M/S Ponds India Ltd (Merged With H . L. Ltd) Vs. Commnr. of Trade
Tax, Lucknow
[2008] INSC 966 (16 May 2008)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3644 OF 2008 (Arising out of SLP
(C) No. 11726 of 2006) M/s. Ponds India Ltd. (Merged with H.L. Ltd.) ...
Appellant Versus Commissioner of Trade Tax, Lucknow ... Respondent WITH
CIVIL APPEAL NO. 3647,3645,3646 2008 (Arising out of SLP(C) No. 13202, 13204 of
2006 and 3637 of 2007)
S.B. Sinha, J.
1. Leave granted.
2. Whether petroleum jelly is a
`drug' or a `cosmetic' within the meaning of the provisions of U.P. Trade Tax
Act, 1948 is the question involved herein.
The factual matrix of the matter
is undisputed.
2 The Legislature of the State of
U.P. enacted U.P. Sales Tax Act, 1948. Entry 26(a) as inserted in the Schedule
appended thereto by notification No.ST-II-1233/X - 10(1)-1974 dated 14.04.1974
includes petroleum jelly for the purpose of levy of sales tax. It was however,
substituted by notification dated 7.9.1981. We would deal with effect thereof
on the issue involved herein a little later.
3. We may at the outset notice the
provisions of the Drugs and Cosmetics Act, 1940 (for short, "the
Act"). Section 39(aaa) defines "cosmetic" as:- "Section
3(aaa) "cosmetic" means any article intended to be rubbed, poured,
sprinkled or sprayed on, or introduced into, or otherwise applied to, the human
body or any part thereof for cleansing, beautifying, promoting attractiveness,
or altering the appearance, and includes any article intended for use as a
component of cosmetic."
`Drug' has been defined in Section
3(b) in the following terms;
"Section 3(b)
"drug" includes -
-
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 beings or animals, including
preparations applied on human body for the purpose of repelling insects like
mosquitoes;
-
3 such substances (other than
food) intended to affect the structure or any function of the human body or
intended to be used for the destruction of vermin or insects which cause
disease in human beings or animals, as may be specified from time to time by
the Central Government by notification in the Official Gazette;
-
all
substances intended for use as components of a drug including empty gelatin
capsules; and (iv) such devices intended for 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;"
4. Chapter 4 of the Act provides
for manufacture, sale and distribution of drugs and cosmetics. Section 16
provides for the standards of quality in the following terms:
"16. Standards of quality -
(1) For the purpose of this Chapter, the expression "standard
quality"
means - (
-
in relation
to a drug, that the drug complies with the standard set out in the Second
Schedule, and 4
-
in relation
to a cosmetic, that the cosmetic complies with such standard as may be
prescribed.
(2) The Central Government, after
consultation with the Board and after giving by notification in the Official
Gazette not less than three months' notice of its intention so to do, may by a
like notification add to or otherwise amend the Second Schedule for the
purposes of this Chapter, and thereupon the Second Schedule shall be deemed to
be amended accordingly.
5. Entry 5 of the second schedule
appended thereto lays down the standard in respect of other drugs in the
following terms;
5 "5. Other drugs : -
Standards of identity, purity and strength specified in (a) Drugs included in
the the edition of the Indian Indian Pharmacopoeia Pharmacopoeia for the time
being in force and such other standards as may be prescribed.
In case the standards of identity,
purity and strength for 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.
6 (b ) Drugs not included in the
Standards of identity, purity Indian Pharmacopoeia but and strength specified
for which are included in the drugs in the edition of such official
Pharmacopoeia of official Pharmacopoeia of any other country. any other country
for the time being in force and such other standards as may be prescribed.
In case the standards of identity,
purity and strength for drugs are not specified in the edition of such official
Pharmacopoeia for the time being in force, but are specified in the edition
immediately preceding the standards of identity, purity and strength shall be
those occurring in such immediately preceding edition of such official
Pharmacopoeia and such other standards as may be prescribed."
6. The Central Government, in
exercise of the power conferred upon it under Sections 6(2), 12, 33 and 33(N)
of the Act, made Rules, known as the Drugs and Cosmetics Rules, 1945 (for
short, "the Rules").
Rule 123 of the Rules provides for
exemption from Chapter IV of the Act stating;
"123. The drugs specified in
Schedule K shall be exempted from the provisions of Chapter IV of the Act and
the rules made there under to the extent and subject to the conditions specified
in that Schedule.
7
7. Schedule "K" as
specified in Rule 123 specifies the drugs and lays down the conditions under
which such exemptions are to be granted.
White or Yellow Petroleum Jelly
I.P. (Non-perfumed) has been specified in item No. 28 in the following terms:
"28. White or Yellow The
Provisions of Chapter IV of the Petroleum Jelly I.P. Act and the rules made
thereunder (Non-perfumed) which require them to be covered by a sale licence
subject to the conditions that such a product has been manufactured under a
valid drug manufacturing licence."
8. The exemption granted is
subject to the condition that such a product has been manufactured under a
valid drug manufacturing license.
It is not denied or disputed that
the appellants herein are licensees under the said Act. It is also not in
dispute that cosmetics within the meaning of the provisions thereof are not
included in the Schedule.
9. These cases relate to the
assessment years 1981-1982 to 1988- 1989.
8 Indisputably again, the Sales
Tax Tribunal by an Order dated 30.3.1990 in respect of assessment year
1981-1982 accepted the notification of the said product as falling under Entry
No. 5 being pharmaceutical preparation and, it was therefore, not classified as
a cosmetic and toilet preparation. The said order has not been questioned.
