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Judgment
211 paragraphs · 3,890 words,,
Dr. Dhananjaya Y Chandrachud, J",,
Leave granted.,,
The short point of law that arises in the present appeals is whether “Medical Oxygen IP†and “Nitrous Oxide IP†are taxable under Entry,,
88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005 [2005 Act] or as “unclassified goods†under Schedule V . The,,
classification of the two products determines the rate of tax to be levied on them â€" 4%/5% [5% substituted for the figure 4% by Act 11 of 2012,,
dated 20 April 2012.] under Entry 88 or 12.5%/14% [14.5% substituted for the figure 12.5% by Act 9 of 2010 dated 20 April 2010] under Schedule V.,,
The facts in the appeals before this Court being similar, we proceed to elucidate the factual context of the lead appeal.",,
The respondent â€" Linde India Ltd, is a registered company under the 2005 Act and is an assessee on the rolls of the Commercial Tax Officer,",,
Gajuwaka and Dwarakanagar Circle. The respondent is engaged in the manufacturing and trading of industrial gases as well as Medical Oxygen IP,,
and Nitrous Oxide IP. On 12 December 2005, the Commercial Tax Officer communicated to the respondent that an outstanding tax liability of Rs",,
5,11,062 was due and payable for the period between 1 August 2005 and 31 August 2005.",,
Aggrieved, the respondent filled an appeal before the Appellate Deputy Commissioner who, by his order dated 26 June 2006, affirmed the",,
assessment of the Commercial Tax Officer. By an order dated 25 November 2014, the Sales Tax Appellate Tribunal, relying on a judgment of the",,
Andhra Pradesh High Court in Inox Air Products Ltd v The Assistant Commissioner (CT), Hyderabad [2014 VIL 339 AP], allowed the appeal filed",,
by the respondent. The appellantâ€s appeal before the High Court for the State of Telangana and the State of Andhra Pradesh was dismissed.,,
Aggrieved, the appellant is in appeal before this Court.",,
The High Court was of the view that in Section 3(b)(i) of the Drugs and Cosmetics Act 1940 [1940 Act] the expression “drug†covers within,,
its ambit any substance which is used for or in the treatment, prevention and mitigation of a disease or a disorder. The High Court held that (i) Medical",,
Oxygen IP is used for the treatment of patients and to mitigate the intensity of diseases and disorders; and (ii) Nitrous Oxide IP is used as an,,
anesthetic in surgical operations and procedures of a short duration. The High Court held:,,
“…Both “nitrous oxide†and “medical oxygen†are clearly identifiable, and are used as surgical aids (Indian Oxygen Ltd. 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. 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 of the Act liable to tax only at 4%/5%â€",,
Assailing the judgment of the High Court, learned counsel for the appellant urged:",,
(i) The decision of the Andhra Pradesh High Court in Inox Air, in so far as it held that Medical Oxygen IP and Nitrous Oxide IP are covered by the",,
expression “similar articles†in Entry 88, is erroneous. Applying the principle of ejusdem generis, it cannot be said that gases are “similar",,
articles†to the other products specified in the entry;,,
(ii) The term “used for or in†employed in Section 3(b)(i) qualifies only “substances†and not “medicinesâ€. Consequently, it cannot be",,
used to broaden the scope of Entry 88;,,
(iii) Though Section 3(b)(i) of the 1940 Act includes substances that are necessary aids for treating surgical or other cases, Entry 88 also contains an",,
exclusion clause. Entry 100(36) of Schedule IV specifically excludes “medical grade oxygenâ€. Absent a specific inclusion of Medical Oxygen IP,,
and Nitrous Oxide IP in Entry 88, they fall within the ambit of unclassified goods in Schedule V; and",,
(iv) Every “substance†cannot be said to fall within the ambit of Entry 88 merely because it is used for medicinal purposes. For a substance to fall,,
within the ambit of Entry 88, it must accord with the definition stipulated in Section 3(1)(b) of the 1940 Act.",,
Opposing the above submissions, learned counsel for the respondents urged:",,
(i) Section 3(b)(i) of the 1940 Act defines a “drug†broadly as a medicine or substance used for or in the diagnosis, treatment, mitigation or",,
prevention of any disease or disorder. Medical Oxygen IP and Nitrous Oxide IP are widely known for their curative properties and as medicines in the,,
diagnosis, treatment, mitigation and prevention of diseases and disorders;",,
