vitamins and inositol with chocolate flavour in very small quantity. Percentage of powdered milk including skimmed milk powder is 55.79 per cent. According to the company, Protinules satisfies the definition of "drug" in section 3(b) of the Drugs and Cosmetics Act, 1940. By Notification No. 1658 F.T. dated August 1, 1956, issued under section 25 of the 1954 Act, drug was made a notified commodity under the 1954 Act. Rate of sales tax applicable to drugs has varied from time to time by issuance of notifications under the 1954 Act. In 1956, the rate was 3 per cent. It was subsequently increased or decreased so that the rate was 6 per cent for the period from September 1, 1977 to March 31, 1979, and 7 per cent for the period from May 1, 1979 to March 31, 1981, while it was reduced to 4 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sales promotion is done through the medical profession. It is allegedly an "ethical" product, not advertised in the lay media as in the cases of Horlicks, Viva, Complan, Lactogen, Amul, Maltova, etc. In trade, commercial, common and technical parlances Protinules is treated and understood as a drug. It has a definite life-period and manufacturing and expiry dates are mentioned on every lot. Vitamins are themselves drugs and have therapeutic value. Respondent No. 1, Commercial Tax Officer, has all along been allegedly issuing sales tax permits under the provisions of the 1954 Act to the applicant-company for importing Protinules into the State of West Bengal. The inclusive definition of "drug" is wide enough to encompass Protinules. The registration certificate of the applicant-company specifies medicines under the 1954 Act. It is further claimed that Protinules also satisfies the definition of patent and proprietary medicine contained in section 3(h) of the Drugs and Cosmetics Act, 1940 and it satisfies the relevant entry in Notification No. 1658 F.T. dated August 1, 1956, issued under section 25 of the 1954 Act. 4.. Applicants have stated that the concept of drugs and medicin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judice to the contention of the applicant-company and also to avoid any liability of interest. Without considering the claim of the company, respondent No. 1 arbitrarily observed that Protinules was a commodity taxable at 11 per cent, being covered by Notification No. 1022 F.T. dated March 29, 1984, issued under section 25 of the 1954 Act, which relates to food drinks having cocoa or chocolate and malt as major ingredients. The assessment order was received by the company on August 2, 1991, along with a demand notice. Respondent No. 1 also stated in the course of the assessment order that Protinules cannot be treated as a general goods taxable at the rate of 8 per cent under the 1941 Act. This observation is contrary to those made by respondent Nos. 1 and 2 in respect of assessments for the years 1979 onwards except 1980, when it was held that Protinules fell within the general category of goods under the 1941 Act and were taxable at 8 per cent. At no point of time, applicant claimed that Protinules was taxable under the 1941 Act. In 1983, assessment for the year 1979 was made, when for the first time the Commercial Tax Officer held that Protinules was not taxable as a drug. When t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 790 F.T. dated April 2, 1957, as amended by Notification No. 1022 dated March 29, 1984, nor does it resemble the products like Milo, Ovaltine, Bournvita and Tono. Among the many reasons stated in the application as to why Protinules should be treated as a drug or patent or proprietary medicine within the meaning of the 1954 Act, the applicant-company has stated that the commodity contains partially predigested proteins, specially formulated for patients, because during illness their digestive power gets reduced. In order to advance the curative and medicinal function of the commodity, it should be easily absorbed by the patient, and, therefore, protein is supplied in a pre-digested form. In ground No. (h) the applicants have stated that by virtue of section 8 of the West Bengal Taxation Tribunal Act, 1987, this Tribunal exercises its jurisdiction under article 226 and also the power of superintendence under article 227 of the Constitution of India. The prayers include those for cancellation of impugned orders of assessment of tax and determination of interest on the impugned notice/direction dated August 5, 1991, in all the connected proceedings and for a direction upon respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c drink for the rich people of our society and has no use in removing the dangerous effect of malnutrition of poor children of our country". Respondents have said that the Directorate of Health Services of the Government of West Bengal did not treat Protinules as a drug, but treated it only as an item or