A similar order was passed by the
Sales Tax Tribunal, Ghaziabad on 21.3.1991 relying on its earlier judgment
dated 30.3.1990.
A report of the Government Analyst
is also in favour of the appellant.
10. The said decision of the
Tribunal has also not been questioned by the Revenue. Similar orders of
assessment had been passed for the assessment years 1984-1985 to 1986-1987.
The Allahabad High Court refused
to interfere with the said orders of Tribunal on a revision application filed
by the respondents herein.
11. The Revenue prayed for
re-opening of the assessment for the years 1986-1987 to 1988-1989 which was
denied, despite its attention having been drawn to a decision of the learned
Single Judge of the Allahabad 184], stating;
9 "Therefore, in the above
circumstances since against all the above three years judgments have been
passed in the Appeals. Therefore, after the aforesaid judgment, the tax
assessing officer has no jurisdiction to make amendment in the tax assessment
order and in such cases only the appellate authority, who has passed the last
judgment has jurisdiction to make amendments. In the light of aforesaid facts
in all the above three years the action taken by the Tax Assessing Officer
under Section-22 is not just and proper in the eye of law cannot be supported.
Therefore, orders passed under Section 22 in all the above three years are set
aside."
The said judgment of the Tribunal
has been affirmed by the Allahabad High Court.
However, relying on Balaji
(supra), the authorities changed the basis of the assessment from the
assessment year 1989-90 onwards without producing any new material or proof to
establish that the product was not a medicinal preparation and should be
classified as a cosmetic.
In respect of the assessment years
1990-91, 1991-92, 1992-93 when the matter reached the appellate tribunal, it
however opined that the product of the petitioner being `Vaseline White
Petroleum Jelly' should be taxed at the rate of 12 per cent as "cosmetics
and toilet preparation". The revision petition filed by the petitioner
thereagainst before the Allahabad 10 High Court has been dismissed by reason of
the impugned judgment dated 28.10.2005.
12. We may place on record that in
Civil Appeals arising out of SLP (C) No. 11726 of 2006 and SLP(C) No. 3637 of
2007, the appellant did not move the Allahabad High Court in revision and have
filed the special leave petition directly before this Court.
13. Mr. Ashok Desai, learned
senior counsel appearing on behalf of the appellant would contend:
-
The product,
having consistently being held to be pharmaceutical/medicine from 1990 onwards,
and there having been no change in the subsequent period, the purported order of
classification of goods is illegal.
-
The burden
as regards classification of goods being on the Revenue and no material has been
placed on record by it to discharge the burden.
-
The product
is a pharmaceutical preparation falling under Entry 29 as it is used for cure
and treatment of various skin disorders.
-
11Entry 5 relating to cosmetics
and toilet preparations cannot have any application in the instant case as the
said goods are not used for beautification or care of the skin in the normal
circumstances.
-
Furthermore, the State of U.P.
having issued the notification dated 7.9.1981 whereby vaseline was deleted from
Entry 5, hence, the same could not have been assessed as a cosmetic and toilet
preparation.
-
As
commercial meaning or meaning in common parlance must prevail over the
dictionary meaning or technical meanings, (vii) The Appellant having filed a
large number of affidavits in support of its case and the deponents thereof
having not been cross-examined, the averments contained therein must have been
held to have been accepted.
-
In any
event, if an entry is capable of two meanings, the meaning which has been
accepted continuously should be held to be valid, unless it is held to be an
implausible view.
-
12 Balaji Agency (supra)
being not ex-facie applicable, the Tribunal and the High Court committed an
error in relying thereupon despite the amendment made by reason of the
notification dated 7.9.1981.
14. Mr. Dinesh Dwivedi, learned
senior counsel appearing on behalf of the respondent, on the other hand, would
contend:
-
As Entry 5
contains an elusive definition, it cannot be said to have a fixed meaning but an
extended meaning.
-
The product
being applied for care of skin, it comes within the purview of the definition of
"cosmetics" and not within the definition of "medicine".
-
Entry 5, as
inserted in 1981 would clearly show that all drugs and cosmetics would come
within the purview thereof except those which are specifically excluded, and in
that view of the matter, Vaseline manufactured by the appellant in a cosmetic.
-
Vaseline having no curative
value and merely being used for taking care of one's skin, it cannot be a drug
within the meaning of the provisions of the U.P. Trade Tax Act.
13
15. Indisputably, a license has
been granted to the appellant under the provisions of the Act.
A drug as defined in Section 3(b)
thereof would not only include a medicine which is used for external use of
human beings, but if used for prevention of any disease or disorder in human
being, shall also come within the purview thereof. The said definition is an
extensive one. It even applies to preparations applied on human body for the
purpose of killing insects like mosquitoes, which per se does not have any
medicinal or any value for curing any disease or disorder in human beings.
We may furthermore notice that
Parliament consciously used a restrictive meaning while defining the term
"cosmetic" but an extensive meaning has been given to the word
"drug".
The effect of such inclusive
definition vis-`-vis restrictive Labour Commissioner and Others [(2007) 5 SCC
281], this Court held;
"33. When an interpretation
clause uses the word "includes", it is prima facie extensive.
When it uses the word "means
and includes", it will afford an exhaustive explanation to the meaning
which for the purposes of the Act must invariably be attached to the word or
expression."
14 Almost to the same effect is
the decision of this Court in N.D.P.
SCC 502], wherein the law was
stated in the following terms:
"18. The word
"includes" has different meanings in different contexts. Standard
dictionaries assign more than one meaning to the word "include".
Webster's Dictionary defines the word "include" as synonymous with
"comprise" or "contain".
