AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 413
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....substituted for the figure 4% by Act 11 of 2012 dated 20 April 2012 under Entry 88 or 12.5%/14% ^14.5% substituted for the figure 12.5% by Act 9 of 2010 dated 20 April 2010 under Schedule V. 3. The facts in the appeals before this Court being similar, we proceed to elucidate the factual context of the lead appeal. 4. The respondent - Linde India Ltd, is a registered company under the 2005 Act and is an assessee on the rolls of the Commercial Tax Officer, Gajuwaka and Dwarakanagar Circle. The respondent is engaged in the manufacturing and trading of industrial gases as well as Medical Oxygen IP and Nitrous Oxide IP. On 12 December 2005, the Commercial Tax Officer communicated to the respondent that an outstanding tax liability of Rs. 5,11,062 was due and payable for the period between 1 August 2005 and 31 August 2005. 5. Aggrieved, the respondent filled an appeal before the Appellate Deputy Commissioner who, by his order dated 26 June 2006, affirmed the assessment of the Commercial Tax Officer. By an order dated 25 November 2014, the Sales Tax Appellate Tribunal, relying on a judgment of the Andhra Pradesh High Court in Inox Air Products Ltd v The Assistant Commissioner (CT....
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....rous Oxide IP in Entry 88, they fall within the ambit of unclassified goods in Schedule V; and (iv) Every "substance" cannot be said to fall within the ambit of Entry 88 merely because it is used for medicinal purposes. For a substance to fall within the ambit of Entry 88, it must accord with the definition stipulated in Section 3(1)(b) of the 1940 Act. 8. Opposing the above submissions, learned counsel for the respondents urged: (i) Section 3(b)(i) of the 1940 Act defines a "drug" broadly as a medicine or substance used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder. Medical Oxygen IP and Nitrous Oxide IP are widely known for their curative properties and as medicines in the diagnosis, treatment, mitigation and prevention of diseases and disorders; (ii) Medical Oxygen and Nitrous Oxide are included in the Indian Pharmacopoeia which prescribes standards for drugs. The Indian Pharmacopoeia has legal status under Section 16 of the 1940 Act. Consequently, Medical Oxygen and Nitrous Oxide are drugs within the ambit of Section 3(1)(b) of the 1940 Act. As Medical Oxygen IP and Nitrous Oxide IP are "medicines" within t....
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....nd (c) Mosquito repellents in any form." Entry 88 includes drugs and medicines, whether patent or proprietary as defined in clauses (i), (ii) and (iii) of Section 3(b) of the 1940 Act. Any drug or medicine that falls within the ambit of clauses (i), (ii) and (iii) of Section 3(b) falls within the ambit of Schedule IV. Entry 88 also stipulates that hypodermic syringes, hypodermic needles, catguts, sutures, surgical cotton, dressing, plasters, catherters, cannulae, bandages and "similar articles" are also included, save and except for the three specified exclusions. 11. Schedule V of the 2005 Act reads thus: "Goods taxable at standard rate (RNR) of [14.5%] All goods other than those specified in Schedules I, III, IV, VI." Schedule V stipulates that all goods that do not fall within the ambit of Schedules I, III, IV, and VI shall be taxed at a rate of 14.5%. 12. Section 3(b) of the 1940 Act defines a "drug" in the following terms: "(i) All medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human....
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....ase are." (Emphasis supplied) This Court held that the comprehensive nature of the definition includes both medicines and something other than medicines, but which are used for treatment. In that case, the question concerned whether absorbent cotton wool, roller bandages and gauze are "substances" within the ambit of Section 3(b). It is in that context that this Court held that substances are "things". The Court clarified that it was not necessary to exhaustively define "the substances" which fall within the ambit of drugs as defined in Section 3(b). A substance may be a product, which though not specifically used as a medicine is used for diagnosis, treatment, mitigation or prevention of diseases. (Barium, for example, is a substance used as an element in the diagnostic process in X-rays.) Where a product other than a medicine is intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder, the same would be a "substance" falling within the ambit of Section 3(b)(i). 14. The learned counsel for the appellants urged that the phrase "intended to be used for or in the diagnosis, treatment, mitigation or prevention of any di....
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.... prevention of any disease or disorder. The relevant enquiry for this Court is whether Medical Oxygen IP and Nitrous Oxide IP are used in or for any of the purposes specified therein. 16. The term "medicine" is not defined in the 1940 Act. It is a trite principle of interpretation that the words of a statute must be construed according to the plain, literal and grammatical meaning of the words. Justice G P Singh in his seminal work Principles of Statutory Interpretation states: "The words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest the contrary...in the statement of the rule, the epithets "natural", "ordinary", "literal", grammatical" and "popular" are employed almost interchangeably. ... It is often said that a word, apart from having a natural, ordinary or popular meaning (including other synonyms i.e. literal, grammatical and primary), may have a secondary meaning which is less common e.g technical or scientific mean....
