9911796707
TMI Blog2024 (5) TMI 1143X X X X Extracts X X X X X X X X Extracts X X X X ..... drug . However, every such device cannot be deemed to be a drug within the meaning of Section 3 (b) (iv) unless such device is specified as drug by the Central Government by notification in the Official Gazette. Thus, if such device used for diagnostic purpose is not specified by the Central Government in the Official Gazette, such device cannot be treated to be a drug within the meaning of Section 3 (b) (iv) of the Act. Can a Diagnostic Kit be treated as medicine to fall within the definition of drug under sub-section (i) of Section 3 (b) as contended by the petitioners or can it considered to be a device to bring within the meaning of drug under sub-section (iv) of Section 3 (b) of the Act? - HELD THAT:- In the present context, Diagnostic Kits bears more resemblance with devices rather than medicines . Thus, seen from this perspective, Diagnostic Kits cannot be considered to be medicine and can be considered to be device . In such an event, the Diagnostic Kit will not come under the definition clause of sub-section (i) of Section 3 (b) but would come under sub-section (iv) of Section 3 (b) of the Drugs and Cosmetics Act, 1940 - Diagnostic kit which is a composite device, is a med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STICE WASIM SADIQ NARGAL For the Appellant Through: Mr. C. S. Gupta, Advocate For the Respondent(s) Through: Mr. D. C. Raina, AG with Mr. K. D. S. Kotwal, Dy. AG JUDGMENT (N. KOTISWAR SINGH, CJ) 1. All these writ petitions are taken up together in view of the commonality of the issues involved in these three petitions. 2. OWP No. 1176/2009, is filed by an association whose members are dealers in Diagnostic Kits of different kinds which are used for diagnosis for various diseases. 3. Similarly, petitioners in OWP No. 1177/2009 and OWP No. 1364/2009 are also dealers in Diagnostic Kits registered under the Drugs and Cosmetics Act, (hereinafter refer to the Act ) possessing drug licenses under the aforesaid Act to sell Diagnostic Kits. Most of these Diagnostic Kits are imported, manufactured, and sold under Drug Licenses issued by the competent authority and they have been paying Value Added Tax (VAT). The grievance of the petitioners is that the Revenue authorities are seeking to impose VAT at the rate of 12.5% instead of at 4%, meant for drugs , by not treating the Diagnostic Kits as drugs . 4. In exercise of the powers conferred under Section 17 of the Jammu and Kashmir Value Added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the kit have no other purpose except for use in diagnosis, and as such, are plainly covered by the definition of drugs within the meaning of Section 3 (b) (i) of the Drugs and Cosmetics Act. Since drugs are covered under Entry 48 of Schedule C of SRO 167, these items which are defined as drugs are chargeable @ 4% of VAT as prescribed under SRO 167 of 16th June, 2005. 9. According to the petitioners, the fact that aforesaid Diagnostic Kits are drugs and medicine is clear from the following attributes: (a) They are used for diagnosis of various human diseases. (b) These kits are manufactured under a drug license issued by the Drug Controller to manufacturers of drugs. (c) These drugs are imported on the License issued by the Drug Controller for import of Drugs under the Drugs and Cosmetics Act. (d) They fall within the definition of drug under the Drugs and Cosmetics Act. (e) They fall within the scope of drugs in Entry 48 of Schedule C of SRO 167 which has adopted the definition of drug as given under the Drugs and Cosmetics Act. (f) They are known and understood as drugs in common parlance by the manufacturers, sellers, doctors, pathologists, and patients. (g) Diagnostic tests ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 18.06.2007 and as regards the rate of VAT applicable to Diagnostic Kits, the same fall within the meaning of Entry 164 of Schedule D of SRO 167 2005 dated 16.06.2005 which prescribes 12.5% tax and, as such, the Diagnostic Kits attract tax @ 12.5%. 11. Thus, as per the aforesaid clarifications, the Department had made it clear that Diagnostic Kits are not covered under Entry 48 of Schedule C to SRO 167, but under Entry 164 of Schedule D to SRO 167. All the entries under Schedule C are chargeable @ 4% of VAT, whereas all the items falling under Schedule D are chargeable @ 12.5%. 12. The petitioners have also questioned the competency of the PA (Technical) in issuing any clarification under Section 87 of the VAT Act, as it is only the Commissioner who is competent to issue such a clarification. 13. It is the case of the petitioners that it is not correct on the part of the Commissioner to clarify that the Diagnostic Kits are reagents/ chemicals and other substances and are packed in convenient combinations. Petitioners contend that while it is true that Diagnostic Kits are manufactured out of reagents/chemicals and other substances, yet Diagnostic Kits are manufactured by medical f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner in another paragraph of his clarification mentions that the aforesaid four items are liable to tax under Entry 165 of Schedule B. Thus, the Commissioner himself is also not clear as to whether the items are chargeable under Entry 87 of Schedule B or Entry 165 of Schedule D which clearly indicates inconsistency and non-application of mind on the part of the authority. 17. Further, it has also been contended on behalf of the petitioners that while issuing the clarification no reason has been assigned. Thus, the clarification is a non-speaking order without proper reasons as to why the aforesaid items cannot be treated under Entry 48 of Schedule C. 18. It has been also submitted that these Diagnostic Kits have been treated by manufacturers, importers, exporters, and sellers as drugs by obtaining the necessary license under the Drugs and Cosmetics Rules, in the support of which the licenses issued to the petitioners by the Drug Controller have been annexed. 