Illustrated Oxford Dictionary
defines the word "include" as: ( i ) comprise or reckon in as a part
of a whole; ( ii ) treat or regard as so included. Collins Dictionary of
English Language defines the word "includes" as: ( i ) to have as
contents or part of the contents; be made up of or contain; ( ii ) to add as
part of something else; put in as part of a set, group or a category; ( iii )
to contain as a secondary or minor ingredient or element. It is no doubt true
that generally when the word "include" is used in a definition
clause, it is used as a word of enlargement, that is to make the definition
extensive and not restrictive. But the word "includes" is also used
to connote a specific meaning, that is, as "means and includes" or
"comprises" or "consists of."
Employees Union [(2007) 4 SCC
685], it was held;
15 ".....It is trite to say
that when in the definition clause given in any statute the word
"means" is used, what follows is intended to speak exhaustively. When
the word "means" is used in the definition, to borrow the words of
Lord Esher, M.R.
in Gough v. Gough it is a
"hard-and-fast" definition and no meaning other than that which is
put in the definition can be assigned to the same. (Also see P.
Kasilingam v. P.S.G. College of
Technology.) On the other hand, when the word "includes" is used in
the definition, the legislature does not intend to restrict the definition: it
makes the definition enumerative but not exhaustive. That is to say, the term
defined will retain its ordinary meaning but its scope would be extended to
bring within it matters, which in its ordinary meaning may or may not comprise.
Therefore, the use of the word "means"
followed by the word
"includes" in Section 2( bb ) of the ID Act is clearly indicative of
the legislative intent to make the definition exhaustive and would cover only
those banking companies which fall within the purview of the definition and no
other."
Taxchem Ltd. [(2007) 3 SCC 124],
it was held;
"22. We have already
extracted the definition of raw material under Section 2(34) which specifically
includes fuel required for the purpose of manufacture as raw material. The word
includes gives a wider meaning to the words or phrases in the statute. The word
includes is usually used in the interpretation clause in order to enlarge the
meaning of the words in the statute.
When the word include is used in
the words or phrases, it must be construed as comprehending not only such
things as they signify according to their nature and impact but also those
things which the interpretation clause declares they shall include. There is no
dispute 16 in the instant case that the diesel and lubricant is used to
generate electricity through DG sets which is admittedly used for the purpose
of manufacturing yarn.
Thus, it is seen that as diesel is
specifically and intentionally included in the definition of raw material by
the legislature, the question that whether it is directly or indirectly used in
the process of manufacture is irrelevant as argued by Mr Sushil Kumar
Jain."
Industries Development Corporation
Ltd. and Others [(2007) 3 SCC 607], this Court held;
"13. As the language shows,
the definition of the word "premises" as given in Section 2( c ) of
the Act is a very comprehensive one and it not only means any building or hut
or part of a building or hut and a seat in a room, let separately, but also
includes godowns, gardens and outhouses appurtenant thereto and also any
furniture supplied or any fittings or fixtures affixed for the use of the
tenant in such building, hut or seat in a room, as the case may be."
1989 SC 335], under the provisions
of Section 8 of the A.P. General Sales Tax Act, the "tobacco" is
defined in the following term:
"Tobacco means any form of
tobacco, whether cured or uncured and whether manufactured or not, and includes
the leaf, stalks and stems of the tobacco plant, but does not include any part
of a tobacco plant while still attached to the earth."
17 It was held that the same
consists of two separate parts which specify what the expression means and also
what it includes is obviously meant to be exhaustive.
17. Mr. Dwivedi placed strong
reliance on the following observations occurring in the well known treatise of
Justice G.P.Singh titled "Principles of Statutory Interpretation":
"...But the word `include' is
susceptible of another construction, which may become imperative, if the
context of the Act is sufficient to show that it was not merely employed for
the purpose of adding to the natural significance of the words or expressions
used. It may be equivalent to `mean and include' and in that case it may afford
an exhaustive explanation of the meaning which for the purposes of the Act must
invariably be attached to those words or expressions". Thus, the word
include may in certain contexts be a word of limitation."
There cannot be any dispute with
regard to the bare principles of law stated therein. Each question posed in
each case has to be determined having regard to the purport and object for
which the same had been enacted.
18
18. Reference to Carter v.
Bradbeer [(1975) 3 All ER 158], has been made in the aforementioned treatise.
The House of Lords was dealing therein with a case where one word
"bar" had more than one meaning and in that context, it was opined:
"It may well be that the
contention advanced on behalf of the appellant sought to derive from the
interpretation section a measure of support which that section does not yield.
By s. 201(1) of the 1964 Act it is provided that in the Act, unless the context
otherwise requires, `"bar"
includes any place exclusively or
mainly used for the sale and consumption of intoxicating liquor'. It is
important to note the word `includes'. As used in s. 201, I regard the word
`includes' as denoting that the word `bar' may refer to and may comprehend not
only what would ordinarily and in common parlance be spoken of as a bar but also
some place (such as a bar-room) which is exclusively or mainly used for the
sale and consumption of intoxicating liquor."
It was noticed;
"I feel not the slightest
doubt that anyone asked if the sales took place at a bar would unhesitatingly
answer Yes. Parliament must be assumed to use the English language in its
ordinary natural sense unless the context shows a contrary intention. If no
contrary intention is shown, then one is driven to the conclusion that
Parliament intended in s 76(5) the word `bar' to include counters such as were
present in this case, and to prohibit the use of such counters during the
substituted permitted hours.
Sometimes a room is called a bar,
for instance, a saloon bar or a lounge bar. Such a room, it is not disputed, is
19 a bar within s. 76(5). Ordinarily a saloon bar will have a counter in it
over which drinks are supplied, but the definition in s 201 extends the meaning
of `bar' to include any place exclusively or mainly used for the sale and
consumption of intoxicating liquor. So, for the purpose of s 76(5), a place can
be a bar even though it has not within it any bar counter.
