TaxTMI 
TaxTMI 
2014 (2) TMI 764
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....etitioner. The petitioner is registered under the U.P. Trade Tax Act, 1948 as well as under the Central Sales Tax Act, 1956. The petitioner submitted return for the years 2001-02, 2002-03 and 2003-04 showing sale of both industrial oxygen and medicinal oxygen. On industrial oxygen, the liability of trade tax to the extent of 12% and on medicinal oxygen the liability of trade tax to the extent of 8% was admitted by the assessee. The assessment orders were passed by the assessing officer accepting tax liability on industrial oxygen at 12% and on medicinal oxygen at 8%. A reassessment notice under Section 21 of the U.P. Trade Tax Act, 1948 (hereinafter referred to as the 1948 Act) for the assessment year 2003-04 was issued to the petitioner stating that on medicinal oxygen the tax was required to be paid at 12%, hence the tax has escaped assessment. The petitioner filed reply to the notice dated 21st March, 2006 reiterating that tax has rightly been paid on the medicinal oxygen at the rate of 8% since it is a drug. The notice was withdrawn by order dated 28th September, 2006. The Deputy Commissioner (Trade Tax) sought permission from the Additional Commissioner for reassessing the ass....
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....ssment is nothing but change of opinion. He further submits that neither any reason has been mentioned in the order granting permission for reassessment nor in the reassessment order any reason has been given as to why medicinal oxygen is taxable at the rate of 12%. He further submits that reassessment orders have been passed without any opportunity as against the notice dated 8th February, 2007 initiating reassessment proceeding, the petitioner filed his objection and without communicating the outcome of the objection, order dated 18th May, 2007 has been served on the petitioner. It is submitted that the order mentions that firm partner namely Kamal refused to accept the notice whereas there is no such partner named Kamal in the petitioner's firm and the ex-parte order of reassessment was passed. Sri C.B. Triphati, learned counsel appearing for the State-respondents submits that tax at the rate of 12% on oxygen (IP) i.e. medicinal oxygen is to be charged since it is covered by Entry 47 of the notification dated 29.1.2001. He submits that Entry 47 covers 'oxygen and other gases' and oxygen (IP) cannot be covered by the Entry of medicine and pharmaceutical preparation. It is subm....
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....ed 15th January, 2000. In exercise of the powers under clause (e) of sub-section (1) of Section 3-A of the Uttar Pradesh Trade Tax Act, 1948 ( U.P. Act No. XV of 1948) read with Section 21 of the Uttar Pradesh General Clauses Act, 1904 (U.P. Act No.1 of 1904) and in supersession of all previous notifications issued in this behalf, the Governor is pleased to declare that with effect from 17th January, 2000, the turnover in respect of the goods mentioned in Column 2 of the List below shall be liable to tax at the point of sale specified in column 3 of said List at the rate specified against each in column 4 thereof. LIST M stands for sale by the Manufacturer in Uttar Pradesh I stands for sale by the Importer in Uttar Pradesh Sl.No. Description of goods Point of tax Rate of tax percentage 1 2 3 4 2 ..... ... ... . ..... ... ... 26 Medicines and pharmaceutical preparations. M or I 8.00% ..... ... ..." Another notification dated 29th January, 2001 has been issued in exercise of powers under Clause (b) of sub-section (1) of Section 3-A of the 1948 Act providing for description of goods, point of ta....
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....or internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette, after consultation with the Board." All medicines are drugs as per definition given in Section 3(b) of the Drugs and Cosmetics Act, 1940. In the second schedule of the 1940 Act standards to be complied with by imported drugs and by drugs manufactured for sale, sold, stocked or exhibited for sale or distributed has been provided. Relevant portion of Entry 5 of the second schedule of the 1940 Act which provides for other drugs is quoted below:- "5. Other drugs- (a) Drugs included in the Indian Pharmacopoeia." Section 21 of the 1948 Act deals with reassessment. Section 21 is quoted below :- "21 - Assessment of tax on the turnover not assessed during the year - (1) If the Assessing Authority has reason to believe that the whole or any part of the turnover of a dealer, from any assessment year or part thereof, had escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is asse....
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....y of the order remanding the case, or by December 31, 1982, whichever is later. (4-A) If an order of assessment is quashed on the ground of want of jurisdiction of the Assessing Authority or any other like ground, by any competent authority or Court, fresh order of assessment may be made by the assessing authority having jurisdiction within one year from the date of receipt by the assessing authority, whose order is so quashed, of the copy of order of such authority or Court or by March 31, 1993, whichever is later. (5) If an order of assessment or re-assessment for any assessment year is set aside under Section 30, a fresh order of assessment or re-assessment for that year may be made within six months from the date, on which such earlier order was set aside. (5-A) If an ex parte order of assessment or re-assessment or penalty passed against a sick unit is set aside by the State Government by an order under sub-section (2) of Section 38, a fresh order of assessment or re-assessment or penalty, as the case may be, for that year may be made within one year from the date of receipt of such order of the State Government by the Assessing Authority concerned. (6) Where the p....