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....atute, or if it would involve any absurdity, repugnancy or inconsistency, the grammatical sense must then be modified, extended or abridged, so far as to avoid such an inconvenience, but no further. The onus of showing that the words do not mean what they say lies heavily on the party who alleges it. He must advance something which clearly shows that the grammatical construction would be repugnant to the intention of the Act or lead to some manifest absurdity." The above canon of statutory interpretation has been consistently followed by this Court in State of Himachal Pradesh v Pawan Kumar 2005 Cr.L.J. (SC) 2008, State of Haryana v Suresh (2007) 15 SCC 186, State of Rajasthan v Babu Ram (2007) 6 SCC 55 and Commissioner of Customs (Import), Mumbai v Dilip Kumar and Company (2018) 9 SCC 1. 18. The word "medicine" is defined in Black's Law Dictionary thus: "Medicine - the science and art dealing with the prevention, cure and alleviation of diseases; in a narrower sense that part of science and art of restoring and preserving health which is the province of the physician as distinguished from the surgeon and obstetrician." CollIns Dictionary for Advanced Learners def....
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....ality" under the 1940 Act. The Second Schedule is titled "Standards to be complied with by Imported Drugs and by Drugs manufactured for Sale, Stocked, or Exhibited for Sale or Distributed." Entry 5 of the Second Schedule reads: "5. Other drugs - Drugs included in the Indian Pharmacopeia. Standards of identity, purity and strength specified in the edition of the India Pharmacopoeia for the first time being in force and such other standards as may be prescribed. In case the standards of identity, purity and strength of the drugs are not specified in the edition of the Indian Pharmacopoeia for the time being in force but are specified in the edition of the Indian Pharmacopoeia immediately preceding the standards of identity, purity and strength shall be those occurring in such immediately preceding edition of the Indian Pharmacopoeia and such other standards as may be prescribed." 21. Drugs specified in the Second Schedule are required under the 1940 Act to comply with specified standards. Entry 5 prescribes that "other drugs" means drugs included in the Indian Pharmacopeia, for which standards are specified therein. The Indian Pharmacopoeia Comm....
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....ion of Oxygen and Nitrous Oxide as Anesthesia lends support to its use in the diagnosis and treatment of a disorder or disease as specified in Section 3(b)(1) of the 1940 Act. 24. Learned counsel for the respondents relied on the judgments of various High Courts which have emphasized the medicinal properties of Medical Oxygen IP and Nitrous Oxide IP. In Southern Gas Ltd. v State of Kerala, (2005) 3 KLT 78 the question before the High Court of Kerala was whether Medical Oxygen and Nitrous Oxide were "medicines" for the purpose of tax assessment under the Kerala General Sales Tax Act 1963. Answering this in the affirmative, the Kerala High Court held: "In the instant case, as already noted, the assessee, who is the manufacturer of "medical oxygen" and "nitrous oxide", has clearly stated that these two items are manufactured only for use in hospitals and that the dominant use of these two items are only as medicines...There is no dispute that "medical oxygen" is used for administering it on patients. Similarly, the function of "nitrous oxide" is to act as an anesthetic agent. Thus, going by the user test and the functional test, it is evident that "medical oxygen" and "nit....
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....he above, we are of the view that oxygen (IP) is fully covered by Entry 26 of the notification dated 15.1.2000 i.e. "medicines and pharmaceutical preparation" and shall not be covered by Entry 47 of the notification dated 29.1.2001 which relates to "oxygen and other gases". The oxygen (IP) i.e. medicinal oxygen being a drug fully covered by Entry 26 of the notification dated 15.1.2000 cannot be included in the general entry i.e. Entry 47 of the notification dated 29.1.2001." 28. In Inox Air, the question before the High Court of Andhra Pradesh was whether Liquid Medical Oxygen IP, Medical Grade Oxygen and Nitrous Oxide IP are liable to be taxed under Entry 88 of the 2005 Act. The High Court held: "As medical oxygen LP and nitrous oxide LP are used in the treatment and mitigation of disorders in human beings, and as they are generally understood in the trade to be surgical aids, both these substances would fall under the definition of drug under Section 3(b)(1) of the Drugs Act, and consequently, fall under Entry 88 of Schedule IV of the Act. Viewed from any angle, both medical oxygen IP and Nitrous Oxide IP fall under Entry 88 of Schedule IV and are liable to tax only a....
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....s. In subanaesthetic doses, to provide analgesia for obstetric practice, for emergency management of injuries, during postoperative physiotherapy and for refractory pain in terminal illness." K D Tripathi in Essentials of Medical Pharmacology - KD Tripathi, Essentials of Medical Pharmacology, VIIth Ed., at p. 378. states: "INHALATIONAL ANAESTHETICS 1. Nitrous oxide (N2O) It is a colourless, odourless, heavier than air, noninflammable gas supplied under pressure in steel cylinders. It is nonirritating, but low potency anaesthetic; unconsciousness cannot be produced in all individuals without concomitant hypoxia; MAC is 105% implying that even pure N2O cannot produce adequate anaesthesia at 1 atmosphere pressure. Patients maintained on 70% N2O + 30% O2 along with muscle relaxants often recall the events during anaesthesia, but some lose awareness completely. Nitrous oxide is a good analgesic; even 20% produces analgesia equivalent to that produced by conventional doses of morphine. ... 3. Nitrous oxide The patient is made to breathe 100% oxygen through a nose piece or hood and N2O is added in 10% increments (to a maximum of 50%, rarely 70%) till....