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TMI Blog2014 (10) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... edicines. As medical oxygen IP and Nitrous Oxide IP are used in the treatment and mitigation of disorders in human beings, and as they are generally understood in the trade to be surgical aids, both these substances would fall under the definition of drug under Section 3(b)(i) of the Drugs Act and, consequently, fall under Entry 88 of Schedule IV to the Act liable to tax only at 4%/5%. Entry 100 of the IV Schedule to the Act relate to goods when sold as industrial inputs. Under sub-entry (36) thereof, Hydrogen, rare gases and other non-metals, when sold as industrial inputs, fall within Entry 100 of Schedule IV and are liable to be taxed at 4%/5%. However, in view of its specific exclusion, medical grade oxygen, when it is sold as an industrial input, would not fall within the purview of Entry 100 of Schedule IV to the Act. Exclusion of medical oxygen from the ambit of Entry 100(36) does not mean that it is, automatically, excluded from all other Entries in Schedule IV for, if the Legislature had so intended, medical oxygen would then have been excluded from Entry 88 of Schedule IV also. Entry 88 specifically excludes (a) medicated goods; (b) products capable of being used as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner was assessed to VAT for ₹ 1,73,01,306/- classifying Medical Oxygen IP, and Nitrous Oxide IP, sold by them as unclassified goods under Schedule V to the Act; and tax at the higher rate of 12.5%/14.5%, instead of 4%/5% under Entry 88 of Schedule IV to the Act, was levied thereon. 4. It is the petitioners case that they manufacture the aforesaid products under a licence granted to them under the Drugs and Cosmetics Rules, 1945; the subject goods are used only in the treatment of patients in hospitals; the petitioner had classified these goods as drugs and medicines under Entry 88 of the IV Schedule, and had paid VAT at 4%/5% as applicable during the relevant period; they submitted an application to the Authority for Clarification and Advance Ruling on 02.05.2005 seeking clarification regarding the rate of tax applicable on Medical Oxygen IP and Nitrous Oxide IP; the Advance Ruling Authority had, by its ruling dated 29.07.2005, opined that Medical Oxygen IP and Nitrous Oxide IP were not included in the HSN Codes notified by the Government; even, according to common parlance, they cannot be treated as medicines under Section 3(b)(i) of the Drugs and Cosmetics Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri Shaik Jeelani Basha, Learned Counsel for the petitioner in W.P. No. 16782 of 2014, would submit that the Government had, by G.O. Ms. No. 1615 dated 31.08.2005, prescribed HSN Codes in respect of 70 items in Schedule-IV, whereunder Oxygen-medicinal grade was referred to in sub-entry 14 of Entry 88; the government had, by G.O. Ms. No. 140 dated 19.03.2013, rescinded the earlier notification issued in G.O. Ms. No. 1615 dated 31.08.2005; later the Government had, by G.O. Ms. No. 76 dated 14.02.2014, validated the orders passed, advance rulings and clarifications issued by the authorities of the Commercial Taxes Department following the classification of goods in G.O. Ms. No. 1615 dated 31.08.2005 till it was rescinded by G.O. Ms. No. 140 dated 19.03.2013; as the assessment order relates to the period, from February, 2008 to October, 2012, prior to the date on which G.O. Ms. No. 140 dated 19.03.2013 was issued, the HSN Codes prescribed in G.O. Ms. No. 1615 dated 31.08.2005 are applicable; and the subject goods must, therefore, be classified as drugs and medicines under Entry 88 of Schedule-IV to the Act. 8. Sri Karan Talwar, Learned Counsel for the petitioner in W.P. No. 13418 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, they must be held to be unclassified goods taxable under Schedule V to the Act; and, if the Legislature intended to bring them within the ambit of Entry 88, a specific entry would have been made therein, more so, as they have been excluded from Entry 100 of Schedule IV to the Act. 10. By G.O. Ms. No. 1615, dated 31.08.2005, HSN Codes were prescribed for various goods in the Schedules to the Act. The said G.O. was issued in the exercise of the powers conferred on the government under Section 76(2) of the Act. The HSN Code, prescribed for oxygen medical grade in G.O. Ms. No. 1615 dated 31.08.2005, was 2804.40.10; and oxygen medical grade was shown therein to fall under Entry 88 of Schedule IV to the Act. In MGRM Medicare Limited v. Commercial Tax Officer, a Division Bench of this Court held: While the submission of the learned standing counsel cannot be said without merit, more so as the VAT Act places onus on the assessee to prove that the goods in question are exempt from tax under the First Schedule to the VAT Act, we