2003 (9) TMI 731 - HC - VAT and Sales Tax

Medical Oxygen & Nitrous Oxide Classified as Medicines, Not Gases, under Kerala Sales Tax Act: Assessment Modified.

The HC determined that 'medical oxygen' and 'nitrous oxide' should be classified under entry No. 116 (Medicines) of the First Schedule to the Kerala ... Classification of 'medical oxygen' and 'nitrous oxide' - Kerala General Sales Tax Act, 1963 - HELD THAT:- Admittedly, 'medical oxygen' and 'nitrous oxide' are gases which will fall under the broad categories mentioned in entry No. 85 of the First Schedule to the Act. Here it must be noted that entry No. 85 itself says 'other than those specified elsewhere in the Schedule' which would mean that if any item of gas specifically falls under any other items in the First Schedule to the Act then such gas would not fall within entry No. 85 of the First Schedule to the Act. 'Medical oxygen' and 'nitrous oxide' are not specifically mentioned in any other entries in the First Schedule to the Act. The contention of the Government Pleader is that the expressions 'not elsewhere' provided is with reference to the petroleum products particularly entry No. 140, sub-entry (xxii) and otherwise. However, we have taken the view that those two items would fall under entry No. 116 of the First Schedule to the Act-'medicine'. Since 'medical oxygen' and 'nitrous oxide' fall under entry No. 116 relating to medicine it is specifically excluded from entry No. 85 of the First Schedule to the Act. Though the assessee had raised a contention that even after the substitution of entry No. 85 with effect from July 1, 1987, the notification of 1984 has application, it cannot be accepted in view of the fact that the notification of 1984 was issued in the context of entry No. 85 of the First Schedule to the Act as it stood at that time and the rate of tax was at 7 per cent and the notification reduced the tax from 7 per cent to 5 per cent. Since under the new entry the rate of tax was 8 per cent, necessarily, the earlier notification has no application. Probably, it is in this view, the Government thought of giving relief by issuing Notification S.R.O. No. 976/89 granting reduction in the rate of tax in respect of medical oxygen from 8 per cent to 6 per cent. These notifications at the most can only show that the Government entertained the view that 'medical oxygen' will fall under entry No. 85 of the First Schedule to the Act. Since this view is against the assessee it cannot bind the assessee if in law 'medical oxygen' in fact falls under entry No. 116 relating to medicine. Hence we are unable to agree with the view taken by the Tribunal. In the view which we have already taken in the matter, we hold that 'medical oxygen' and 'nitrous oxide' have to be assessed under entry No. 116 of the First Schedule to the Act as it stood at the relevant time. The assessing authority will modify the assessment by applying the rate applicable under entry No. 116 of the First Schedule to the Act in respect of 'medical oxygen' and 'nitrous oxide '. The above tax revision case is disposed of as above. Petition allowed. Issues Involved:1. Classification of 'medical oxygen' and 'nitrous oxide' for tax purposes under the Kerala General Sales Tax Act, 1963.Summary:Issue 1: Classification of 'medical oxygen' and 'nitrous oxide' under the Kerala General Sales Tax Act, 1963Whether medical oxygen and nitrous oxide can be treated as medicines for the purpose of levy of tax under the Kerala General Sales Tax Act, 1963 (for short, 'the Act') is the question involved in this case.The assessee, engaged in the manufacture and sale of medical oxygen and nitrous oxide, contended that these items should be assessed at 5% u/s Notification G.O. (Rt.) No. 242/84/TD. Initially, 'medical oxygen' was assessed at 5% and 'nitrous oxide' at 6% under entry No. 85 of the First Schedule to the Act. However, the assessment was reopened u/s 19 of the Act, and both items were reassessed at 8% under entry No. 85, effective from July 1, 1987.The assessee's appeal was dismissed by the Additional Deputy Commissioner (Appeals), and the further appeal to the Appellate Tribunal was also unsuccessful. The assessee raised two questions of law: whether the Tribunal was justified in holding that medical oxygen and nitrous oxide fall under entry No. 85 and not under entry No. 116 (Medicines) of the First Schedule to the Act, and whether these items should be taxable under the specific entry for 'medicines' under entry No. 116.The assessee argued that both items are used in hospitals and understood as medicines in common parlance. The Government Pleader contended that these items fall under entry No. 85, which deals with all gases not specified elsewhere in the Schedule.The Court noted that the goods must be classified according to their popular meaning or commercial sense. The dictionary definitions and common usage indicated that 'medicine' includes substances used for treatment and prevention of diseases. The functional and user tests also supported the classification of 'medical oxygen' and 'nitrous oxide' as medicines.Entry No. 85 deals with all gases, but the expression 'other than those specified elsewhere in the Schedule' means that if an item falls under another specific entry, it should be excluded from entry No. 85. The Court concluded that 'medical oxygen' and 'nitrous oxide' fall under entry No. 116 (Medicines) and not under entry No. 85.In cases where an item falls under two entries, the special entry excludes the general entry. The Karnataka High Court in Indian Oxygen Ltd.'s case held that 'medical oxygen' is distinct from 'industrial oxygen.' Thus, 'medical oxygen' and 'nitrous oxide' should be assessed under entry No. 116 (Medicines) as a special category.The Court held that 'medical oxygen' and 'nitrous oxide' should be assessed under entry No. 116 of the First Schedule to the Act. The assessing authority was directed to modify the assessment accordingly.The above tax revision case is disposed of as above.Petition allowed.