The State Of Andhra Pradesh vs M/S Linde India Ltd. (Formerly Boc … on 13 April, 2020


Supreme Court of India

The State Of Andhra Pradesh vs M/S Linde India Ltd. (Formerly Boc … on 13 April, 2020

Author: Hon’Ble Dr. Chandrachud

Bench: Hon’Ble Dr. Chandrachud, Ajay Rastogi

                                                                           Reportable

                             IN THE SUPREME COURT OF INDIA
                              CIVIL APPELLATE JURISDICTION

                                Civil Appeal No 2230 of 2020
                         Special Leave Petition No (C) 19208 of 2016



         The State of Andhra Pradesh                               ...Petitioner



                                              Versus



         M/s Linde India Ltd.                                      ...Respondent

(Formerly BOC India Ltd)

With

Civil Appeal Nos 2233-2234 of 2020
SLP (C) Nos 25195-25196 of 2016

With

Civil Appeal No 2231 of 2020
SLP (C) No 22557 of 2016

And

With

Civil Appeal No 2232 of 2020
SLP (C) No 22553 of 2016
Signature Not Verified

Digitally signed by
MUKESH KUMAR
Date: 2020.04.13
11:56:35 IST
Reason:

1
JUDGMENT

Dr Dhananjaya Y Chandrachud, J

1. Leave granted.

2. The short point of law that arises in the present appeals is whether „Medical

Oxygen IP‟ and „Nitrous Oxide IP‟ are taxable under Entry 88 of Schedule IV of the

Andhra Pradesh Value Added Tax Act 20051 or as „unclassified goods‟ under

Schedule V . The classification of the two products determines the rate of tax to be

levied on them – 4%/5%2 under Entry 88 or 12.5%/14%3 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.

1
2005 Act.

2

5% substituted for the figure 4% by Act 11 of 2012 dated 20 April 2012.
3
14.5% substituted for the figure 12.5% by Act 9 of 2010 dated 20 April 2010.

2

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), Hyderabad4, allowed the

appeal filed by the respondent. The appellant‟s appeal before the High Court for the

State of Telangana and the State of Andhra Pradesh was dismissed. Aggrieved, the

appellant is in appeal before this Court.

6. The High Court was of the view that in Section 3(b)(i) of the Drugs and

Cosmetics Act 19405 the expression „drug‟ covers within its ambit any substance

which is used for or in the treatment, prevention and mitigation of a disease or a

disorder. The High Court held that (i) Medical Oxygen IP is used for the treatment of

patients and to mitigate the intensity of diseases and disorders; and (ii) Nitrous

Oxide IP is used as an anesthetic in surgical operations and procedures of a short

duration. The High Court held:

“…Both “nitrous oxide” and “medical oxygen” are clearly
identifiable, and are used as surgical aids (Indian Oxygen Ltd.

State of Karnataka; Southern Gas Ltd). Going by the user test
and the functional test, it is evident that “medical oxygen” and
“nitrous oxide” serve as medicines. As „medical oxygen IP‟
and „Nitrous Oxide IP‟ 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)(i) of the Drugs Act, and consequently, fall

4
2014 VIL 339 AP
5
1940 Act

3
under Entry 88 of Schedule IV of the Act liable to tax only at
4%/5%”

7. Assailing the judgment of the High Court, learned counsel for the appellant

urged:

(i) The decision of the Andhra Pradesh High Court in Inox Air, in so far as it

held that Medical Oxygen IP and Nitrous Oxide IP are covered by the

expression “similar articles” in Entry 88, is erroneous. Applying the

principle of ejusdem generis, it cannot be said that gases are „similar

articles‟ to the other products specified in the entry;

(ii) The term „used for or in‟ employed in Section 3(b)(i) qualifies only

„substances‟ and not „medicines‟. Consequently, it cannot be used to

broaden the scope of Entry 88;

(iii) Though Section 3(b)(i) of the 1940 Act includes substances that are

necessary aids for treating surgical or other cases, Entry 88 also contains

an exclusion clause. Entry 100(36) of Schedule IV specifically excludes

“medical grade oxygen”. Absent a specific inclusion of Medical Oxygen IP

and Nitrous 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

4
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 the ambit of Section 3(1)(b) of the

1940 Act, they are expressly included in Entry 88 of the 2005 Act;

(iii) Goods must be classified according to their popular meaning or as they

are understood in their commercial sense. Oxygen is used widely as an

emergency medicine as well as for the delivery of medical services.

Nitrous Oxide is used in surgery and dentistry for anesthetic purposes.

