Diagnostic kits and tax classification: composite medical devices fall in the residuary category unless specifically notified as drugs.

Diagnostic kits composed of reagents, chemicals and apparatus were treated as medical devices rather than medicines in common parlance, so they did not fall within "drug" under Section 3(b)(i) of the Drugs and Cosmetics Act, 1940. Devices used for diagnosis can be treated as drugs under Section 3(b)(iv) only if specifically notified by the Central Government in the Official Gazette after consultation with the Drugs Technical Advisory Board, and no such notification was shown. Accordingly, the kits were classified under the residuary entry pending notification, with VAT attracted at 12.5% rather than the concessional rate claimed.

---

---

Issues: Whether the diagnostic kits in question are "drugs" covered by Entry 48 of Schedule C to SRO 167 and taxable at 4% under the Jammu and Kashmir Value Added Tax Act, 2005, or whether they fall under the residuary entry in Schedule D and attract tax at 12.5%.

Analysis: The definition of "drug" in Section 3(b)(i) of the Drugs and Cosmetics Act, 1940 covers medicines and substances used for diagnosis, but the Court drew a distinction between medicines and devices. It found that the diagnostic kits were composite medical devices consisting of reagents, chemicals, and apparatus that could not be equated with medicines in common parlance. The kits were therefore not covered by Section 3(b)(i). The Court further held that devices used for diagnosis can fall within Section 3(b)(iv) only if they are specifically notified by the Central Government in the Official Gazette after consultation with the Drugs Technical Advisory Board. Since the kits were not shown to have been so notified, they could not be treated as drugs under that clause. At the same time, the Court held that the reagent-and-apparatus combination did not fit the specific schedule entries relied upon by the revenue and would fall to be classified under the residuary entry unless and until notified as drugs under the Act.

Conclusion: The diagnostic kits were not drugs under Section 3(b)(i) of the Drugs and Cosmetics Act, 1940. They could be treated as drugs under Section 3(b)(iv) only upon appropriate Central Government notification. Until then, they fall under the residuary entry and attract VAT at 12.5%, with the possibility of 4% taxation prospectively if they are notified as drugs.

---