It is to be noted that the
definition in s 201 does not say that `bar' means something but that `bar'
included something. That is appropriate where it is sought to apply a word in a
sense which it does not normally bear, or to make it clear that the word has a
meaning about which otherwise some doubt might be felt."
Such a question does not arise
herein for our consideration.
19. Indisputably, having regard to
the provisions contained in Rule 123 of the Rules, white Jelly IP
(non-perfumed) is a drug. The Act and the Rules framed thereunder do not
provide that non-perfumed white jelly IP would also be a cosmetic.
20. This Court is called upon to
interpret Entry 5 of the notification dated 7.9.1981. While doing so, it is
necessary to consider that with a view to attract the applicability thereof, it
must not only be a kind of cosmetic but also be the one which is used for the
care of the face, skin, nails, eyes or brows.
What would be the effect of such a
provision came up for 20 Assistant Sales Tax Officer, Akola [1962 1 SCR 279],
wherein it was held;
"Thus under the Act all
articles mentioned in the Schedule were exempt from Sales Tax and articles not
so specified were taxable. In the Schedule applicable there were originally two
items which are relevant for the purposes of the case. They were items Nos. 6
and 36.
Item 6 Vegetables - Except when
sold in sealed containers.
Item 36 Betel leaves.
The Schedule was amended by the
C.P. & Berar Sales Tax Amendment Act (Act XVI of 1948) by which item No. 36
was omitted. It is contended that in spite of this omission they were exempt
from Sales Tax as they are vegetables. The intention of the legislature in
regard to what is "vegetables" is shown by its specifying vegetables
and betel leaves as separate items in the Schedule exempting articles from
Sales Tax. Subsequently betel leaves were removed from the Schedule which is
indicative of the legislature's intention of not exempting betel leaves from
the imposition of the tax. But it was submitted that betel leaves are
vegetables and therefore they would be exempt from Sales Tax under item
6."
21. It is therefore, difficult to
agree with Mr. Dwivedi that a medicinal preparation must be one which has the
effect of curing a disease. While interpreting an entry in a taxing statute,
the Court's role would be to consider the effect thereof, upon considering the
same from different 21 angles. Different tests are laid down for interpretation
of an entry in a taxing statute namely dictionary meaning, technical meaning,
users point of view, popular meaning etc.
It is true that the Court must
bear in mind the precise purpose for which the statute has been enacted, namely,
herein for the purpose of collection of tax, but the same by itself would not
mean that an assessee would be made to pay tax although he is not liable
therefor, or to pay higher rate of tax when is liable to pay at a lower rate.
An exemption notification may
require strict construction, but where a statute merely provides for different
rates of tax, application of the principles of strict construction may not be
appropriate.
Whether a product would be a drug
or a cosmetic sometimes poses a difficult question and, thus, answer thereto
may not be easy. For the said purpose, the Court may not only be required to
consider the contents thereof, but also the history of the entry, the purpose
for which the product is used, the manner in which it has been dealt with under
the relevant statute as also the interpretation thereof by the implementing
authorities.
22
22. Pharmacopeia of India, Third
Edition, Volume -1, page 362 deals with Yellow Soft Paraffin and White Soft
Paraffin. White petroleum jelly is included in the term white soft paraffin.
Standards therefor had been laid down. We have noticed hereinbefore that the
product has specifically been mentioned in Schedule "K" of the Rules.
It comes within the purview of the exemption envisaged under Rule 123 of the
Rules.
23. Mr. Dwivedi referred to
Wikipedia in respect of white petroleum which describes the product in the
following terms :
"Petroleum jelly, vaseline,
petrolatum or soft paraffin is a semi-solid mixture of hydrocarbons (with
carbon numbers mainly higher than 25), originally promoted as a topical
ointment for its healing properties. Its folkloric medicinal value as a
"cure-all" has since been limited by better scientific understanding
of appropriate and inappropriate uses (see Uses below). However, it is
recognized by the U.S. Food and Drug Administration (FDA) as an approved
over-the- counter (OTC) skin protectant and remains widely used in cosmetic
skin care. It is commonly referred to as Vaseline as a genericized
trademark."
23
24. Contention of Mr. Dwivedi is
that it is merely a skin protectant and remains widely used in cosmetic skin
care and thus it does not have any curative value.
Wikipedia, like all other external
aids to construction, like dictionaries etc, is not an authentic source, although
the same may be looked at for the purpose of gathering information. Where an
express statutory definition of a word exists, a Wiki definition cannot be
preferred. It cannot normally be used for the purpose of interpreting a taxing
statute or classification of a product vis-`-vis an entry in statute.
However, as a source of authority,
Wikipedia is frequently cited by judges around the world. This is not
restricted to India alone. The New York Times reports that beginning in 2004,
more than 100 opinion in the States have cited Wikipedia, including 13 from
federal appeals courts.
Is this a good thing? There's a
split of authority. Let us notice some.
7 Said the Seventh Circuit's Judge
Posner, who recently cited the online encyclopedia in this opinion: Wikipedia
is a terrific resource . . . Partly because it so convenient, it often has been
24 updated recently and is very accurate. He added: It wouldn't be right to use
it in a critical issue. If the safety of a product is at issue, you wouldn't
look it up in Wikipedia.
7 Cass Sunstein, a visiting
professor at Harvard Law who once fixed an error on Posner's Wikipedia entry: I
love Wikipedia, but I don't think it is yet time to cite it in judicial
decisions . . . it doesn't have quality control." He told the Times that
"if judges use Wikipedia you might introduce opportunistic editing"
to influence the outcome of cases.