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....spectively. The petitioner has also filed copy of the licence for sale and distribution of drugs in Form-25. In the licence the name of drugs as mentioned in paragraph 1(b) is to the following effect:- "1(b) Names of drugs (each item to separately specified) OXYGEN I.P." There is no dispute between the parties that petitioner has been selling oxygen (IP) as well as industrial oxygen which have been noted in the assessment order. The question is that whether oxygen (IP) i.e. medicinal oxygen is also to be taxed at the rate prescribed under Entry 47 i.e. 'oxygen and other gases'. The oxygen (IP) is an oxygen for which licence is required for manufacture of drug under the Drugs and Cosmetic Rules, 1946. The oxygen (IP) which is also referred as medicinal oxygen is used in the hospitals and nursing homes as a medicine for curing the ailment of human beings. It is used medicinally in the cases of pneumonia and gas poisoning and mixed with nitrous oxide, ether vapour or other anaesthetic. The licence of manufacturing of oxygen (IP) under the Drugs and Cosmetic Act and the Rules framed thereunder clearly indicates that oxygen (IP) is a drug. Entry 26 of the notification dated 15.1.2....
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....tion. There is, however, a Notification No. ST-3504/X, dated 10th May, 1956, which again is one issued under the powers conferred by Section 3-A of the U.P. Sales Tax Act, 1948, and which provides for a reduced rate of tax at the rate of three pies per rupee in respect of medicines or medicinal preparations. A chemical when sold as a medicine and used for medicinal purposes will qualify for the lower rate of taxation. Therefore, in a case such as this where part of the oxygen was sold for industrial purposes and the other for medicinal purposes it was necessary to apportion the turnover and assess it accordingly. For the reasons given above the question is answered by saying that oxygen is a chemical and it will be taxed at 0-1-0 anna per rupee when sold for industrial purposes and at three pies per rupee when sold for medicinal purposes. Reference is answered accordingly; but in the circumstances of the case the parties are left to bear their own costs." The next judgment relied by learned counsel for the petitioner is in the case of Indian Oxygen Ltd. vs. State of Karnataka reported in [1990] 79 STC 351 (Karnataka). The issue which had arisen for consideration in the said c....
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.... 29 STC 148 (H.T. Chemical Laboratories v. State of U.P.) of the Allahabad High Court, holding that, "distilled water" is "water", has no relevance. The question before the Allahabad High Court was whether, "distilled water" was to be treated as "pharmaceutical preparation" : "distilled water" has many uses and its user is not predominantly as a pharmaceutical preparation; the High Court held it is as not falling within the meaning of "pharmaceutical preparation"." ...... The learned counsel for the Revenue contended that "medicinal oxygen" also can be used as "industrial oxygen" since "medicinal oxygen" is only a purified form of "industrial oxygen". That may be so, But the question is, normally, would anyone use the purified oxygen, known in trade circles, as "medicinal oxygen" as an "industrial gas" ? The dominant purpose for which the "medicinal oxygen" is used and the normal human behaviour in the matter of using an "industrial gas" detract anyone from using "medicinal oxygen" as an "industrial gas". Abnormality and exceptional circumstances are entirely irrelevant to consider the question. There is always a difference, in practical life, between the actuality a mere pos....
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....the subsequent Notification S.R.O. No. 976/89 had effect only from June 13, 1989 and therefore for the period from July 1, 1987 to June 13, 1989 "medical oxygen" has to be classified only as a "gas" as specified in entry No. 85 of the First Schedule to the Act. The contention of the assessee that "nitrous oxide" is a "medicine" was also rejected by the assessing authority by stating that it is sold by the assessee in gaseous form and this also is liable to be assessed at the rate applicable under entry No. 85 of the First Schedule to the Act." Two questions, which were framed, were reproduced in paragraph 4 of the said judgment which are to the following effect:- "4. In this revision, the assessee had raised the following two questions of law. "(i) Whether, on the facts and circumstances of the case, was the Tribunal justified in holding that medical oxygen and nitrous oxide would fall under entry No. 85 and not under entry 116 (Medicines) of the First Schedule to the KGST Act ? (ii) Should not the Tribunal have held that medical oxygen and nitrous oxide being used in treatment are taxable under the specific entry providing for "medicines" under entry No. 116 of the Fir....
