1991 (7) TMI 330 - HC - VAT and Sales Tax

Classification of 'water for injection' upheld under Gujarat Sales Tax Act, 1969. Previous determination not binding.

The Court upheld the classification of 'water for injection' under entry 26(1) of the Gujarat Sales Tax Act, 1969, ruling against the assessee. It held ... Popular parlance rule in construction of taxing entries - classification of 'water for injection' as medicinal water - non-finality of earlier determination for all time to come - distinctness of assessment/tax periods and non-application of res judicata across periods - prospective effect of changed classification from date of government notificationPopular parlance rule in construction of taxing entries - classification of 'water for injection' as medicinal water - Whether the sale of 'water for injection' is taxable under entry 26(1) of Schedule II, Part A (as a drug/medicine) and not covered by the tax-free entry 13 of Schedule I (water simpliciter). - HELD THAT: - The Court applied the established principle that entries in taxing statutes are to be construed according to their popular or common parlance meaning as understood by those dealing in the subject-matter, not according to technical or scientific meanings, citing the line of Supreme Court authorities reproduced in the judgment (for example Ramavatar Budhaiprasad and Plasmac Machine Manufacturing Co. Pvt. Ltd. ). Applying that test, the Court held that a purchaser, seller or user would not regard 'water for injection' as merely ordinary water available in the market; the term denotes a distinct commodity used for medical purposes. Although 'water for injection' is not aerated, mineral or tonic water, it is used for medicinal purposes (for dilution and medical treatment) and therefore falls within the scope of medicinal water for the purposes of the taxing entries. Consequently it does not fall within the tax-free entry 13 (water simpliciter) but is covered by entry 26(1) as a drug/medicine, and thus taxable at the concessional rate under the relevant government notification.Answered in the affirmative against the assessee: 'water for injection' is not water simpliciter under entry 13 and is taxable under entry 26(1) as medicinal water.Non-finality of earlier determination for all time to come - distinctness of assessment/tax periods and non-application of res judicata across periods - Whether the prior determination dated March 25, 1964 in M/s. Sarabhai Chemicals is finally binding on the Department or on subsequent determination proceedings. - HELD THAT: - The Court recognised that determination orders under the sales tax legislation are quasi-judicial in character, but emphasised that such a character does not make a determination binding for all time in other proceedings or different periods. The Court relied on authority (including Doma Sao Mohanlal ) establishing that each assessment or tax period is distinct and a decision in respect of one period does not operate as res judicata for another. The existence of a subsequent change in classification or applicable statutory/notification framework (notably the government notification effective April 1, 1976) further permits fresh determination. On these bases the Tribunal was right in holding that the 1964 determination did not have immutable finality and need not be accepted as binding on subsequent determination proceedings.Answered in the affirmative against the assessee: the earlier 1964 determination did not have finality for all time and was not binding on the Department in later proceedings.Prospective effect of changed classification from date of government notification - Whether the Deputy Commissioner rightly declined to give purely retrospective effect to his determination and whether the changed treatment should operate from the date of the government notification (April 1, 1976). - HELD THAT: - The Court noted that a government notification effective April 1, 1976 conferred concessional tax treatment to specified drugs and medicines (including 'water for injection') pursuant to policy changes and recommendations reflected in the appendix to that notification. Given that the notification altered the applicable classification/treatment, the Deputy Commissioner was justified in not applying the new classification retrospectively beyond the notification date. The Tribunal correctly held that the changed effect should operate from the date the notification came into force (April 1, 1976), rather than being defeated by an earlier determination in another proceeding.Answered in the affirmative against the assessee: the Deputy Commissioner properly refused retrospective effect and the changed classification operates from April 1, 1976.Final Conclusion: All three questions were answered in the affirmative against the assessee and in favour of the Revenue: 'water for injection' is taxable under entry 26(1) as medicinal water and not exempt as ordinary water; the 1964 determination was not finally binding for all time; and the changed treatment takes effect from the government notification of April 1, 1976. Issues Involved:1. Classification of 'water for injection' under the Gujarat Sales Tax Act, 1969.2. Binding nature of a previous determination order under the Bombay Sales Tax Act, 1959.3. Prospective effect of the Deputy Commissioner's determination order under the Gujarat Sales Tax Act, 1969.Issue-Wise Detailed Analysis:1. Classification of 'Water for Injection':The primary issue was whether 'water for injection' fell under entry 26(1) of Schedule II, Part A, or entry 13 of Schedule I of the Gujarat Sales Tax Act, 1969. The assessee argued that 'water for injection' should be classified as water under entry 13, which would make it tax-free. The Tribunal, however, held that 'water for injection' fell under entry 26(1) as it is used for medicinal purposes. The Court upheld this view, stating that the classification should be based on the 'popular parlance' test established by the Supreme Court in Ramavatar Budhaiprasad v. Assistant Sales Tax Officer, which requires interpreting terms as understood by common people. The Court concluded that 'water for injection' is not water simpliciter but medicinal water, thus falling under entry 26(1).2. Binding Nature of Previous Determination Order:The second issue was whether the previous determination order dated March 25, 1964, under the Bombay Sales Tax Act, 1959, was binding on the Sales Tax Department for all time. The Tribunal held that the previous determination order did not have finality for all time and was not binding on the Department. The Court agreed, referencing the Supreme Court's decision in Doma Sao Mohanlal v. State of Bihar, which stated that each assessment period is distinct and a decision in one period does not operate as res judicata for another period. The Court also cited Commissioner of Sales Tax v. Halward Engineers, supporting the view that subsequent determination orders could be made even if there was a previous order.3. Prospective Effect of Deputy Commissioner's Determination Order:The third issue was whether the Deputy Commissioner was justified in not giving prospective effect to his determination order under section 62 of the Gujarat Sales Tax Act, 1969. The Tribunal held that the Deputy Commissioner rightly exercised discretion in not giving prospective effect, aligning the effective date with the Government notification dated April 1, 1976, which provided a concessional tax rate for 'water for injection.' The Court upheld this view, noting that the notification was issued in response to recommendations by the Hathi Committee, which required special treatment for certain essential drugs. Therefore, the Tribunal's decision to apply the determination from the date of the notification was justified.Conclusion:The Court answered all three questions in the affirmative, ruling against the assessee and in favor of the Revenue. The classification of 'water for injection' under entry 26(1) was upheld, the previous determination order was not considered binding for all time, and the prospective effect of the Deputy Commissioner's order was deemed appropriate from the date of the relevant Government notification.