7 Kenneth Ryesky, a New York tax
attorney, says "citation of an inherently unstable source such as
Wikipedia can undermine the foundation not only of the judicial opinion in
which Wikipedia is cited, but of the future briefs and judicial opinions which
in turn use that judicial opinion as authority.
7 Stephen Gillers, NYU law
professor and legal ethics guru: The most critical fact is public acceptance,
including the litigants, he said. A judge should not use Wikipedia when the
public is not prepared to accept it as authority. He said it's best used for
"soft facts."
25 7 Lawrence Lessig, a Stanford
law professor urges using a system such www.webcitation.org that captures in
time online sources like Wikipedia, so that a reader sees "a stable
reference" -- i.e., the same material that the writer saw.
These points must be kept in mind
by us when we intend to rely on Wikipedia as a source of authority.
The said material itself shows
that it helps keep the outside world out and it protects the skin from the
effects of weather and exposure.
Secondly, it acts like a sealant
to help keep the inside world in.
25. It is, therefore, accepted
that if used as a preventive measure, of course, it would have a curative
value. In any event having regard to the definition of drugs, any product which
prevents a disorder of human function would also come within the purview of
drug.
If the submission of Mr. Dwivedi
is taken to its logical conclusion, even a Plaster of Paris or other
ingredients used for setting a fractured right bone may not be treated to be
coming within the purview of the definition of "drug".
Maharashtra [(1963) Supp. 1 SCR
344], opined that even absorbent, 26 cotton wool, roller bandages and gauze
would be drugs within the meaning of the provisions of the Act, stating :
".....The expression
"substances", therefore, must be something other than medicines but
which are used for treatment. The part of the definition which is material for
the present case is "substances intended to be used for or in the
treatment". The appropriate meaning of the expression
"substances"
in the section is
"things". It cannot be disputed, and indeed it is not disputed, that
absorbent cotton wool, roller bandages and gauze are "substances"
within the meaning of the said expression. If so, the next question is whether
they are used for or in "treatment". The said articles are sterilized
or otherwise treated to make them disinfectant and then used for surgical
dressing; they are essential materials for treatment in surgical cases. Besides
being aseptic these articles have to possess those qualities which are utilized
in the treatment of diseases. Thus, for instance, in the case of gauze - one of
the articles concerned in this appeal - it has to conform to a standard of
absorbency in order that it might serve its purpose: otherwise the fluid which
oozes is left to accumulate at the site of the wound or sore. The Legislature
designedly extended the definition of "drug" so as to take in
substances which are necessary aids for treating surgical or other cases. The
main object of the Act is to prevent sub-standards in drugs, presumably for
maintaining high standards of medical treatment.
That would certainly be defeated
if the necessary concomitants of medical or surgical treatment were allowed to
be diluted: the very same evil which the Act intends to eradicate would
continue to subsist."
27
27. We may, however, place on
record that in State of Goa and Others 77 of the Sales Tax Act which spoke of
drugs and medicines, including all I.V. Drips to hold that Zinc Oxide Adhesive
Plaster BPC (Leukoplast), Surgical Wound Dressing (Handyplast); Belladona
Plaster BPC; Capsicum Plaster BPC and Cotton Crape Bandages BPC (Leukocrapes)
were held to be not `medicine' or `drug'. Apart from the fact that this Court
did not take into consideration the decision in Chimanlal (supra), it was
opined;
"The assessee's contention
that it has got a licence to manufacture these products under the Drugs and
Cosmetics Act and its production is controlled at every stage by the Drug
Control Authorities does not conclude the matter. The question is how these
terms are understood by people generally? For example, can a bandage be treated
as a drug or a medicine? Will the position be different if the bandage is
medicated? These questions cannot be decided by reference to any definition of
the Drugs and Cosmetics Act or product control licence issued by the Drugs
Controller. There is no definition given in the Local Sales Tax Act or in the
Central Sales Tax Act of these terms. It has to be found out how these products
are understood and treated in the market. In the ordinary commercial sense, are
these articles considered as drugs or medicines? These are basically questions
of fact."
28
28. The said decision, therefore,
in our opinion, cannot be held to be of any assistance for determining the
issue involved herein. For the purpose of finding out the definition of `drug',
within the meaning of the Sales Tax Act, this reference to the statutory
meaning contained in the Act would be permissible. However, if the definition
contained therein does not fit in with the object and purport for which an
entry had been introduced under the local Sales Tax Act, the matter would be
different.
It has not been suggested nor
could it be that even the ordinary meaning of `medicine' cannot be read into
the taxing statute while interpreting an Entry made therein.
It is interesting to note that in
Leukoplast (supra), this Court itself observed;
"12. Lord Reid pointed out
that in the Purchase Tax Act, "medicine" had not been defined. So it
had to be understood as an ordinary word of English language. Lord Reid
observed:
"As with so many English
nouns there is no clear limit to the denotation of the word medicine. All the
circumstances must be considered and there may be cases where it is extremely
difficult to decide whether or not the term medicine is properly applicable. But
here I think that however one approaches the matter it would be a misuse of
language to call 29 Ribena a medicine and I would therefore allow the
appeal."
13. Lord Morris who delivered a
dissenting judgment tried to define the term "medicine" in the following
manner:
"What then is a medicine? The
learned Judge (1969) 1 WLR at p. 1527 pointed to a dictionary definition of
medicine (when used in a sense other than a substance) as `the science and art
concerned with the cure, alleviation, and prevention of disease, and with the
restoration and preservation of health'.