article. Even if "Protinules" was inadvertently recognised as a "drug", the taxing authorities were not bound by that view and they themselves were required to be satisfied whether it was a "drug". The Indian Pharmaceutical Guide relied on in paragraph 24 of the application, is said to be not dependable, since it is neither an authority nor an empowered publication on the question whether a certain product is a "drug" and since it merely gives a list of medicines and foods including Complan, Farex, Glaxo, Ostermilk and Threptin biscuits. Since applicants referred to only four lines from the National Formulary of India in annexure "J" regarding protein hydrolysate powder, respondents have submitted that they could not make any comment on such incomplete data, and this may be treated as their specific denial. Applicants have cited the Extra Pharmacopoeia by Martindale in support of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been charging sales tax at 11 per cent on sales of Protinules and a further additional sales tax at 15 per cent. Had Protinules been a drug, the rate of tax would have been only 4 per cent. Some entry tax documents and invoices have been made annexure "Y" to the affidavit-in-opposition. Protinules is said to be neither a drug nor a patent or proprietary medicine. Respondents say that Protinules was wrongly subjected to tax as a "drug" and action has been initiated to rectify the mistake. While admitting that during assessment for the year 1979, sales of Protinules were, for the first time, treated as sales of a commodity other than a drug or a patent or proprietary medicine, the respondents have asserted that during the assessments for the periods from January 2, 1986 to January 13, 1986 and from January 14, 1986 to May 31, 1986, the applicantcompany claimed that it was a dealer of medicines only, without separately showing sales of Protinules, which caused the escape of sales of Protinules from the notice of respondent No. 1. This came to his notice allegedly during assessment for the period of 12 months ending May 31, 1987. Then he realised that Protinules had earlier been wro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, without prejudice to its claim that Protinules is a drug. Only drugs, according to the applicants, are prescribed by doctors but they also advise taking of particular diet by the patient. As regards Protinules, it is allegedly prescribed as drug, particularly for patients suffering from kwashiorkor or marasmus. Since Protinules does not contain any malt, Notification No. 790F.T. dated April 2, 1957 is not applicable to it, according to the applicants. 9.. The general law relating to sales tax in the State of West Bengal is contained in the 1941 Act. The West Bengal Sales Tax Act, 1954, deals with imposition of sales tax, etc., in respect of certain specified commodities, called notified commodities, when notified under section 25 thereof, which reads as follows: "If the State Government is at any time of opinion that it would be in the public interest that any commodity which is liable to taxation under the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act 6 of 1941), should be taxed under this Act, it may, by notification in the Official Gazette, specify such commodity and direct that with effect from such date as may be fixed in the notification, the Bengal Finance (Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the major ingredients, accounting for 55.79 per cent by weight, are skimmed milk powder and powdered milk in the form of casein (being source of high protein content). The rest of the ingredients of Protinules are carbohydrate (cane sugar), Inositol, vitamins and chocolate flavour containing a minor proportion of chocolate. The applicants have not specified the percentage of carbohydrate or cane sugar by weight. But from their pleading it appears that out of the remaining 44.21 per cent by weight, not more than 5 per cent will account for vitamins, Inositol, etc., the balance around 40 per cent by weight representing carbohydrate (sugar). Therefore, carbohydrate is also one major ingredient of Protinules. The composition of Protinules having not been disputed by the respondents, it is clear that powdered milk and carbohydrate are the two major ingredients. A question may arise whether "malt", as mentioned in Notification No. 790-F.T. dated April 2, 1957, read with Notification No. 1022-F.T. dated March 29, 1984 issued under the 1954 Act, is the same as carbohydrate which is a major ingredient of Protinules. The following are extracts from New Webster's Dictionary of the English La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sugar, casein hydrolysate, lysine, iron, vitamin and Inositol. It is described as a "balanced food supplement containing milk protein, carbohydrates, vitamins, lysine and iron for the health of entire family". It is