(ii) Medical Oxygen and Nitrous Oxide are included in the Indian Pharmacopoeia which prescribes standards for drugs. The Indian Pharmacopoeia,,
has legal status under Section 16 of the 1940 Act. Consequently, Medical Oxygen and Nitrous Oxide are drugs within the ambit of Section 3(1)(b) of",,
the 1940 Act. As Medical Oxygen IP and Nitrous Oxide IP are “medicines†within the ambit of Section 3(1)(b) of the 1940 Act, they are",,
expressly included in Entry 88 of the 2005 Act;,,
(iii) Goods must be classified according to their popular meaning or as they are understood in their commercial sense. Oxygen is used widely as an,,
emergency medicine as well as for the delivery of medical services. Nitrous Oxide is used in surgery and dentistry for anesthetic purposes. Applying,,
the common parlance test, there is no doubt that the products in question are used in the mitigation of diseases and disorders and fall within the ambit",,
of Entry 88 as drugs defined in Section 3(b)(i) of the 1940 Act;,,
(iv) Several High Courts in the country have uniformly held that Medical Oxygen IP and Nitrous Oxide IP are medicines within the meaning of their,,
respective state enactments. These include Southern Gas v State of Kerala 2005 (139) STC 504 (Ker), State of Tamil Nadu v Ram Oxygen [2011] 5",,
GST 87 (Mad HC), Panki Oxygen v State of Uttar Pradesh 2014 SCC Online All 2144, Chimanlal v State of Maharashtra 2004 (137) STC 68, Indian",,
Oxygen v State of Karnataka 1990(79) STC 351, State of Kerala v Indian Oxygen 2003 (129) STC 471 and ACTO, Special Circle Jodhpur v M/s",,
Jodhpur Gases 2009 SCC Online 2459;,,
(v) The National List of Essential Medicines 2011 which constitutes Schedule I of the Drug Price (Control) Order 2013, includes “Oxygen†and",,
“Nitrous Oxide†as “anesthesia†under Section 1; and,,
(vi) The decision of the High Court from which the present appeal arises was rightly based on the judgment of that High Court in Inox Air, both of",,
which must be upheld by this Court.,,
The rival submissions fall for consideration.,,
We must begin with the statutory framework. Schedule IV of the 2005 Act prescribes a uniform tax rate of 4%/5% for listed goods. Entry 88 of,,
Schedule IV reads as follows:,,
“Drugs & Medicines whether patent or proprietary, as defined in clauses (i), (ii) and (iii) of Section 3(b) of Drugs and Cosmetics Act, 1940",,
(Central Act 23 of 1940), including hypodermic syringes, hypodermic needles, catguts, sutures, surgical cotton, dressing, plasters, catherters, cannulae,",,
bandages and similar articles but not including:,,
(a) Medicated goods;,,
(b) Products capable of being used as cosmetics and toilet preparations including Toothpastes, Tooth powders, cosmetics, Toilet articles and soaps;",,
and,,
(c) Mosquito repellents in any form.â€,,
Entry 88 includes drugs and medicines, whether patent or proprietary as defined in clauses (i), (ii) and (iii) of Section 3(b) of the 1940 Act. Any drug",,
or medicine that falls within the ambit of clauses (i), (ii) and (iii) of Section 3(b) falls within the ambit of Schedule IV. Entry 88 also stipulates that",,
hypodermic syringes, hypodermic needles, catguts, sutures, surgical cotton, dressing, plasters, catherters, cannulae, bandages and “similar articlesâ€",,
are also included, save and except for the three specified exclusions.",,
Schedule V of the 2005 Act reads thus:,,
“Goods taxable at standard rate (RNR) of [14.5%],,
All goods other than those specified in Schedules I, III, IV, VI.â€",,
Schedule V stipulates that all goods that do not fall within the ambit of Schedules I, III, IV, and VI shall be taxed at a rate of 14.5%.",,
Section 3(b) of the 1940 Act defines a “drug†in the following terms:,,
“(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 like mosquitoes;,,
…,,
(iv) such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or",,
animals, as may be specified from time to time by the Central Government by notification in the Official Gazette, after consultation with the Board.â€",,
Clause (i) of Section 3(b) defines a drug as 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 being, or animalsâ€, including specified",,
preparations. Clause (iv) of Section 3(b) includes all “devices†intended for internal or external use in the diagnosis, treatment, mitigation or",,
prevention of disease or disorder in human beings or animals.,,
In the early decision of this Court in Chimanlal Jagjivandas Sheth v State of Maharashtra AIR 1963 SC 665, the question before a four judge",,
Bench was whether absorbent cotton wool, roller bandages, and gauzes would fall within the ambit of Section 3(b) of the Act of 1940. The Court held:",,