In line with the learned Judge I
think that a fair approach is to regard a medicine as a medicament which is
used to cure or to alleviate or to prevent disease or to restore health or to
preserve health."
14. Lord Wilberforce, who agreed
with Lord Reid, pointed out that the fact that a drug was present in something
did not convert that preparation as a whole into a drug. Merely because Vitamin
C was present in Ribena, it did not become a drug."
29. Mr. Dwivedi has placed strong
reliance on a decision of this Court Excise, Nagpur etc. [(1996) 9 SCC 402].
This Court therein applied common sense test in relation to `Dant Manjan'
(Tooth powder) to hold that it is not a medicine, opining :
30 "3. We have heard the
learned counsel at some length.
He also invited our attention to
the provisions of the Drugs and
Cosmetics Act, 1940, the opinion of the experts, the statements of a few
consumers as well as the description given in certain Ayurvedic books and
contended that the preparation would fall within the relevant entry in the
exemption notification. The Tribunal rightly points out that in interpreting
statutes like the Excise Act the primary object of which is to raise revenue
and for which purpose various products are differently classified, resort
should not be had to the scientific and technical meaning of the terms and
expressions used but to their popular meaning, that is to say the meaning
attached to them by those using the product. It is for this reason that the
Tribunal came to the conclusion that scientific and technical meanings would
not advance the case of the appellants if the same runs counter to how the
product is understood in popular parlance."
30. Tooth powder is never treated
to be a medicinal preparation. It is a toiletary preparation. No evidence on
record therein was produced to prove that common man who uses `dant manjan'
daily to clean his teeth consider it as a medicine and not as a toilet
requisite. It does not have a limited use for a limited time. The said
decision, in our opinion having regard to the entry contained in the Schedule
"K" appended to the Drugs and Cosmetics Rules cannot be said to have
any application in the instant case.
The product, in question, however,
is treated to be a "drug". For its production, a license is required.
Further, it finds place in Indian 31 Pharmacopeia; and it does not contain any
perfume. A cosmetic ordinarily would contain some perfume.
31. Reliance has also been placed
by Mr. Dwivedi on Alpine 111], wherein this Court was considering a product
known as "Lip Salve". It was principally to be used by the soldiers
stationed at a high altitude. It was, however, found to be used as protection
from dry, cold weather or sun rays. It was noticed that it is neither
prescribed by any doctor nor obtained from the chemist or pharmaceutical shops
in the market. This Court, categorically noticed that under Chapter 30 of the Central
Excise Rules, pharmaceutical product was a "medicament" under Heading
30.03, what was covered, having regard to the provisions contained in the
Chapter Note, that even if they have "therapeutic or prophylactic
properties", are excluded therefrom. "Medicament" was defined in
Note 2 as item in "goods which are either products comprising two or more
constituents which have been mixed or compounded together for therapeutic or
prophylactic use". It is on the aforementioned premise this Court opined;
"13. Reading the above
italicized portions of Note 2 and Note 5 with Entry 33.04, we find ourselves in
agreement with the majority opinion of the Tribunal that the product "Lip
Salve" is a kind of "barrier cream"
32 or a protective cream against
skin irritants. It, therefore, clearly falls under Entry 33.04 and conforms to
the description " preparations for the care of the skin (other than
medicaments) ". The learned counsel of the appellant has not been able to
persuade us to take a different view from the one taken in the majority opinion
of the Tribunal. We confirm that the product "Lip Salve" is
essentially a preparation for protection of lips and skin and is not a
"medicament". Such preparations which have a subsidiary curative or
prophylactic value clearly fall under Entries 33.03 to 33.07 as per Note 2
under Chapter 33. The product clearly is covered by Entry 33.04 read with Note
5 of Chapter 33, it essentially being a preparation for protection of lips or
skin. We have also gone through the minority opinion expressed by one of the
members of the Tribunal and the reasoning therein supported before us on behalf
of the appellant. For the reasons aforesaid, we are unable to agree with the
minority view. In the result, we find no merit in these appeals and the same
are hereby dismissed."
The said decision, therefore, is
also not applicable to the facts of the instant case.
32. "Lip Salve" was
found to have no Ayurvedic ingredient and it was perfumed, whereas, the
production, in question finds place in Indian Pharmacopeia, and is also not
perfumed.
33. The learned senior counsel has
also placed reliance on the decision Anr. [JT 2003 8 SC 203]. This Court
therein inter alia followed BPL Pharmaceuticals (supra). In that case, this
Court was dealing with "after 33 shave lotion" which has been
considered as a cosmetic and toilet preparation by the Excise Commissioner who
was an expert in the field.
It is in that view of the matter,
the decision of the Excise Commissioner was not interfered with.
Answer to the questions posed
therein, therefore, must be found having regard to the facts and circumstances
of the cases noticed supra.
34. In the context of Ayurvedic
Products, vis-`-vis their medicinal Commissioner, Central Excise, Nagpur
[(2006) 3 SCC 266], wherein it was stated:
"20. It will be seen from the
above definition of "cosmetic" that the cosmetic products are meant
to improve appearance of a person, that is, they enhance beauty, whereas a
medicinal product or a medicament is meant to treat some medical condition. It
may happen that while treating a particular medical problem, after the problem
is cured, the appearance of the person concerned may improve. What is to be
seen is the primary use of the product. To illustrate, a particular Ayurvedic
product may be used for treating baldness. Baldness is a medical problem. By
use of the product if a person is able to grow hair on his head, his ailment of
baldness is cured and the person's appearance may improve. The product used for
the purpose cannot be described as cosmetic simply because it has ultimately
led to improvement in the appearance of the person. The primary role of the 34
product was to grow hair on his head and cure his baldness."