also stated on the label that it is "not for medicinal use". Directions for use are: "1 to 2 table-spoonfuls can be taken by adults and 1 to 2 teaspoonfuls may be given to children, twice or thrice a day after food. It can be taken directly or may be diluted with water or fruit juice, but not with milk." The ingredients are stated on the label as below: "Each 15 ml. contains protein hydrolysate 1 g., lysine monohydrochloride 50 mg., iron choline citrate 45 mg., inositol 12.5 mg., niacinamide 10 mg., di-panthenol 4 mg., vitamin B1 1 mg., riboflavine 5', phosphate sodium equivalent to 1 mg. of riboflavine (vitamin B2), vitamin B6 0.5 mg., vitamin B 12 0.5 mg., flavoured syrupy base Q.S. contains added flavours." In paragraph 33 of the typed notes of submissions of the applicants it is stated that the present application involves only Protinules in powder form and it does not concern Protinules in liquid form. In the manner in which the pleadings have been presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 34 of the typed note of submissions on behalf of the applicants is that if Protinules is not treated as drug or patent or proprietary medicine, it should be treated as powdered or condensed milk taxable at 8 per cent under the 1954 Act. Notification No. 886-F.T. dated May 1, 1955, issued under section 25 of the 1954 Act specifies the following item: "Powdered or condensed milk, whether skimmed or not, or whether mixed with any other substance or not, or whether in tablet form or not, sold under various trade names and descriptions such as Milkmaid brand condensed milk, Nestomalt, Nespray, Lactogen, Eledon, Horlicks Malted Milk, Glaxo, Ostermilk....... or any other name or description whatsoever but not including cheese and cream: Provided that where powdered or condensed milk whether in tablet form or not, is mixed with any other substance the percentage by weight of the powdered or condensed milk in the said mixture shall exceed 50 per cent." The current tax rate of such powdered or condensed milk under the 1954 Act is 8 per cent. In paragraphs 8 to 11 in the main application the applicants have maintained that total percentage of powdered milk in the form of skimmed milk po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent or proprietary medicine and should be exigible to tax as such under the 1954 Act, we may examine the contentions of the applicants as well as the respondents to the effect that their respective conduct in treating Protinules in a particular manner for the purpose of tax, supports either the contention of the applicants to the effect that it is a drug or medicine, or that of the respondents to the effect that it is not so. According to the applicants, up to the year 1978 assessments were made treating Protinules as a drug (see paragraph 60 of the application). During assessment for the year ending December 31, 1979, the applicant contended that Protinules was a drug, or in the alternative, powdered milk under Notification No. 886-F.T. dated May 1, 1955. It has been contended before us that having treated the commodity as a drug up to 1978, the respondents could not change its stand. But, the assessing officer assessed the sales for the year 1979 as those of general goods under the 1941 Act and that was confirmed in appeal by the Assistant Commissioner (ibid, same paragraph). The assessment for the year ending December 31, 1980, was similarly made. In appeal, the Assistant Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... varying rates of tax collected or deposited by the applicant-company, do not support the plea of the one or the other. 14.. If, as claimed by the applicant-company, Protinules can be treated as a drug or patent or proprietary medicine, the rate of tax would be much less, and at the current rate would be only 4 per cent. That is the basic reason for which the product is claimed to be a drug or a medicine. Notification No. 1658F.T. dated August 1, 1956, issued under section 25 of the 1954 Act, specifies "drug" and "patent or proprietary medicine", as defined in clauses (b) and (h) of section 3 of the Drugs and Cosmetics Act, 1940. Without specifying in the said notification what is a drug or what is a patent or proprietary medicine, the definitions in the Drugs and Cosmetics Act, 1940 were adopted, thereby denoting that only those commodities will be considered as drug and medicine for the purpose of the notification, which fulfil the requirements of the statutory definitions in the Drugs and Cosmetics Act, 1940 (in short, "the 1940 Act"). 