“3. The said definition of “drugs†is comprehensive enough to take in not only medicines but also substances intended to be used for or in the,,
treatment of diseases of human beings or animals. This artificial definition introduces a distinction between medicines and substances which are not,,
medicines strictly so-called. The expression “substancesâ€, therefore, must be something other than medicines but which are used for treatment.",,
The part of the definition which is material for the present case is “substances intended to be used for or in the treatmentâ€. The appropriate,,
meaning of the expression “substances†in the section is “thingsâ€'. It cannot be disputed, and indeed it is not disputed, that absorbent cotton",,
wool, roller bandages and gauze are “substances†within the meaning of the said expression. If so, the next question is whether they are used for",,
or in “treatmentâ€. …,,
It is not necessary for the purpose of this appeal to define exhaustively “the substances†falling within the definition of “drugsâ€; and we,,
consider that whether or not surgical instruments are “drugsâ€, the articles concerned in this case are.â€",,
(Emphasis supplied),,
This Court held that the comprehensive nature of the definition includes both medicines and something other than medicines, but which are used for",,
treatment. In that case, the question concerned whether absorbent cotton wool, roller bandages and gauze are “substances†within the ambit of",,
Section 3(b). It is in that context that this Court held that substances are “thingsâ€. The Court clarified that it was not necessary to exhaustively,,
define “the substances†which fall within the ambit of drugs as defined in Section 3(b). A substance may be a product, which though not",,
specifically used as a medicine is used for diagnosis, treatment, mitigation or prevention of diseases. [Barium, for example, is a substance used as an",,
element in the diagnostic process in X-rays. ] Where a product other than a medicine is intended to be used for or in the diagnosis, treatment,",,
mitigation or prevention of any disease or disorder, the same would be a “substance†falling within the ambit of Section 3(b)(i).",,
The learned counsel for the appellants urged that the phrase “intended to be used for or in the diagnosis, treatment, mitigation or prevention of",,
any disease or disorder†in Section 3(b)(i) is only applicable to “substances†and not “medicinesâ€. In Ishwar Singh Bindra v The State of UP,,
(1969) 1 SCR 219, the central question before a three judge Bench of this Court was the interpretation of Section 3(b)(i) of the 1940 Act. This Court",,
held:,,
“11. Now if the expression “substances†is to be taken to mean something other than “medicine†as has been held in our previous decision,,
it becomes difficult to understand how the word “and†as used in the definition of drug in Section 3(b)(i) between “medicines†and,,
“substances†could have been intended to have been used conjunctively. It would be much more appropriate in the context to read it disjunctively.,,
In Stroud's Judicial Dictionary, 3rd Edn. it is stated at p. 135 that “and†has generally a cumulative sense, requiring the fulfilment of all the",,
conditions that it joins together, and herein it is the antithesis of or. Sometimes, however, even in such a connection, it is, by force of a contexts, read",,
as “orâ€. Similarly, in Maxwell on Interpretation of Statutes, 11th Edn., it has been accepted that “to carry out the intention of the legislature it is",,
occasionally found necessary to read the conjunctions “or†and “and†one for the otherâ€.,,
This Court held that as the word “substances†in the clause is used to mean something other than “medicineâ€, it was not the intention of the",,
legislature that the word “and†was meant to be read conjunctively. Accordingly, this Court held that the two parts of the definitional clause must",,
be read disjunctively.,,
In the above view, Section 3(b)(i) stipulates that medicines or substances used for or in the diagnosis, treatment, mitigation or prevention of any",,
disease or disorder in human beings, or animals shall be included within the ambit of the definition. It is significant to note the use of the phrase “for",,
or in†in the definitional clause. Section 3(b)(i) includes both medicines or substances used for the diagnosis, treatment, mitigation or prevention of",,
any disease or disorder or in the diagnosis, treatment, mitigation or prevention of any disease or disorder. Where the former highlights the direct use of",,