35. The authorities referred to
hereinbefore clearly show that there does not exist difference of opinion on
legal principles. What is however required is the application thereof to the
fact of each case and the statute involved.
36. In determination of the
question involved herein, we cannot be oblivious of the fact that Revenue
itself thought 100 per cent pure white petroleum jelly of I.P. grade
(non-perfumed) to be a pharmaceutical preparation from 1981 to 1989. No
material change has occurred after the said period.
The question was referred to by a
learned Single Judge of the Commissioner of Sales Tax [1994 UPTC 184]., wherein
only on the basis that vaseline finds place in Entry 26A of the Schedule as
inserted by notification dated 14.4.1974, it was held to be a cosmetic or a
toilet requisite.
35
37. Submission of Mr. Dwivedi that
in Balaji (supra), common parlance test was also applied to Vaseline, is stated
to be rejected.
Vaseline is dealt with in
paragraph 5 of the judgment which was on the premise that it was included in
the entry in question. With regard to other products, namely Emami Naturally
etc., the "user test" was applied.
Only in view of the said decision,
an application was filed in terms of Section 22 of the Act. The Tribunal and
the High Court took a different view only having regard to Balaji (supra), without
noticing the distinctive features thereof.
38. There cannot be any doubt
whatsoever that artificial definition of a term under a statute is permissible
in law, but when goods which were included in one notification is consciously
taken out in the latter, the same meaning cannot be attributed thereto simply
on the basis of judicial interpretation.
39. When a case of obvious intent
on the part of the Legislature is made out, a meaning which subserves the
legislative intent must be given effect to. It is however also well known that
when a word is defined by the legislature itself, the same meaning may be
attributed even in the changed situation.
36 Entry 5 relates to
"cosmetics" and "toilet preparation". If the common
parlance test is to be applied, vaseline must come within the purview of
cosmetic or toilet preparation. With a view to satisfy the requirements of the
said definition, it must be held to be used for beautification or care of the
skin in the normal circumstances. If the product, in question does not satisfy
the aforementioned twin tests, it is difficult to presume any legislative
intention in this behalf despite the fact that Vaseline had been deleted from
the entry relating to cosmetic and toilet preparation.
This Court in The Commissioner of
Sales Tax, Madhya Pradesh, clearly held;
"....There were two items in
the Schedule, namely, item 6, "vegetables", and item 36, "betel
leaves", and subsequently item No. 36 was deleted by an amendment of the
Act. This Court held that the use of two distinct and different items, i.e.,
"vegetables' and "betel leaves" and the subsequent removal of
betel leaves from the Schedule were indicative of the Legislature's intention
of not exempting betel leaves from taxation."
37
40. Even if the Tribunal or the
High Court did not apply the common parlance test, what should necessarily be
applied is the commercial meaning test or the meaning in common parlance test.
It is interesting to note that
application of common parlance test was applied in M/s. Jaswant Singh (supra)
stating that only because "charcoal" contains the word `coal', the
same would not mean to be a species of coal.
41. Reliance has rightly been
placed for the said proposition on His Majesty the Kind v. Planters Nut and
Chocolate Co. Ltd. [1951 CLR (Ex) 122] wherein it is stated:
"It will be noted that none
of these definitions of `fruit' and `vegetable' (except in the strictly
botanical sense) include `nuts' of any sort.
It is of considerable interest,
also, to note that in the tariff rates under The Customs Act (which, as a
revenue Act, I consider to be in pari material), separate items are set up for
fruits, for vegetables, and also for `nuts of all kinds, not otherwise
provided, including shelled peanuts.' This would seem to indicate that in the
minds of the legislators, nuts were not included in the categories of fruits or
vegetables, and also that peanuts fell within the category of nuts.
I do not think that their view of
the matter differs at all from the common understanding of the words.
38 My findings must be that as
products and as general commodities in the market, neither salted peanuts nor
cashews, or nuts of any sort, are generally denominated or known in Canada as
either fruits or vegetables. I think it may be assumed, therefore, that if
Parliament had intended to include `nuts' among the exempted foodstuffs, the
word `nuts' would have appeared in the schedule. That being so, it must follow
that salted peanuts and cashew nuts, which as I have said above are considered
generally in Canada to be within the category of `nuts,' do not fall within the
exemptions provided for fruit and vegetables in Schedule III."
(1988) 2 SCC 470], this Court
opined;
"8. It is well-settled that
the commercial meaning has to be given to the expressions in tariff items.
Where definition of a word has not been given, it must be construed in its
popular sense. Popular sense means that sense which people conversant with the
subject- matter with which the statute is dealing, would attribute to it. See CIT
v. Taj Mahal Hotel. This Court observed in Indo International Industries v. CST
that in interpreting items in statutes like the Excise Act or Sales Tax Acts,
whose primary object was to raise revenue and for which purpose to classify
diverse products, articles and substances, resort should be had not to the
scientific and technical meaning of the terms or expressions used but to their
popular meaning, that is to say, the meaning attached to them by those dealing
in them.
9. Justice Cameron of the Canadian
Exchequer Court in King v. Planter's Co. and the decision of the United States
Supreme Court in " Two Hundred 39 Chests of Tea " emphasised that
commercial understanding in respect of the tariff items should be preferred. It
was observed that the legislature does not suppose our merchants to be
naturalists or geologists, or botanists."
Municipal Corporation of the City
of Ahmedabad and Others [1992 Supp. (1) SCC 298]. }
42. The assessee had filed a large
number of affidavits. The deponents of the said affidavits have not been
cross-examined. It is even from that point of view the application of common
parlance test stood satisfied in the instant case.