19. The petitioners have also stated that the Directorate General of Health Services Drug Control Section, Nirmal Bhawan New Delhi in the reply to a query had categorically stated that In Vitro Diagnostic Kits are drug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iming that these items are covered by Entry 48 of Schedule C, i.e., drugs and medicines and others, we will examine whether the claim of the petitioners can be sustained or not. 27. The main thrust of the petitioners' claim is that these Kits are used for diagnosis, and hence have to be treated as drugs within the meaning of Section 3 (b) (i) of the Drugs and Cosmetics Act, 1940. If that is so, there cannot be any doubt that these items will be covered under Entry 48 of SRO 167 and liable to be taxed @ 4%. Since the argument of the petitioners hinges on the definition of drug as provided under the Drugs and Cosmetics Act, 1940, we will analyze and examine the aforementioned definition clause. Section 3 (b) of the Drugs and Cosmetics Act of 1940 defines Drug as follows: Section 3: In this Act, unless there is anything repugnant in the subject or context,- (b) drug includes i) all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne is fairly known to everyone and easily understood in common parlance. It is commonly understood to mean certain substance or preparation for the treatment or cure of illness or prevention of disease. Thus, to consider medicines as drugs does not pose any difficulty. But this simplistic definition of drug is stretched a bit when any substance/medicine is also considered drug even when it is used for diagnostic purpose. It is still comprehensible if such medicine , as commonly understood, is treated as drug, if it is used for diagnostic purposes. However, the real difficulty emerges when Diagnostic Kit which is not commonly understood as medicine is claimed to be medicine to bring within the meaning of drug . 31. What is a Diagnostic Kit ? Diagnostic Kit means a product containing reagents and other items necessary to conduct a test to detect the presence of or to measure a given Biomarker in a given Patient Sample , and it means an In Vitro Diagnostic product. [See: https://www.lawinsider.com/dictionary/diagnostic-kit]. In Vitro means a process taking place outside a living body, in a scientific apparatus as opposed to In Vivo, a process taking place inside the body [Oxford Advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Can a Diagnostic Kit be treated as medicine to fall within the definition of drug under sub-section (i) of Section 3 (b) as contended by the petitioners or can it considered to be a device to bring within the meaning of drug under sub-section (iv) of Section 3 (b) of the Act? 35. Definitely, medicines which are drugs as per sub-section (i) of Section 3 (b) of the Act are different from devices which are also treated as drugs as per sub-section (iv) of Section 3 (b) of the Act (provided these are specified as such by the Central Government), though both the medicines and devices may be used for diagnostic purpose. The existence of these two sub-sections under the same section of the statute clearly indicates that medicines are different from devices , though both are drugs within the meaning of Section 3 (b). If we try to comprehend Diagnostic Kits vis- -vis medicines and devices , there cannot be any doubt that Diagnostic Kits would be more akin to devices rather than medicines . When any particular item is compared with two competing substances for the purpose of classification, the item can be clubbed with the substance with which the item bears more resemblance. 36. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner is not an integral part of the medicine, but the container is used only for the purpose of safe and uncontaminated storage of the medicine which is to be used independently of the container. The use of a medicine, say, cough syrup has no co-relation with the container or apparatus or bottle, which is used only for storing the cough syrup. On the other hand, Diagnostic Kit is a wholesome and composite product consisting not only of the chemical reagents and other non-chemical substances which are used in the kit, but the apparatus which holds the reagents and chemicals and other non-chemical substances, like polythene materials. The chemical reagents found in the Diagnostic Kit cannot be used independently and without the existence of the apparatus or the device. Thus, there should not be any confusion about the apparatus or the device which is an integral part of the chemical reagent used along it to form the Diagnostic Kit, with the mere container containing a medicine as in the case of a cough syrup or tablets. Devoid of the physical device or apparatus and other non-chemical components of the Kit, the reagents/chemicals contained in the Diagnostic Kit cannot be used independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstood in the trade circles as medicines or drugs as claimed by the petitioners, Diagnostic Kits are not understood as medicines or drugs amongst the medical practitioners, medical literature and certainly by the patients but understood as devices or tools. 43. It may also be noticed that in the Entry 48 of Schedule C, the rule making authorities have consciously included syringes and dressings also within the meaning of drugs and medicines. Nobody in his normal senses would treat syringes or dressings to be drugs or medicines . Everybody would treat a syringe to be a medical tool to inject medicines in the body and dressing to be materials to protect wounds. By any stretch of imagination, they are treated as drugs or medicines in common parlance, yet the rule making authorities deemed it fit to categorize these as drugs or medicines for the purpose of levy of tax under the VAT under Entry 48 of Schedule C . There could be certain reasons for doing so. We may only speculate that as these articles are so commonly used with treatment of patients and used along with medicines and drugs that these are treated as drugs or medicines for the purpose of VAT. However, we are not concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devices wherein reagents/chemicals are used. These Diagnostic Kits which are medicinal devices can be considered to be drugs within the meaning of Section 3 (b) (iv) of the Drugs and Cosmetics Act, 1940 only if these are specified so by the Central Government by issuing notifications in the Official Gazette. 49. Under the circumstances and for the reasons discussed above, we dispose of this writ petition with the direction to the respondents authorities to examine if the aforesaid devices namely, (i) Hepatitis HBS Ag Device Card, (ii) HIV Device Card, (iii) Pregnancy Device Card and (iv) VDLR Device Card have been notified by the Central Government in the Official Gazette after consultation with the Drugs Technical Advisory Board as drugs within the meaning of Section 3 (b) (iv) of the Drugs and Cosmetics Act, 1940. If it is found to be so, the above mentioned four Diagnostic Kits have to be treated as drugs falling within Entry 48 of Schedule C of SRO 167 dated 16th June, 2005 and charged VAT accordingly @ 4% with prospective effect from the date such notification is issued. Otherwise, being not drugs , the aforesaid Diagnostic Kits would fall under the residuary Entry 165 of Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