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....vention of diseases in human beings or animals, (iii) all substances intended to be used for or in the maintenance of public health, or the prevention or control of any epidemic disease among human beings or animals, (iv) insecticides, germicides, fungicides, weedicides and all other substances intended to be used for the protection or preservation of plants. (v) all chemical substances which are ordinarily used as intermediates in the preparation or manufacture of any of the medicines or substances above referred to. Patents Act, 1970, Section 2(1)." A Dictionary of Modern Legal Usage by Bryan A. Garner defines the word "Medicine" as follows : " 'Medicine', 'medication' 'medicament'-Medication has traditionally meant 'the action of treating medically', but, through sliphod extension, has recently come to mean 'a medical substance, medicament' a sense that careful writers avoid. Medicament (= a substance taken internally or used externally in curative treatment) are synonymous with the loose meaning of medication." The Concise Oxford Dictionary of Current English, Fifth Edition defines the word "Medicine" as follows: "Art of restoring and preserving health, esp....
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.... of Sales Tax v. Food Specialities Ltd. [1991] 82 STC 298 (Ker)]. The Kamataka High Court in Indian Oxygen Ltd.'s case [1990] 79 STC 351, took the view that "medical oxygen" is distinct from "industrial oxygen". Entry No. 85 deals with all kinds of gases. If as a matter of fact a particular category of gas, in the instant case, "medical oxygen", has got the exclusive user as a medicine and if there is an entry relating to medicine, the item so carved out from the general entry relating to "gases" will have to be brought under the entry medicine and it has to be assessed under that entry. Here, as we have already noted, entry No. 85 deals with all kinds of gases, "medical oxygen" is one of the items of gases dealt with in entry No. 85. However, "medical oxygen" being medicine, certainly, it has to be assessed as a special item falling under the entry relating to medicine. Thus "medical oxygen" and "nitrous oxide" are to be treated as a special category falling under entry medicine in entry No. 116 of the First Schedule to the Act. In this view of the matter, the above two items are to be assessed only at the rate applicable to medicines. 19. Since "medical oxygen" and "nitrous ox....
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....bility on medicated oxygen. Following was laid down by the Rajasthan High Court in the said judgment:- "According to facts of the case, the respondent is producing medicated oxygen gas under licence issued as per the Medicated Oxygen & Drugs Rules, 1945. Use of medicated oxygen is only for the human patients and there is no other commercial use, therefore, the respondent challenges the additional demand created by the petitioner department which is set aside by the Deputy Commissioner (Appeals), Commercial Taxes, Jodhpur in the appeal filed under Section 84 of the Act of 1994. The said order was, however, further challenged by the department by way of filing appeal before the Tax Board. The Tax Board, Ajmer, while following the judgment of the Allahabad High Court, reported in 21 STC p.124, held that medicated oxygen is only used for treatment in hospitals for human patients, therefore, it is medicine, for which, 8 per cent tax is rightly levied earlier and the subsequent additional demand raised by the department is illegal. Learned counsel for the petitioner vehemently argued that in view of the express entry in the Notification dated 22.03.2002, at Entry No.176, tax at the....
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....l Leave to Appeal (Civil) No.19067 of 2009 was filed which was dismissed by the Apex Court on 21st August, 2009. One more judgment relevant to be noted is the judgment of the Madras High Court in the case of State of Tamil Nadu vs. Ram Oxygen (Pvt) Ltd and another reported in [2010]35 VST 478. The issue involved in the said case was, whether medical oxygen falls within entry 95 for of Schedule 1, Part 1 or within the entry of other gases. It was contended before the Madras High Court that medicinal oxygen is nothing but gas and therefore it will fall within the definition of gas. The said contention was rejected and following was held by the Madras High Court in the said case:- "Assailing the order of the Tribunal, learned Special Government Pleader would contend that the "medicinal oxygen" is nothing but 'gas' and therefore, it would fall within the definition of 'gas' as notified in Entry 106 of Schedule-I and Entry 25 of the same Schedule in the years 1991 to 1993 respectively. Learned Special Government Pleader sought to distinguish the direct decision of the Kerala High Court in SOUTHERN GAS LTD. v. STATE OF KERALA (2005 - 139 STC 504) finding that Entry 106 is only the ....
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....der to prevent any sudden collapse of a patient, which process is nothing but part of a treatment meted out to a patient to recoup the deterioration of health condition. Therefore, keeping the above basic features in mind, the tests laid down by the Honourable Supreme Court in the decision in State of Goa v. Leukoplast (India) Ltd.105 STC ,318, have to be applied. The tests laid down are as under: (i) What is the medicinal contents of the product has to be ascertained; (ii) Further its curative function has to be found out to decide whether the product can be called a medicament at all. (iii) Finally, it should be verified as to whether it is used to cure or alleviate or to prevent disease or to restore health or to preserve health hazard. Having regard to the use of "medical oxygen" to a patient, as rightly concluded by the Additional Appellate Assistant Commissioner, the "medical oxygen" would positively satisfy the above three tests laid down by the Honourable Supreme Court. Therefore, when once the said findings of the Appellate Assistant Commissioner, as regards the nature of product viz., "medical oxygen" has been noted, it would travesty of justice to still hold ....
