1993 (12) TMI 233 - HC - VAT and Sales Tax

Court rules absorbent cotton wool I.P. taxable at 6% as pharmaceutical preparation

The court ruled in favor of the petitioner, determining that absorbent cotton wool I.P. should be taxed at 6% under Entry No. 56 of the notification dated ... - Issues Involved:1. Validity of notices issued to the petitioner.2. Determination of the applicable tax rate for absorbent cotton wool I.P.3. Applicability of the judgment in Vishwas Surgical Industries case.4. Interpretation of relevant tax notifications and entries.Issue-wise Detailed Analysis:1. Validity of Notices Issued to the Petitioner:The petitioner challenged the notices (Annexures 2, 3, 4, 5, 7, 8, 9, and 10) issued by the Commercial Taxes Department. The court observed that the notices were issued based on the judgment by the Rajasthan Sales Tax Tribunal in the Vishwas Surgical Industries case. The court found that directing the petitioner to appear before the authorities in response to these notices would be futile, as the authorities were bound by the Tribunal's decision. Hence, the court overruled the respondents' preliminary objection that the petitioner should first approach the authorities.2. Determination of the Applicable Tax Rate for Absorbent Cotton Wool I.P.:The primary contention was whether absorbent cotton wool I.P. was covered under Item No. 16 of the notification dated 27.6.1990, which would subject it to a tax rate of 4%. Item No. 16 included 'cotton of all kinds (indigenous or imported), whether ginned or unginned, baled, pressed or otherwise including cotton waste.' The court noted that the petitioner was initially collecting tax at 4% based on an order by the Additional Commissioner, Commercial Taxes. However, the Tribunal's judgment in the Vishwas Surgical Industries case, which classified absorbent cotton wool as a pharmaceutical preparation taxable at 6%, prompted the issuance of the contested notices.3. Applicability of the Judgment in Vishwas Surgical Industries Case:The Tribunal in the Vishwas Surgical Industries case determined that absorbent cotton wool, commonly known as surgical cotton, was a pharmaceutical preparation and should be taxed at 6%. The court acknowledged that the Tribunal's decision conflicted with the Additional Commissioner's earlier ruling. The court noted that the Tribunal's decision was based on the classification of absorbent cotton wool as a pharmaceutical product due to its preparation process, which involves cleaning, bleaching, and other treatments.4. Interpretation of Relevant Tax Notifications and Entries:The court analyzed the relevant entries in the tax notifications. Item No. 16 of the notification dated 27.6.1990 covered all kinds of cotton, including cotton waste, but without the terms 'manufactured or unmanufactured' that were present in the earlier notification dated 8.3.1988. The court also considered Entry No. 56, which covered 'medicines, drugs, and all kinds of pharmaceutical preparations.' The court concluded that absorbent cotton wool I.P., being a highly purified and chemically treated product, fell under Entry No. 56 as a pharmaceutical preparation.The court referenced various judgments, including those from the Allahabad High Court and the Madras High Court, which supported the classification of absorbent cotton wool as a pharmaceutical product rather than raw cotton. The court agreed with the Tribunal's view that the product underwent a manufacturing process, making it a pharmaceutical product taxable at 6%.Conclusion:The court concluded that absorbent cotton wool I.P. or surgical cotton is covered by Entry No. 56 of the notification dated 27.6.1990 and should be taxed at 6%, not 4%. The writ petition was allowed in part, affirming the Tribunal's decision and directing that the petitioner's tax liability be assessed at the rate of 6% under Entry No. 56.