are satisfied that the impugned order of assessment must be set aside as entry 2 of the First Schedule can neither be amended nor circumscribed except in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied) 12. As G.O. Ms. No. 1615 dated 31.08.2005, issued in exercise of the powers conferred under Section 76(2) of the Act, was neither a legislative exercise nor was it issued under Section 79 of the Act, this Court held that no reliance could be placed on these HSN Codes to restrict the scope of the Entries in the Schedules to the Act and, in view thereof, the assessing authority could not have relied upon G.O. Ms. No. 1615, dated 31.08.2005. The law declared by the Court is presumed to be the law at all times. The decision of a Court, enunciating a principle of law, is applicable to all cases irrespective of its stage of pendency because it is assumed that what is enunciated by the Court is, in fact, the law from the inception. (M.A. Murthy v. State of Karnataka). A judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a new rule but to maintain and expound the old one. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion sets, urine bags, catguts, sutures, surgical cotton, dressing, plasters, catheters, cannulae, bandages and similar articles, but not including:- (a) Medicated goods; (b) Products capable of being used as cosmetics and toilet preparations including Tooth Pastes, Tooth powders, cosmetics, Toilet articles and soaps; [c] Mosquito Repellants in any form. 15. Entry 100 of the IV Schedule relates to goods when sold as industrial inputs. Sub-entry (36), thereunder, reads thus:- Hydrogen, rare gases other non-metals excluding medicinal grade oxygen. 16. Under Schedule V to the Act all goods, other than those specified in Schedules I, III, IV and VI, are taxable at the standard rate of 12.5% prior to 15.01.2010, and at 14.5% thereafter. If Medical Oxygen IP and Nitrous Oxygen IP fall under Entry 88 of Schedule IV, they are then liable to be taxed at 4% or 5%. If not, they are taxable, as unclassified goods, at 12.5% or 14.5% under Schedule V to the Act. 17. As noted hereinabove Entry 88 relates to drugs and medicines as defined in clauses (i), (ii), and (iii) of Section 3(b) of the Drugs Act. Section 3(b) of the Drugs Act defines drug to include all medicines for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are necessary aids for treating surgical or other cases. The main object of the Drugs Act, which is to prevent usage of substandard drugs for maintaining high standards of medical treatment, would be defeated if the necessary concomitants of medical or surgical treatment were allowed to be diluted and consequently the very same evil, which the Drugs Act intends to eradicate, would continue to subsist. (Chimanlal Jagjivan Das Sheth). 20. The words used for or in, in Section 3(b)(i) of the Drugs Act, are significant. The definition of a drug therein would take within its fold (1) all substances used for the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings; and (2) all substances used in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings. Thus any substance either used for, or used in, the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings would fall within the definition of a drug under Section 3(b)(i) of the Drugs Act. It is also not necessary that the substance should be used either for or in the treatment, mitigation or prevention of any disease in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List of Essential Medicines, 2011 published by the Ministry of Health and Family Welfare as updated or revised from time to time, and included in the first schedule of the Order. Para 2(zb) defines scheduled formulation to mean any formulation, included in the First Schedule, whether referred to by generic versions or brand name. Para 2(2) stipulates that all other words and expressions used therein and not defined, but defined in the Drugs and Cosmetics Act, 1940, shall have the meanings respectively assigned to them in the said Act. As such, for the purpose of the Drugs (Prices Control) Order, 2013, the definition of a drug under Section 3(b) of the Drugs Act would apply. Section 1 of Schedule I to the 2013 order relates to anesthesia, and Clause 1.1 thereunder relates to general anesthetics and oxygen. Among the medicines categorized thereunder are Nitrous Oxide and Oxygen, and the route of administration, of both these substances, is said to be by inhalation. In the exercise of powers, conferred under the 2013 order, the Government of India, by order dated 20.12.2013, prescribed the selling price for both Nitrous Oxide Inhalation and Oxygen Inhalation. Exercise of the power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Oxygen as a colourless, odourless gas, soluble one in about 32 of water by volume at 20 and a pressure of 101 KPa. It stipulates