Applying the common parlance test, there is no doubt that the products in

question are used in the mitigation of diseases and disorders and fall
5
within the ambit of Entry 88 as drugs defined in Section 3(b)(i) of the 1940

Act;

(iv) Several High Courts in the country have uniformly held that Medical

Oxygen IP and Nitrous Oxide IP are medicines within the meaning of their

respective state enactments. These include Southern Gas v State of

Kerala6, State of Tamil Nadu v Ram Oxygen7, Panki Oxygen v State of

Uttar Pradesh8, Chimanlal v State of Maharashtra9, Indian Oxygen v

State of Karnataka10, State of Kerala v Indian Oxygen11 and ACTO,

Special Circle Jodhpur v M/s Jodhpur Gases12;

(v) The National List of Essential Medicines 2011 which constitutes Schedule

I of the Drug Price (Control) Order 2013, includes „Oxygen‟ and „Nitrous

Oxide‟ as „anesthesia‟ under Section 1; and

(vi) The decision of the High Court from which the present appeal arises was

rightly based on the judgment of that High Court in Inox Air, both of which

must be upheld by this Court.

9. The rival submissions fall for consideration.

6
2005 (139) STC 504 (Ker)
7
[2011] 5 GST 87 (Mad HC)
8
2014 SCC Online All 2144
9
2004 (137) STC 68
10
1990(79) STC 351
11
2003 (129) STC 471
12
2009 SCC Online 2459

6

10. We must begin with the statutory framework. Schedule IV of the 2005 Act

prescribes a uniform tax rate of 4%/5% for listed goods. Entry 88 of Schedule IV

reads as follows:

“Drugs & Medicines whether patent or proprietary, as defined
in clauses (i), (ii) and (iii) of Section 3(b) of Drugs and
Cosmetics Act, 1940 (Central Act 23 of 1940), including
hypodermic syringes, hypodermic needles, catguts, sutures,
surgical cotton, dressing, plasters, catherters, cannulae,
bandages and similar articles but not including:

(a) Medicated goods;

(b) Products capable of being used as cosmetics and
toilet preparations including Toothpastes, Tooth
powders, cosmetics, Toilet articles and soaps; and

(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%.

7

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 beings, or animals, including
preparations applied on human body for the purpose of
repelling insects like mosquitoes;

(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.”

Clause (i) of Section 3(b) defines a drug as 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

being, or animals”, including specified preparations. Clause (iv) of Section 3(b)

includes all „devices‟ intended for internal or external use in the diagnosis, treatment,

mitigation or prevention of disease or disorder in human beings or animals.

13. In the early decision of this Court in Chimanlal Jagjivandas Sheth v State of

Maharashtra,13 the question before a four judge Bench was whether absorbent

cotton wool, roller bandages, and gauzes would fall within the ambit of Section 3(b)

of the Act of 1940. The Court held:

“3. The said definition of “drugs” is comprehensive enough to
take in not only medicines but also substances intended to be
used for or in the treatment of diseases of human beings or
animals. This artificial definition introduces a distinction

13
AIR 1963 SC 665

8
between medicines and substances which are not medicines
strictly so-called. 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”.


It is not necessary for the purpose of this appeal to
define exhaustively “the substances” falling within the
definition of “drugs”; and we consider that whether or
not surgical instruments are “drugs”, the articles
concerned in this case 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.14 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

Barium, for example, is a substance used as an element in the diagnostic process in X-rays.

9

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 disease or

disorder” in Section 3(b)(i) is only applicable to „substances‟ and not „medicines‟. In

Ishwar Singh Bindra v The State of UP,15 the central question before a three judge

Bench of this Court was the interpretation of Section 3(b)(i) of the 1940 Act. This

Court held:

“11. Now if the expression “substances” is to be taken to
mean something other than “medicine” as has been held in
our previous decision it becomes difficult to understand how
the word “and” as used in the definition of drug in Section
3(b)(i)
between “medicines” and “substances” could have
been intended to have been used conjunctively. It would be
much more appropriate in the context to read it disjunctively.
In Stroud’s Judicial Dictionary, 3rd Edn. it is stated at p. 135
that “and” has generally a cumulative sense, requiring the
fulfilment of all the conditions that it joins together, and herein
it is the antithesis of or. Sometimes, however, even in such a
connection, it is, by force of a contexts, read as “or”. Similarly,
in Maxwell on Interpretation of Statutes, 11th Edn., it has
been accepted that “to carry out the intention of the
legislature it is occasionally found necessary to read the
conjunctions „or‟ and „and‟ one for the other”.