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.... put under a proper classification to avoid controversy over the residuary clause. As a matter of fact in the Red Book (Import Trade Control Policy of the Ministry of Commerce) under Item 150, in Section II, which relates to 'rubber, raw and gutta percha, raw', synthetic latex including vinyl pyridine latex and copolymer of styrene butadiene latex are specifically included under the sub-head 'Synthetic Rubber'. We do not see any reason why the same policy could not have been followed in the I.C.T. book being complementary to each other. When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing. 38. It is not for the Court to determine for itself under article 136 of the Constitution under which item a particular article falls. It is best left to the authorities entrusted with the subject. But where the very basis of the reason for including the article under a residuary head ....
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....ead in any such qualification and limit the entry to particular kinds of cash registering machines. It is significant that by contrast, data processing machines have expressly excluded computers. Were it not so excluded, computers would have also fallen within Entry 90. In fact computers are separately dealt with Entry 97(a). But the exclusion of computers from data processing machines would indicate that the items mentioned in Entry 90 are generic covering all species of such items. Given the language of the two entries we fail to understand how the High Court could have come to the conclusion that Entry 97(b) was the specific entry and that Entry 90 was the general entry. Such an interpretation goes against the express language of the two entries." The Apex Court in the said case has laid down that resort has to be had to the residuary heading only when a liberal construction by the specific heading cannot cover the goods in question. Learned counsel for both the parties have placed reliance on the judgment of the Apex Court in the case of Mauri Yeast India Pvt. Ltd. vs. State of U.P. and another reported in (2008)5 SCC 680. In the said case the question was as to whether t....
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....uld have been classified under the then Tariff Item 26-AA, with the incorporation of Chapter Note 6, the item now has to be classified either under Chapter 84 or under Chapter 73. These balls cannot be classified under Chapter 84 and thus necessarily have to be classified under Chapter 73. 6. We are unable to accept the submission that it still continues to be a forged item and therefore must fall under Tariff Item 72.08 (which according to counsel for the appellant, is equivalent to old Tariff Item 26-AA). Such an argument, in our view, merely needs to be stated to be rejected. An item has to be classified in accordance with chapter notes. The only reason these balls were earlier classified under old Tariff Item 26-AA was because there was no such chapter note. Once Chapter Note 6 was introduced, the classification must be in accordance therewith." It was in the aforementioned situation that the circular issued by the Board prior to introduction of Chapter VI was held to be not applicable stating:- 7. It must also be mentioned that an attempt was made to rely on a Board circular. We, however, find that the circular was not relied upon before the Collector nor before the T....
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....ff Act. Against the order of Tribunal, the matter went to the Apex Court where the appeal filed by the Baidyanath was dismissed and appeal of the department was allowed. In paragraph 42 of the judgmet, following was laid down by the Apex Court:- "42. There is no doubt that a specific entry must prevail over a general entry. This is reflected from Rule 3(a) of the general Rules of interpretation that states that heading which provides the most specific description shall be preferred to headings providing a more general description. DML is a tooth powder which has not been held to be Ayurvedic Medicine in common parlance in Baidyanath I1. We have already observed that common parlance test continues to be one of the determinative tests for classification of a product whether medicament or cosmetic. There being no change in the nature, character and uses of DML, it has to be held to be a tooth powder - as held in Baidyanath I1. DML is used routinely for dental hygiene. Since tooth powder is specifically covered by Chapter Sub-heading 3306, it has to be classified thereunder. By virtue of Chapter Note 1(d) of Chapter 30 even if the product DML has some therapeutic or medicinal proper....
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....e was sufficient material for reassessment proceeding. He submits that on change of opinion also reassessment proceeding can be initiated. Reliance has been placed by Sri Tripathi on two unreported judgment of this Court i.e. in Writ Tax No.1045 of 2009 (M/s. Rubber Chern Sadabad Gate vs. Additional Commissioner Grade-I, Commercial Tax and another) decided on 15th March, 2013 and in Writ Tax No.995 of 2007 (M/s. Shubham Electronics (P) Ltd. vs. State of U.P. And others) decided on 26th November, 2013. For the purposes of the present case, we need not enter into the issue as to whether the reassessment proceedings initiated against the petitioner were within the ambit of Section 21 of the 1948 Act or not. We proceed with the assumption that respondents could have initiated the reassessment proceedings there being doubt regarding levying of tax on oxygen (IP) i.e. medicinal oxygen but we having already held that tax liability on oxygen (IP)/medicinal oxygen was only 8% which was rightly levied in the assessment order, the order granting permission for reassessment proceedings and the reassessment orders are unsustainable. We further note that this writ petition was entertained ....