that Oxygen should be kept in approved metal cylinders, the shoulders of which are painted white, and the remainder black; the cylinder should carry a label stating Oxygen; and, in addition, Oxygen or symbol O2 should be stenciled in paint on the shoulder of the cylinder. With regards its uses in administration, it is stated that Oxygen is given by inhalation to correct hypoxaemia in conditions causing respiratory failure, and in conditions where the oxygen content of the air breathed is inadequate such as high altitude disorders; oxygen is of value in the treatment of poisoning with a number of substances, including carbon monoxide, cyanides, and dichloromethane; it provides enhanced oxygenation in inhalation injury; oxygen is also given by inhalation to subjects working in pressurized spaces, and to divers to reduce the concentration of the nitrogen inhaled; and it is used as a diluent of volatile and gaseous anaesthetics. Martindale-the Complete Drug Reference, (Thirty Sixth Edition, edited by Sean C. Sweetman) also details the uses in the administr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national (P) Ltd. v. State of Kerala [1991] 81 STC 351 (Ker) and Deputy Commissioner of Sales Tax v. Food Specialities Ltd. [1991] 82 STC 298 (Ker)]. The Karnataka High Court in Indian Oxygen Ltd.'s case [1990] 79 STC 351, took the view that medical oxygen is distinct from industrial oxygen . Entry No. 85 deals with all kinds of gases. If as a matter of fact a particular category of gas, in the instant case, medical oxygen , has got the exclusive user as a medicine and if there is an entry relating to medicine, the item so carved out from the general entry relating to gases will have to be brought under the entry medicine and it has to be assessed under that entry. Here, as we have already noted, entry No. 85 deals with all kinds of gases, medical oxygen is one of the items of gases dealt with in entry No. 85. However, medical oxygen being medicine, certainly, it has to be assessed as a special item falling under the entry relating to medicine. Thus medical oxygen and nitrous oxide are to be treated as a special category falling under entry medicine in entry No. 116 of the First Schedule to the Act. In this view of the matter, the above two items are to be assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of patients and to mitigate contrary intensity of any disease or disorders in human beings. At times of emergency, the application of medical oxygen to a patient is resorted to in order to prevent any sudden collapse of a patient, which process is a part of the treatment given to a patient to recoup from a deterioration in his health condition. (Ram Oxygen (P) Ltd.). The principal use of nitrous oxide (laughing gas) is as an anaesthetic in surgical operation procedures of short duration. (Southern Gas Ltd.). Nitrous oxide is sold mainly to hospitals and nursing homes, for being used as an anaesthetic. It is treated as a surgical aid in trade circles and common parlance. Medicinal oxygen is used to enrich gaseous anaesthetics, during general anaesthesia. Nitrous oxide is used as an anaesthetic. Both nitrous oxide and medical oxygen are clearly identifiable, and are used as surgical aids. (Indian Oxygen Ltd. v. State of Karnataka; Southern Gas Ltd.). Going by the user test and the functional test, it is evident that medical oxygen and nitrous oxide serve as medicines. (Southern Gas Ltd.). As medical oxygen IP and Nitrous Oxide IP are used in the treatment and mitigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets, urine bags, catguts, sutures, surgical cotton, dressings, plasters, catheters, cannulae, bandages and similar articles. All articles, similar to the goods aforementioned, would also fall within the ambit of Entry 88. There is no reason why medical oxygen IP and Nitrous Oxide IP, which are admittedly surgical aids used for or in the treatment and mitigation of disorders in human beings, would not fall under similar articles in Entry 88 of Schedule IV to the Act. 33. Viewed from any angle, both medical oxygen IP and Nitrous Oxide IP fall under Entry 88 of Schedule IV, and are liable to tax only at 4%/5%, and not at 12.5%/14.5%. As the impugned orders are liable to be set aside on this ground alone, it is wholly unnecessary for us to examine whether or not the assessment order passed in W.P. No. 13418 of 2014, for the period prior to 06.04.2010, is barred by limitation; or whether the clarification given by the Advanced Ruling Authorities could have been applied when an appeal has been filed, before the STAT, there against, and an application has been filed before the Authorities seeking review of the earlier clarification. 34. The assessment orders, impugned in both these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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