The primary Principle of Interpretation of Statutes is to give the word the plain, literal and grammatical meaning of the word unless it contradicts with the express intention or declared purpose of the statute. The Hon’ble Supreme Court in the case of State of Andhra Pradesh v. M/s Linde India Ltd. reiterated this point while construing the term ‘medicine’, which is not defined in the Drugs and Cosmetics Act, 1940 (“1940 Act”).
The Respondent is engaged in the manufacture of Medical Oxygen IP and Nitrous Oxide IP and was communicated to pay a tax liability of Rs. 5,11,062 under the Andhra Pradesh Value Added Tax Act, 2005. The Respondent appealed before the Appellate Deputy Commissioner and the appeal was dismissed and accordingly, the Sales Tax Appellate Tribunal allowed a further appeal filed by the Respondent relying on Inox Air Products Ltd. v. the Assistant Commissioner, Hyderabad, 2014 VIL 339 AP (“Inox Air”). Aggrieved, the Appellant filed the appeal before the High Court for the State of Telangana and the State of Andhra Pradesh, which was dismissed and hence the Appellant preferred an appeal before the Supreme Court.
The Court’s primary question to be determined is whether the Medical Oxygen IP and Nitrous Oxide IP are taxable under Entry 88 of Schedule IV which levies a tax at the rate of 4%/5% or under Schedule V which levies a tax at the rate of 12.5%/14%.
The Appellants argued that the decision of the Andhra Pradesh High Court in Inox Air was erroneous and that Medical Oxygen IP and Nitrous Oxide IP cannot be said as “similar articles” as specified in Entry 88. Secondly, that the term “used for or in” employed in Sec. 3(b)(i) qualifies only “substances” and not “medicines”. Thirdly, absent a specific inclusion of Medical Oxygen IP and Nitrous Oxide IP in Entry 88 and the Exclusion Clause, that is, Entry 100(36) which specifically excludes “medical grade oxygen”, they fall within the ambit of unclassified goods in Schedule V. Lastly, for every “substance” to fall within the ambit of Entry 88 it must accord to the definition stipulated in Sec. 3(1)(b) of the 1940 Act.
On the other hand, the Respondents argued, firstly, that Sec. 3(b)(i) of the 1940 Act, defines “drug” broadly as medicine or substance used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder. And Medical Oxygen IP and Nitrous Oxide IP is known for its curative purpose and hence falls within the ambit of “drug”. Secondly, Medical Oxygen IP and Nitrous Oxide IP are included in the Indian Pharmacopoeia and hence within the ambit of “medicines” of Sec. 3(1)(b). Thirdly, goods must be classified according to their popular meaning, that is the common parlance test. Fourthly, the Respondent placed reliance on various High Court decisions where they have uniformly held that Medical Oxygen IP and Nitrous Oxide IP fall within the meaning of medicine. Lastly, the decision of the A.P. High Court in Inox Air was right.
The Court analyzed the definition of “drug” occurring in Sec. 3(b) of the 1940 Act based on earlier decisions. In Chimanlal Jagjivandas Sheth v. State of Maharashtra, AIR 1963 SC 665, the four-judge bench held that the 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.” Moreover, while relying on Ishawar Singh Bindra v. the State of U.P., (1969) 1 SCR 219, rejected the appellant’s argument that the phrase “intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder” in Sec. 3(b)(i) is only applicable to “substances‟ and not “medicines”. The Court further held that it was not the intention of the legislature that the word “and” was meant to be read conjunctively.
Moreover, the term “medicine” is not defined in the 1940 Act, however, relying on the trite principle of interpretation as emphasized by Justice G. P. Singh in Principles of Statutory Interpretation, the Court held that the basic principle of interpretation is to construe the word according to the plain, literal and grammatical meaning unless it is contrary or inconsistent with the express intention or declared purpose of the Statute or if such interpretation would involve absurdity, repugnancy or inconsistency, it must be then modified so far as to avoid inconvenience. This has been reiterated by the Supreme Court time and again in various decisions.
In order to determine the whether a product is a medicine, a two-judge bench of Supreme Court in State of Goa v. Leukoplast (India) Ltd., (1997) 4 SCC 82 laid down the test, 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.
Furthermore, the decisions of various High Courts suggest that based on user and functional test, the medical oxygen and nitrous oxide are served as medicines. Consequently, the decision of the A.P. High Court in Inox Air case and multiple decisions of various High Courts indicates the curative and instrumental use of Medical Oxygen IP and Nitrous Oxide IP in the mitigation and prevention of disease or disorder.
Accordingly, the Court decided that there was no doubt that the 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 Sec. 3(b)(i) of the 1940 Act. Hence, the Appeal was dismissed and the impugned judgment of A.P. High Court was upheld.
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