Commercial meaning of drugs for tax exemption upheld, with excess tax refundable and only limited delay interest allowed.

Products manufactured under a Drugs and Cosmetics Act licence were treated as drugs and medicines for sales tax exemption because fiscal classification depended on their commercial meaning in trade, reinforced by the statutory controls governing drugs. On that basis, the exemption notifications applied and consequential central sales tax relief followed. Tax collected without authority of law was held refundable when paid under a mistake of law, and the doctrine of unjust enrichment did not defeat the refund claim in the circumstances. The claim for the originally sought interest was rejected, but a limited interest direction was substituted if refund was delayed beyond the stipulated period.

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Issues: (i) Whether the products manufactured by the petitioners were "drugs and medicines" within the exemption notifications so as to attract the lower or nil rate of sales tax and consequential central sales tax relief; and (ii) whether the petitioners were entitled to refund of tax collected in excess, including the questions of unjust enrichment, limitation, and interest.

Issue (i): Whether the products manufactured by the petitioners were "drugs and medicines" within the exemption notifications so as to attract the lower or nil rate of sales tax and consequential central sales tax relief.

Analysis: The products were manufactured under a licence issued under the Drugs and Cosmetics Act, 1940. The Court held that, for fiscal purposes, the commercial meaning of the goods had to be gathered from the understanding of those dealing in them, and that the statutory scheme of the Drugs and Cosmetics Act, particularly the controls on manufacture, sale, and distribution of drugs, made its definition of "drug" highly relevant to trade understanding. The Court further held that the earlier decisions relied upon by the respondents did not decide against the petitioners on the present larger question, and that the products in question were properly understood as drugs and medicines for the purposes of the exemption notifications.

Conclusion: The question is answered in the affirmative and in favour of the petitioners.

Issue (ii): Whether the petitioners were entitled to refund of tax collected in excess, including the questions of unjust enrichment, limitation, and interest.

Analysis: The Court applied the settled principle that tax collected without authority of law is refundable when paid under a mistake of law. It held that the doctrine of unjust enrichment did not bar refund in the present case and accepted the line of authority of the High Court treating that doctrine as inapplicable in such refund claims. The Court also accepted that the petitions could not be defeated on the footing that the petitioners had knowingly overpaid tax. However, while refund was granted, the claim for 21 per cent interest was declined, and a limited post-delay interest mechanism was provided if the refund was not made within the stipulated period.

Conclusion: The petitioners are entitled to refund, but the claim for interest as originally sought is rejected and substituted by a limited interest direction if refund is delayed.

Final Conclusion: The challenge to the assessments succeeded to the extent that the goods were held exempt as drugs and medicines and the excess tax was ordered to be refunded, with only the interest component modified.

Ratio Decidendi: For fiscal classification, the meaning of a product may be determined by its commercial understanding in the trade, and where statutory controls show that the product is dealt with as a drug, exemption provisions can be applied accordingly; tax collected without authority of law remains refundable, unaffected by unjust enrichment in the circumstances considered.

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