43. Furthermore, an expert in the
field has also given his opinion in Commissioner of Central Excise, Hyderabad
[(2006) 9 SCC 559], classified a product relying, inter alia, on the report of
the clerical examiner as under :
"7...The Tribunal has
completely ignored the report of the Chemical Examiner dated 6-10-1981 and the
final opinion of the Chief Chemist dated 2-4-1992 coupled with the
classification issued by the Department regarding use of wetting agents in the
textile industries falling under Sub-Heading 3402.90. Test reports of the
Chemical Examiner and Chief Chemist of the Revenue unless demonstrated 40 to be
erroneous, cannot be lightly brushed aside.
The Revenue has not made any
attempt to discredit or to rebut the genuineness and correctness of the reports
of the Government, Chemical Examiner and Chief Chemist. Thus, the reports are
to be accepted along with other documentary evidence in the form of
classification issued by the Department regarding use of wetting agents in the
textile industries to hold that the product Penetrator 4893 possessed surface
active properties and, therefore, is covered by Exemption Notification No.
101/66 dated 17-6-1966 as amended from time to time."
In this case also, the report of
the Chemical Examiner is in favour of the assessee. Furthermore, in a case of
this nature, where the revenue itself has been holding the assessee to be a
producer of a pharmaceutical product, the burden would be on the Revenue to
establish that the goods cease to fall under a given entry. For the said
purpose, no material was placed by the Revenue which was imperative.
[(1997) 2 SCC 677], this Court
held;
"4. It is not in dispute
before us, as it cannot be, that the onus of establishing that the said rings
fell within Item 22-F lay upon the Revenue. The Revenue led no evidence. The
onus was not discharged. Assuming therefore, that the Tribunal was right in
rejecting the evidence that was produced on behalf of the appellants, the
appeal should, nonetheless, have been allowed.
41
5. It is not the function of the
Tribunal to enter into the arena and make suppositions that are tantamount to
the evidence that the party before it has failed to lead. Other than
supposition, there is no material on record that suggests that a small-scale or
medium- scale manufacturer of brake linings and clutch facings "would be
interested in buying" the said rings or that they are marketable at all.
As to the brittleness of the said rings, it was for the Revenue to demonstrate
that the appellants' averment in this behalf was incorrect and not for the
Tribunal to assess their brittleness for itself. Articles in question in an
appeal are shown to the Tribunal to enable the Tribunal to comprehend what it
is that it is dealing with. It is not an invitation to the Tribunal to give its
opinion thereon, brushing aside the evidence before it. The technical knowledge
of members of the Tribunal makes for better appreciation of the record, but not
its substitution."
and Others [(1996) 10 SCC 413],
this Court opined :
"...The burden of proof is on
the taxing authorities to show that the particular case or item in question is
taxable in the manner claimed by them. Mere assertion in that regard is of no
avail..."
44. If an entry had been
interpreted consistently in a particular manner for several assessment years,
ordinarily it would not be permissible for the Revenue to depart therefrom,
unless there is any material change.
42 Others [(2006) 3 SCC 1].}
45. Applying the dominant
intention test, vis-`-vis, the Aspect Theory, Customs, Bombay and Others [1989
Supp.(1) SCC 131], opined :
"If there is no meaning
attributed to the expressions used in the particular enacted statute then the
items in the customs entries should be judged and analysed on the basis of how
these expressions are used in the trade or industry or in the market or, in
other words, how these are dealt with by the people who deal in them, provided
that there is a market for these types of goods. This principle is well known
as classification on the basis of trade parlance. This is an accepted form of
construction. It is a well known principle that if the definition of a
particular expression is not given, it must be understood in its popular or
common sense viz. in the sense how that expression is used everyday by those
who use or deal with those goods.
Others [(2006) 3 SCC 1], with
respect to the dominant intention test vis- `-vis the aspect theory, this Court
held:
"...The Courts will generally
adopt an earlier pronouncement of the law or a conclusion of fact unless there
is a new ground urged or a material change in the factual 43 position. The
reason why Courts have held parties to the opinion expressed in a decision in
one assessment year to the same opinion in a subsequent year is not because of
any principle of res judicata but because of the theory of precedent or the
precedential value of the earlier pronouncement. Where facts and law in a
subsequent assessment year are the same, no authority whether quasi judicial or
judicial can generally be permitted to take a different view.
This mandate is subject only to
the usual gateways of distinguishing the earlier decision or where the earlier
decision is per incuriam.
However, these are fetters only on
a coordinate bench which, failing the possibility of availing of either of
these gateways, may yet differ with the view expressed and refer the matter to
a bench of superior strength or in some cases to a bench of superior
jurisdiction."
In Imagic Creative Pvt. Ltd. v.
The Commissioner of Commercial Taxes and Ors., [(2008) 2 SCC 614] where
applicability of Article 246 of the Constitution of India, read with Seventh
Schedule was in question, the Court took recourse to various theories including
the Aspect Theory.
{See M/s Deepak Agro Solution Ltd.
v. Commissioner of Customs, Maharashtra (Civil Appeal No. 5210 of 006) disposed of on 8.5.2008 by
this Court}
47. We have noticed hereinbefore
that the meaning of "drug" is very wide and same has been held to be
so in a large number of cases. Balaji 44 (supra) was clearly not applicable
whereupon reliance has been placed by the High Court and/or the Tribunal. In
our opinion, the impugned judgments, for these reasons, cannot be sustained.
They are set aside accordingly.
48. The appeals are allowed with
costs. Counsel's fee assessed at Rs.50,000/-.
.............................J.
[S.B. Sinha]
.............................J.
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