the product in question in diagnosing, treating, mitigating or preventing a disease or disorder, the latter highlights its instrumental use as a facilitative",,
agent in the diagnosis, treatment, mitigation or prevention of any disease or disorder. The relevant enquiry for this Court is whether Medical Oxygen",,
IP and Nitrous Oxide IP are used in or for any of the purposes specified therein.,,
The term “medicine†is not defined in the 1940 Act. It is a trite principle of interpretation that the words of a statute must be construed,,
according to the plain, literal and grammatical meaning of the words. Justice G P Singh in his seminal work Principles of Statutory Interpretation",,
states:,,
“The words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their",,
grammatical meaning, unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest the",,
contrary…in the statement of the rule, the epithets “naturalâ€, “ordinaryâ€, “literalâ€, grammatical†and “popular†are employed",,
almost interchangeably.,,
…,,
It is often said that a word, apart from having a natural, ordinary or popular meaning (including other synonyms i.e. literal, grammatical and primary),",,
may have a secondary meaning which is less common e.g technical or scientific meaning. But once it is accepted that natural, ordinary or popular",,
meaning of the word is derived from its context, the distinction drawn between different meanings loses much of its relevance.â€",,
Similarly, Craies on Statute Law states:",,
“One of the basic principles of interpretation of Statutes is to construe them according to plain, literal and grammatical meaning of the words. If",,
that is contrary to, or inconsistent with, any express intention or declared purpose of the Statute, or if it would involve any absurdity, repugnancy or",,
inconsistency, the grammatical sense must then be modified, extended or abridged, so far as to avoid such an inconvenience, but no further. The onus",,
of showing that the words do not mean what they say lies heavily on the party who alleges it. He must advance something which clearly shows that,,
the grammatical construction would be repugnant to the intention of the Act or lead to some manifest absurdity.â€,,
The words of a statute should be first understood in their natural, ordinary or popular sense and phrases and sentences should be construed according",,
to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest",,
the contrary. Where a word has a secondary meaning, the assessment is whether the natural, ordinary or popular meaning flows from the context in",,
which the word has been employed. In such cases, the distinction disappears and courts must adopt the meaning which flows as a matter of plain",,
interpretation and the context in which the word appears.,,
In State of HP v Pawan Kumar (2005) 4 SCC 550, it was contended that the safeguards provided in Section 50 of the Narcotics Drugs and",,
Psychotropic Substances Act, 1985 regarding search of any person would also apply to any bag, briefcase or any such article or container, which is",,
being carried by the person. The word “person†was not defined in the Act. A three judge Bench of this Court, having regard to the scheme of",,
the Act and the context in which the word ― “person†has been used, rejected the contention and held thus:",,
“8. One of the basic principles of interpretation of statutes is to construe them according to plain, literal and grammatical meaning of the words. If",,
that is contrary to, or inconsistent with, any express intention or declared purpose of the statute, or if it would involve any absurdity, repugnancy or",,
inconsistency, the grammatical sense must then be modified, extended or abridged, so far as to avoid such an inconvenience, but no further. The onus",,
of showing that the words do not mean what they say lies heavily on the party who alleges it. He must advance something which clearly shows that,,
the grammatical construction would be repugnant to the intention of the Act or lead to some manifest absurdity.â€,,
The above canon of statutory interpretation has been consistently followed by this Court in State of Himachal Pradesh v Pawan Kumar 2005 Cr.L.J.,,
(SC) 2008, State of Haryana v Suresh (2007) 15 SCC 186, State of Rajasthan v Babu Ram (2007) 6 SCC 55 and Commissioner of Customs (Import),",,
Mumbai v Dilip Kumar and Company (2018) 9 SCC 1.,,
The word “medicine†is defined in Black’s Law Dictionary thus:,,