This Court held that as the word „substances‟ in the clause is used to mean

something other than „medicine‟, it was not the intention of the legislature that the

word “and” was meant to be read conjunctively. Accordingly, this Court held that the

two parts of the definitional clause must be read disjunctively.

15. In the above view, Section 3(b)(i) stipulates that medicines or substances

used for or in the diagnosis, treatment, mitigation or prevention of any disease or

15
(1969) 1 SCR 219

10
disorder in human beings, or animals shall be included within the ambit of the

definition. It is significant to note the use of the phrase „for or in‟ in the definitional

clause. Section 3(b)(i) includes both medicines or substances used for the

diagnosis, treatment, mitigation or prevention of any disease or disorder or in the

diagnosis, treatment, mitigation or prevention of any disease or disorder. Where the

former highlights the direct use of the product in question in diagnosing, treating,

mitigating or preventing a disease or disorder, the latter highlights its instrumental

use as a facilitative agent in the diagnosis, treatment, mitigation or 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
meaning. But once it is accepted that natural, ordinary or
popular meaning of the word is derived from its context, the

11
distinction drawn between different meanings loses much of
its relevance.”

Similarly, Craies on Statute Law states:

“One of the basic principles of interpretation of Statutes is to
construe them according to plain, literal and grammatical
meaning of the words. If that is contrary to, or inconsistent
with, any express intention or declared purpose of the
Statute, 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 words of a statute should be first understood in their natural, ordinary or popular

sense and phrases and sentences should be 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.

Where a word has a secondary meaning, the assessment is whether the natural,

ordinary or popular meaning flows from the context in which the word has been

employed. In such cases, the distinction disappears and courts must adopt the

meaning which flows as a matter of plain interpretation and the context in which the

word appears.

17. In State of HP v Pawan Kumar,16 it was contended that the safeguards

provided in Section 50 of the Narcotics Drugs and Psychotropic Substances Act

16
(2005) 4 SCC 550

12
1985 regarding search of any person would also apply to any bag, briefcase or any

such article or container, which is being carried by the person. The word „person‟

was not defined in the Act. A three judge Bench of this Court, having regard to the

scheme of the Act and the context in which the word ― „person‟ has been used,

rejected the contention and held thus:

“8. One of the basic principles of interpretation of statutes is
to construe them according to plain, literal and grammatical
meaning of the words. If that is contrary to, or inconsistent
with, any express intention or declared purpose of the statute,
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 Kumar17, State of Haryana v

Suresh18, State of Rajasthan v Babu Ram19 and Commissioner of Customs

(Import), Mumbai v Dilip Kumar and Company20.

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.”
17
2005 Cr.L.J. (SC) 2008
18
(2007) 15 SCC 186
19
(2007) 6 SCC 55
20
(2018) 9 SCC 1

13
CollIns Dictionary for Advanced Learners defines „medicine‟ thus:

“Medicine is the treatment of illness and injuries by doctors
and nurses; is a substance that you drink or swallow to cure
an illness”

Cambridge Dictionary defines „medicine‟ as:

“A drug that is used to treat illness or injury; the science
dealing with the preserving of health and with preventing and
treating disease or injury.”

The ordinary or popular understanding of the term medicine is characterized by its

curative properties in general andspecifically, its use for or in diagnosis, treatment,

mitigation or prevention of any disease or disorder.

19. In State of Goa v Leukoplast (India) Ltd,21 the question before this Court

concerned whether Zinc Oxide Adhesive Plaster BPC (Leukoplast), Surgical Wound

Dressing (Handyplast), Belladona Plaster BPC, Capsicum Plaster BPC and Cotton

Crape Bandages BPC (Leukocrapes) are „drugs‟ or „medicine‟ under the 1940 Act. A

two judge Bench of this Court laid down the test to determine whether a product is a

medicine in the following terms:

“15. In our view, whether the products manufactured by the
assessee can be treated as “drugs or medicines” cannot be
answered straightaway. The medicinal content of the
products, if any, has to be ascertained. Its curative function
has to be found out. Can the product be called a medicament
at all? Is it used to cure or alleviate or to prevent disease or to
restore health or to preserve health?…”

21
(1997) 4 SCC 82

14
This Court held that the relevant enquiry is whether the product is understood to be

a medicine and is used to cure, alleviate or prevent disease or to restore health or

preserve health. The question in the present case does not concern all variants of

oxygen and nitrogen, but only Medical Oxygen IP and Nitrous Oxide IP.