15.. Clause (b) of section 3 of the 1940 Act lays down that "drug" includes all medicines for internal or external use of human beings or ani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance can be attached to the appellate order dated June 4, 1988, which is in favour of the company's claim. Before we proceed to examine the other documents adduced by the company, it may be noted that where the definition of an entry or commodity has been given in the relevant provision (here, in the relevant notification), it is pointless to search for the common parlance meaning. Generally, where no such definition has been given, but the question is whether a commodity does or does not come within that entry or item, it becomes necessary to find out the common parlance meaning as the guide. In the instant case, although Notification No. 1658-F.T. dated August 1, 1956, incorporates the definition in clauses (b) and (h) of section 3 of the 1940 Act, the applicant-company has adduced documents to establish a common parlance meaning to the effect that Protinules is treated as a drug or medicine. It has particularly claimed that Protinules is a drug or medicine for mitigation, treatment and prevention of diseases called kwashiorkor and marasmus. These diseases, it is said, are generally found in children. Kwashiorkor is chronic malignant malnutrition [see paragraph 9(ii) of written n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate by a doctor, registered No. 36285, stating that he prescribes Protinules to his patients suffering from "particular diseases", which are not specified. Applicant-company has also relied on Martindale's Extra Pharmacopoeia, 25th Edition, at annexure pages 88 to 98 of the main application. In these pages, there is no mention of Protinules, manufactured by the applicantcompany, although products like Ostermilk (Glaxo), Farex Rice Cereal (Glaxo), and Complan (Glaxo) are mentioned chiefly as food supplement or food. At annexure page 95 onwards protein hydrolysates have been dealt with. It appears from Martindale that protein hydrolysate (oral) is used as an adjuvant or a diet supplement. 17.. Applicant-company has also relied on the Current Index of Medical Specialities (C.I.M.S.) to prove that Protinules is a drug or medicine. The index is published by a private organisation called Bio-Gard Medical Services of Bangalore. It appears from annexure page 61 that it is a professionally edited and updated index of ethical pharmaceutical preparations. The expression "pharmaceutical" means a chemical used in medicine (see page 959 of Chambers 20th Century Dictionary, ibid). So, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores of the Directorate of Health Services of the Government of West Bengal and the order placed by the Deputy Director of Health Services, West Bengal for supply of Protinules, described as protein hydrolysate powder with vitamins. But the order placed at annexure page 83 describes Protinules, as mere "articles ". Although at annexure page 75 the name of the catalogue is Catalogue of Drugs [1977-78], annexure page 77 (internal page 43 of the catalogue) mentions, not Protinules by name, but only protein hydrolysate powder with vitamins as item 20.54 under (i)-nutrients. Therefore, the catalogue mentions protein hydrolysate as a nutrient, not as a drug or medicine. Annexure pages 78 and 79 are communication from the Health Directorate of West Bengal to the applicantcompany regarding general tender for the year 1972-73. Only some of the specified items are mentioned there as drugs. It does not exclusively deal with drugs; for example, it includes dispensing agents and chemicals also. At annexure page 80, item 21.50 is Protinules (see remarks column), mentioned as protein hydrolysate powder with vitamins. Similar is the case with annexure pages 81 and 82. Annexure pages 84 and 85 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cine shop and not in a stationery or grocery as claimed, it does not ipso facto become a drug or medicine. [Learned State Representative submitted that many articles other than drugs are sold in medicine stores, such as baby food, Horlicks, etc.] Similarly, the fact that Protinules contains concentrated and predigested protein, and not just bulk protein as in eggs, fish, etc., does not make it a drug or medicine for that reason. It may be found that the definition of "drug" in clause (b) of section 3 of the 1940 Act has four sub-clauses. In sub-clause (ii), food substances have been clearly excluded. Protinules, according to us, is clearly a food substance. From paragraph 23 of the written notes of argument for the applicants, it appears that they rely on sub-clause (i) which refers to all medicines and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder. Medicine is also any substance used for the treatment or prevention of disease (see Chambers 20th Century Dictionary, ibid, page 781). The expression "treatment" means, in this context, the way of supplying remedies. The expression "mitigation" is derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of certain drugs and cosmetics. Clause (a) of section 18 prohibits, inter alia, manufacture for sale or distribution of any drug