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TMI Blog2020 (4) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 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. 3. The facts in the appeals before this Court being similar, we proceed to elucidate the factual context of the lead appeal. 4. The respondent - 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. 5. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule 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. 8. 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; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 articles" are also included, save and except for the three specified exclusions. 11. 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." 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%. 12. 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 diag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 "things". 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). 14. 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 "medicines". 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 Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple 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 "natural", "ordinary", "literal", 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." Similarly, Craies on Statute Law states: "One of the basic principles of interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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." 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. 18. The word "medicine" is defined in Black's Law Dictionary thus: "Medicine - 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." 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 illness" Cambridge Dictionary defines "medicine" as: "A drug that is used to treat illness or injury; the science dealing with the preserving of health and wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the India Pharmacopoeia for the first time being in force and such other standards as may be prescribed. In case the standards of identity, purity and strength of the drugs are not specified in the edition of the Indian Pharmacopoeia for the time being in force but are specified in the edition of the Indian Pharmacopoeia immediately preceding the standards of identity, purity and strength shall be those occurring in such immediately preceding edition of the Indian Pharmacopoeia and such other standards as may be prescribed." 21. Drugs specified in the Second Schedule are required under the 1940 Act to comply with specified standards. Entry 5 prescribes that "other drugs" means drugs included in the Indian Pharmacopeia, for which standards are specified therein. The Indian Pharmacopoeia Commission - IPC is an autonomous institution of the Ministry of Health and Family Welfare, Government of India. The IPC, through its publication titled "Indian Pharmacopoeia" prescribes standards for the identity, purity and strength of the drugs specified therein. Medical oxygen (at 99.9% purity) is included as a drug termed as "Oxygen IP". Section 16, read with the Second Schedule and the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kerala was whether Medical Oxygen and Nitrous Oxide were "medicines" for the purpose of tax assessment under the Kerala General Sales Tax Act 1963. Answering this in the affirmative, the Kerala High Court held: "In the instant case, as already noted, the assessee, who is the manufacturer of "medical oxygen" and "nitrous oxide", has clearly stated that these two items are manufactured only for use in hospitals and that the dominant use of these two items are only as medicines...There is no dispute that "medical oxygen" is used for administering it on patients. Similarly, the function of "nitrous oxide" is to act as an anesthetic agent. Thus, going by the user test and the functional test, it is evident that "medical oxygen" and "nitrous oxide" are served as medicines." Applying the user test and functional test, the Kerala High Court noted that Medical Oxygen is administered to patients and Nitrous Oxide is used as an anesthetic agent and concluded that both are medicines. 25. In Indian Oxygen Ltd v State of Karnataka, 1989 SCC Online Kar 459 the question before the High Court of Karnataka concerned whether Medical Oxygen fell within the ambit of Entry 121 of the Karnataka Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Inox Air, the question before the High Court of Andhra Pradesh was whether Liquid Medical Oxygen IP, Medical Grade Oxygen and Nitrous Oxide IP are liable to be taxed under Entry 88 of the 2005 Act. The High Court held: "As medical oxygen LP and nitrous oxide LP 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)(1) of the Drugs Act, and consequently, fall under Entry 88 of Schedule IV of the Act. 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 at12.5% or 14.5%." The High Court held that medical oxygen is used in the treatment and mitigation of disorders in human beings, and are generally understood in trade to be surgical aids. 29. The above judgments highlight the curative and instrumental use of Medical Oxygen IP and Nitrous Oxide IP in the mitigation and prevention of disease or disorder. Nitrous Oxide is used as anesthetic agent. Medical oxygen with 99.9% purity is predominantly used in hospitals. Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. ... 3. 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 30-60 min." 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. 31. In the proceedings before this Court, it was not seriously disputed that Medical Oxygen IP and Nitrous Oxide IP sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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