20. Chapter IV of the 1940 Act is titled „Manufacture, Sale and Distribution of

Drugs and Cosmetics‟. Section 16 stipulates:

“16. Standards of quality.- (1) For the purposes of this
Chapter, the expression “standard quality” means –

(a) In relation to a drug, that the drug complies with the
standard set out in the Second Schedule, and

(b) In relation to a cosmetic, that the cosmetic complies with
such standards as may be prescribed.”

Section 16(1)(a) stipulates that drugs that comply with the standards set out in the

Second Schedule shall be certified to be of „standard quality‟ 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

15
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 Commission22 is an autonomous institution of the Ministry of

Health and Family Welfare, Government of India. The IPC, through its publication

titled „Indian Pharmacopoeia‟ prescribes standards for the identity, purity and

strength of the drugs specified therein. Medical oxygen (at 99.9% purity) is included

as a drug termed as „Oxygen IP‟. Section 16, read with the Second Schedule and

the specification of Medical Oxygen in the Indian Pharmacopoeia lends support to

the contention urged by the respondents that Medical Oxygen IP is a drug as

defined in Section 3(b)(i) of the 1940 Act.

22. Furthermore, in exercise of the powers conferred by Section 3 of the Essential

Commodities Act 1955, the Central Government issued the Drug (Prices Control)

Order 2013 which came into force on the date of its publication in the Official

Gazette (15 May 2013). Para 2(t) stipulates that the „National List of Essential

Medicines‟ means the National List of Essential Medicines 2011 published by the

Ministry of Health and Family Welfare as updated and revised from time to time. It

also specifies that the National List of Essential Medicines 2011 is included in the

First Schedule to the order. Para 2(2) stipulates that all other words and expressions

22
IPC

16
used therein and not defined, but defined in the 1940 Act shall have meanings

respectively assigned in the 1940 Act.

23. The First Schedule contains the National List of Essential Medicines 2011.

The relevant portion is extracted below:

“Schedule – I
(See paragraphs – 2(t), 2(zb))
Symbols P, S and T appearing in NLEM 2011 denote
essentially at Primary, Secondary and Tertiary levels
respectively.


                 NATIONAL LIST OF ESSENTIAL MEDICINES 2011
                               Section: 1 – Anesthesia
                        1.1 General Anesthetics and Oxygen
              Medicines       Category        Route of       Strengths
                                           Administration
                  …               …               …             …
             Nitrous Oxide   P, S, T       Inhalation
             Oxygen          P, S, T       Inhalation



Section 1.1 includes both Nitrous Oxide and Oxygen as medicines within the ambit

of „Anesthesia‟. In the exercise of the power conferred under the 2013 Order, the

Government of India, by its order dated 20 December 2013 prescribed the selling

price for both “Nitrous Oxide Inhalation” and “Oxygen Inhalation”. This was evidently

done keeping in mind the regulation of the selling prices of essential medicines in

the market. The inclusion 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.

17

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,23 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 “nitrous oxide” are served
as medicines.”

Applying the user test and functional test, the Kerala High Court noted that Medical

Oxygen is administered to patients and Nitrous Oxide is used as an anesthetic agent

and concluded that both are medicines.

25. In Indian Oxygen Ltd v State of Karnataka,24 the question before the High

Court of Karnataka concerned whether Medical Oxygen fell within the ambit of Entry

121 of the Karnataka Sales Tax Act 1957 which stipulated a tax rate for industrial

gases. The High Court answered this in the negative and drew a distinction between

industrial oxygen and medical oxygen in the following terms:

“The object of Entry 121 is clearly to attract an “industrial
gas”, which cannot, on the face of it include, a gas which is

23
(2005) 3 KLT 78
24
1989 SCC Online Kar 459

18
not considered as an “industrial gas” by those who deal in it. It
is clear that a person requiring “medical oxygen” will not be
satisfied if he is supplied with the “industrial oxygen” and
similarly an honest trader would not sell “medical oxygen” as
“industrial oxygen”.

26. In State of Tamil Nadu v Ram Oxygen (Pvt.) Ltd25, the High Court of

Madras held that medical oxygen is a „drug‟ within the ambit of the 1940 Act:

“…It is also not in dispute that medical oxygen has 99.9%
purity of purified oxygen and that its use is only for treatment
of patients and to mitigate contrary intensity of any disease or
disorders in human beings. It is common knowledge at times
of emergency, the application of „medical oxygen‟ is resorted
to in order 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 conditions…”

The Madras High Court noted that at times of emergency, the administration of

medical oxygen is resorted to prevent the sudden collapse of patients, which forms a

part of the treatment meted out to them.

