By Tulip De and Nishtha Das
The Hon’ble Supreme Court on April 14, 2020, in the matter of State of Andhra Pradesh v. M/s Linde India Ltd. has held that ‘Medical Oxygen IP’ and ‘Nitrous Oxide IP’ are classified as ‘drug’ and fall within the meaning of Section 3(b)(i) of the Drugs and Cosmetics Act 1940 (hereinafter referred to as ‘1940 Act’). The said classification determines that these gaseous substances can now be taxed as ‘drugs’ under Entry 88 of Schedule V of the Andhra Pradesh Value Added Tax Act 2005 (hereinafter referred to as ‘2005 Act’)
Brief facts of the case –
- The matter began in the year 2005, when Linde India Ltd. (hereinafter referred to as ‘respondents’) received a communication from the Commercial Tax Officer stating that an outstanding tax liability of Rs 5,11,062 was due and payable for the period between August 01, 2005 and August 31, 2005.
- Aggrieved from the above imposition, the respondent filled an appeal before the Appellate Deputy Commissioner who, by his order dated June 26, 2006 affirmed the assessment of the Commercial Tax Officer.
- The respondent made a subsequent appeal to the Sales Tax Appellate Tribunal, which allowed the said appeal of the respondent.
- Pursuant to the above, the State of Telangana and the State of Andhra Pradesh (hereinafter referred to as ‘appellants’) appealed before the High Court which was eventually dismissed. Therefore, the aggrieved appellants consequently approached the Hon’ble Supreme Court.
Points of consideration –
- Respondents prayed to consider Medical Oxygen IP and Nitrous Oxide IP under Schedule IV of the 2005 Act which prescribes a lower and uniform tax rate of 4%/5% for listed goods. Entry 88 (falling within the ambit of Schedule IV) includes drugs and medicines, whether patent or proprietary as defined in clauses (i), (ii) and (iii) of Section 3(b) of the 1940 Act.
- Whereas, appellants prayed that Medical Oxygen IP and Nitrous Oxide IP are covered under Schedule V which 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%, which is a higher tax rate compared to the above. Based on this, the appellants had calculated the outstanding tax liability of Rs 5,11,062 on part of the respondents.
Submissions made by the appellants –
- Assailing the judgment of the Andhra Pradesh High Court, the appellant submitted 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’ (of the same kind), it cannot be said that gases are „similar articles‟ to the other products specified in the entry.
- The term “used for or in” employed in Section 3(b) (i) of the 1940 Act qualifies only “substances‟ and not “medicines‟. Consequently, it cannot be used to broaden the scope of Entry 88.
- The appellants further submitted, inter-alia, that 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, the state submitted.
- According to the appellants, gaseous substances are taxable as ‘unclassified goods’ under Schedule V, which attracts a higher percentage of duty when compared to Schedule IV.
- Based on the above, the appellants requested to quash the order of the High Court.
Submissions made by the respondents –
- 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.
- 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.
- 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 anaesthetic 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.
- The National List of Essential Medicines 2011 also includes “Oxygen” and “Nitrous Oxide” as a qualifying “anaesthesia”.
- Based on the above, respondents prayed to the court to uphold the earlier decision of the High Court.
‘Medical Oxygen’ and ‘Nitrous Oxide’ are ‘drugs’ under the Drugs and Cosmetics Act 1940
- The Court noted that Entry 88 of Schedule IV included in its ambit ‘drugs and medicines’ as defined under Section 3 of the 1940 Act. Hence, the issue was whether ‘Medical Oxygen’ and ‘Nitrous Oxide’ would be drugs as per the Act.
- As the term “medicine‟ is not defined in the 1940 Act, the Court followed the ordinary meaning of the word which is characterized by its curative properties in general and specifically, its use for or in diagnosis, treatment, mitigation or prevention of any disease or disorder.
- The Court further observed that Nitrous Oxide is used as anaesthetic agent. Medical oxygen with 99.9% purity is predominantly used in hospitals. Medical Oxygen is also used for the treatment of patients and to mitigate the intensity of disease or disorder in human beings. It is utilised to prevent a sudden collapse of patients and to aid in the recovery of health.
Based on the above observation, the Hon’ble Supreme Court held that there was no doubt that Medical Oxygen IP and Nitrous Oxide IP were medicines. They were popularly used in the diagnosis, treatment, for mitigation or prevention of any disease or disorder in human beings. Therefore, they were clearly falling within the ambit of Section 3(b)(i) of the 1940 Act. Subsequently, it was held by the Hon’ble Court that Medical Oxygen IP and Nitrous Oxide IP are covered in Entry 88 of the 2005 Act.
 Civil Appeal No 2230 of 2020