which is not of a standard quality, or is misbranded, adulterated, spurious. Clause (b) of section 18 prohibits sale or distribution, inter alia, of any drug which has been imported or manufactured in contravention of the Act or the Rules made thereunder. Clause (c) of section 18 is more relevant in this case. It is reproduced below: "From such date as may be fixed by the State Government by notification in the Official Gazette in this behalf, no person shall himself or by any other person on his behalf- (c) manufacture for sale or for distribution, or sell or stock or exhibit or offer for sale, or distribute any drugs or cosmetic, except under, and in accordance with the conditions of, a licence issued for such purpose under this Chapter: Provided that nothing in this section shall apply to the manufacturer, subject to prescribed conditions, of small quantities of any drug for the purpose of examination, test, or analysis Provided further that the Central Government, may, after consultation with the Board, by notification in the Official G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tudents. We do not think that we can possibly accede to the request made by Shri Venugopal on behalf of the students. Any direction of the nature sought by Shri Venugopal would be in clear transgression of the provisions of the University Act and the regulations of the University. We cannot by our fiat direct the University to disobey the statute to which it owes its existence and the regulations made by the University itself. We cannot imagine anything more destructive of the rule of law than a direction by the court to disobey the laws." Therefore, the fact that no licence for manufacture or sale of Protinules as a drug or patent or proprietary medicine is possessed by the applicant-company largely supports our finding that Protinules is a food substance and it is neither a drug nor a medicine. In the case of Commissioner of Commercial Taxes v. West Bengal Commercial Taxes Tribunal (case of Boroline), reported in [1993] 89 STC 355, on which respondents relied, this Tribunal had held that a quasijudicial authority under the sales tax law is not bound to treat Boroline as a drug merely by virtue of a drug licence possessed by the manufacturer for manufacturing Boroline. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom its earlier stand that Protinules (powder) is taxable as a drug or medicine. Even this modified stand of the company does not mean anything. We have found that Protinules is neither a drug nor a medicine. So, the question of exemption from the provision for possessing a licence for sale or manufacture does not arise at all. Thus, the claim of the applicant-company that Protinules (powder) is a drug and should be taxed as a drug within the meaning of Notification No. 1658-F.T. dated August 1, 1956 issued under the 1954 Act adopting the definitions in clauses (b) and (h) of section 3 of the 1940 Act, is without substance. It is to be noted that the said notification did not adopt the exemptions and exceptions under the 1940 Act and Rules made thereunder. We hold that Protinules (powder) cannot come under the said notification either as a drug or as a patent or proprietary medicine. 21.. During arguments on behalf of the applicants reference was made to [1956] 30 ITR 181 (SC); AIR 1956 SC 554 (Mehta Parikh Co. v. Commissioner of Income-tax) in support of the contention that the affidavits filed as annexures by the applicants should be relied on regarding the question whether P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , submitted that the decision is distinguishable in many respects. We have already referred to some observations in the said decision. In our opinion, a different set of facts was involved in that case where the subject-matter was a cream called Boroline, which was not a food substance. So, it is not necessary to discuss the said judgment, except the portion we have already mentioned. 23.. Therefore, the application is allowed without any order for costs. It is declared that Protinules (powder) sold by the applicant-company with its present composition noted in this judgment, is exigible to sales tax under the 1954 Act as a powdered or condensed milk, as described in Notification No. 886-F.T. dated May 1, 1955, issued under section 25 of the 1954 Act. It is further declared that for the purpose of sales tax the said commodity is neither powders for food drinks, as described in Notification No. 790-F.T. dated April 2, 1957 read with Notification No. 1022-F.T. dated March 29, 1984, nor drug, nor patent or proprietary medicine, as described in Notification No. 1658-F.T. dated August 1, 1956, all these notifications having been issued under section 25 (ibid). Let it also be declared ..... X X X X Extracts X X X X X X X X Extracts X X X X
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