27. In Panki Oxygen v State of Uttar Pradesh,26 the question before the High

Court of Allahabad was whether tax on Oxygen IP under the Uttar Pradesh Trade

Tax Act was to be levied under the Entry “Medicine and Pharmaceutical

Preparation” or under the Entry “Oxygen and other gases”. Justice Ashok Bhushan

(sitting as a judge of that High Court) relied on the above decisions of various High

Courts and held thus:

“In view of the 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

25
(2010) 35 VST 478
26
2014 SCC Online All 2144

19
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 at 4%/5%
and not at12.5% or 14.5%.”

The High Court held that medical oxygen is used in the treatment and mitigation of

disorders in human beings, and are generally understood in trade to be surgical

aids.

29. The above judgments highlight the curative and instrumental use of Medical

Oxygen IP and Nitrous Oxide IP in the mitigation and prevention of disease or

disorder. Nitrous Oxide is used as anesthetic agent. Medical oxygen with 99.9%

purity is predominantly used in hospitals. Medical Oxygen is also used for the

treatment of patients and to mitigate the intensity of disease or disorder in human

beings. It is utilised to prevent a sudden collapse of patients and to aid in the

recovery of health. As stated in the Counter Affidavit filed by the respondents, in

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order to carry out critical surgical procedures, supplemental oxygen is administered

to patients. Medical Oxygen is also administered in resuscitation, major trauma,

anaphylaxis, major hemorrhage, shock and active convulsions, amongst other

conditions.

30. Nitrous Oxide is used in surgery and dentistry for its anesthetic and analgesic

effects. An article published in the British Medical Bulletin titled „Past, Present and

Future of Nitrous Oxide‟27 highlights the medical use of Nitrous Oxide in the following

terms:

“As an anaesthetic gas, N2O has many unique properties that
have historically been used to great benefit in the operating
room. These include a high FA/FI ratio allowing for rapid
onset and offset, anxiolytic as well as analgesic and amnestic
properties, lack of an odour and lack of irritation to the
tracheobronchial tree. These same properties have made it
increasingly popular in areas outside of the OR including
paediatric procedural sedation, the emergency room,
obstetrics, and potentially psychiatry, for attenuation of
treatment-resistant depression.”

The World Health Organisation in its publication titled „Model Prescribing

Information: Drugs Used in Anesthesia‟28 states that Nitrous Oxide has the following

uses:

“Maintenance of surgical anaesthesia in combination with
other anaesthetic agents (halothane, ether, thiopental or
ketamine) and muscle relaxants.

In subanaesthetic doses, to provide analgesia for obstetric
practice, for emergency management of injuries, during

27
V Lew, E McKay, M Maze, Past, present, and future of nitrous oxide, British Medical Bulletin, Volume 125, Issue 1,
March 2018, Pages 103–119.

28

WHO Model Prescribing Information: Drugs Used in Anaesthesia (1989).

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postoperative physiotherapy and for refractory pain in
terminal illness.”

K D Tripathi in Essentials of Medical Pharmacology29 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 the desired
level of sedation assessed by constant verbal contact is
obtained. This is maintained till the procedure is performed.

Thereafter, N2O is switched off, but 100% O2 is continued for
next 5 min. The patient is generally roadworthy in 30–60 min.”

The above extracts demonstrate the medical use of Nitrous Oxide as a general

anesthetic as well as in operation rooms for its analgesic and anxiolytic properties.

31. In the proceedings before this Court, it was not seriously disputed that

Medical Oxygen IP and Nitrous Oxide IP sub-serve a medicinal purpose. There is

no doubt that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in

the diagnosis, treatment, mitigation or prevention of any disease or disorder in

human beings falling within the ambit of Section 3(b)(i) of the 1940 Act. We hold that

29
KD Tripathi, Essentials of Medical Pharmacology, VIIth Ed., at p. 378.

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Medical Oxygen IP and Nitrous Oxide IP fall within the ambit of Section 3(b)(i) of the

1940 Act and are consequently covered in Entry 88 of the 2005 Act.

32. The impugned judgment of the High Court, to the extent it held that Medical

Oxygen IP and Nitrous Oxide IP fall within Entry 88 of the 2005 Act is upheld.

33. The appeals are dismissed, although for the reasons highlighted above.

There shall be no order as to costs.

34. Pending application(s), if any, shall stand disposed of.

………………………….……………………..J.

[Dr Dhananjaya Y Chandrachud]

…..…..…….………..……………….………..J.

[Ajay Rastogi]

New Delhi;

April 13, 2020.

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