“Medicine â€" the science and art dealing with the prevention, cure and alleviation of diseases; in a narrower sense that part of science and art of",,
restoring and preserving health which is the province of the physician as distinguished from the surgeon and obstetrician.â€,,
CollIns Dictionary for Advanced Learners defines “medicine†thus:,,
“Medicine is the treatment of illness and injuries by doctors and nurses; is a substance that you drink or swallow to cure an illnessâ€,,
Cambridge Dictionary defines “medicine†as:,,
“A drug that is used to treat illness or injury; the science dealing with the preserving of health and with preventing and treating disease or injury.â€,,
The ordinary or popular understanding of the term medicine is characterized by its curative properties in general andspecifically, its use for or in",,
diagnosis, treatment, mitigation or prevention of any disease or disorder.",,
In State of Goa v Leukoplast (India) Ltd (1997) 4 SCC 82, the question before this Court concerned whether Zinc Oxide Adhesive Plaster BPC",,
(Leukoplast), Surgical Wound Dressing (Handyplast), Belladona Plaster BPC, Capsicum Plaster BPC and Cotton Crape Bandages BPC",,
NATIONAL LIST OF ESSENTIAL MEDICINES 2011,,
Section: 1 â€" Anesthesia,,
1.1 General Anesthetics and Oxygen,,
Medicines
Category",Route of Administration,Strengths
…
…",…,…
Nitrous Oxide
P, S, T",Inhalation,
Oxygen
P, S, T",Inhalation,
high FA/FI ratio allowing for rapid onset and offset, anxiolytic as well as analgesic and amnestic properties, lack of an odour and lack of irritation to",,
the tracheobronchial tree. These same properties have made it increasingly popular in areas outside of the OR including paediatric procedural,,
sedation, the emergency room, obstetrics, and potentially psychiatry, for attenuation of treatment-resistant depression.â€",,
The World Health Organisation in its publication titled “Model Prescribing Information: Drugs Used in Anesthesia†[WHO Model Prescribing,,
Information: Drugs Used in Anaesthesia (1989).] states that Nitrous Oxide has the following uses:,,
“Maintenance of surgical anaesthesia in combination with other anaesthetic agents (halothane, ether, thiopental or ketamine) and muscle relaxants.",,
In subanaesthetic doses, to provide analgesia for obstetric practice, for emergency management of injuries, during postoperative physiotherapy and for",,
refractory pain in terminal illness.â€,,
K D Tripathi in Essentials of Medical Pharmacology [KD Tripathi, Essentials of Medical Pharmacology, VIIth Ed., at p. 378.] states:",,
“INHALATIONAL ANAESTHETICS 1. Nitrous oxide (N2O) It is a colourless, odourless, heavier than air, noninflammable gas supplied under",,
pressure in steel cylinders. It is nonirritating, but low potency anaesthetic; unconsciousness cannot be produced in all individuals without concomitant",,
hypoxia; MAC is 105% implying that even pure N2O cannot produce adequate anaesthesia at 1 atmosphere pressure. Patients maintained on 70%,,
N2O + 30% O2 along with muscle relaxants often recall the events during anaesthesia, but some lose awareness completely. Nitrous oxide is a good",,
analgesic; even 20% produces analgesia equivalent to that produced by conventional doses of morphine.,,
…,,
Nitrous oxide The patient is made to breathe 100% oxygen through a nose piece or hood and N2O is added in 10% increments (to a maximum of,,
50%, rarely 70%) till the desired level of sedation assessed by constant verbal contact is obtained. This is maintained till the procedure is performed.",,
Thereafter, N2O is switched off, but 100% O2 is continued for next 5 min. The patient is generally roadworthy in 30â€"60 min.â€",,
The above extracts demonstrate the medical use of Nitrous Oxide as a general anesthetic as well as in operation rooms for its analgesic and anxiolytic,,
properties.,,
In the proceedings before this Court, it was not seriously disputed that Medical Oxygen IP and Nitrous Oxide IP sub-serve a medicinal purpose.",,
There is no doubt that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any",,
disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act. We hold that Medical Oxygen IP and Nitrous Oxide IP,,
fall within the ambit of Section 3(b)(i) of the 1940 Act and are consequently covered in Entry 88 of the 2005 Act.,,
The impugned judgment of the High Court, to the extent it held that Medical Oxygen IP and Nitrous Oxide IP fall within Entry 88 of the 2005 Act",,
is upheld.,,
The appeals are dismissed, although for the reasons highlighted above. There shall be no order as to costs.",,
Pending application(s), if any, shall stand disposed of.",,