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SUPREME COURT OF INDIA
D.Y. Chandrachud, Ajay Rastogi, JJ.
The State of Andhra Pradesh – Petitioner
Versus
M/s Linde India Ltd. (Formerly BOC India Ltd) – Respondent
Civil Appeal No. 2230 of 2020, Special Leave Petition No. (C) 19208 of 2016 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
Decided on : 13-04-2020
(A) Interpretation of Statute – Rules of Construction – Words of a statute must be construed according to plain, literal and grammatical meaning of words – 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 context, or in object of statute to suggest the contrary – Where a word has a secondary meaning, assessment is whether natural, ordinary or popular meaning flows from context in which word has been employed – In such cases, distinction disappears and courts must adopt meaning which flows as a matter of plain interpretation and context in which the word appears. (Para 16)
(B) Drugs and Cosmetics Act, 1940 – Section 3(b)(i) – Value Added Tax(VAT) – Whether Medical Oxygen IP and Nitrous Oxide IP are taxable under Entry 88 of Schedule IV of Andhra Pradesh Value Added Tax Act 2005, or as unclassified goods under Schedule V – Nitrous Oxide is used as anesthetic agent. Medical oxygen with 99.9% purity is predominantly used in hospitals – Medical Oxygen is also used for treatment of patients and to mitigate intensity of disease or disorder in human beings – It is utilised to prevent a sudden collapse of patients and to aid in recovery of health – In 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 – Medical Oxygen IP and Nitrous Oxide IP sub-serve a medicinal purpose – Medical Oxygen IP and Nitrous Oxide IP fall within ambit of Section 3(b)(i) of 1940 Act and are consequently covered in Entry 88 of 2005 Act – Impugned judgment of High Court, to the extent it held that Medical Oxygen IP and Nitrous Oxide IP fall within Entry 88 of 2005 Act, upheld. (Paras 29, 30, 31 and 32)
Facts of the Case:
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 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.
Findings of the Court:
Nitrous Oxide is used as anesthetic agent. Medical oxygen with 99.9% purity is predominantly used in hospitals. Medical Oxygen is also used for 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 recovery of health.
Result : Appeals dismissed.
JUDGMENT
Dr. Dhananjaya Y. Chandrachud, J.
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 2005 [2005 Act.] 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% [5% substituted for the figure 4% by Act 11 of 2012 dated 20 April 2012.] under Entry 88 or 12.5%/14% [14.5% substituted for the figure 12.5% by Act 9 of 2010 dated 20 April 2010.] under Schedule V.
3. The facts in the appeals before this Court being similar, we proceed to elucidate the factual context of the lead appeal.
4. The respondent Linde India Ltd, is a registered company under the 2005 Act and is an assessee on the rolls of the Commercial Tax Officer, Gajuwaka and Dwarakanagar Circle. The respondent is engaged in the manufacturing and trading of industrial gases as well as Medical Oxygen IP and Nitrous Oxide IP. On 12 December 2005, the Commercial Tax Officer communicated to the respondent that an outstanding tax liability of Rs 5,11,062 was due and payable for the period between 1 August 2005 and 31 August 2005.
5. Aggrieved, the respondent filled an appeal before the Appellate Deputy Commissioner who, by his order dated 26 June 2006, affirmed the assessment of the Commercial Tax Officer. By an order dated 25 November 2014, the Sales Tax Appellate Tribunal, relying on a judgment of the Andhra Pradesh High Court in Inox Air Products Ltd vs. The Assistant Commissioner (CT), Hyderabad, 2014 VIL 339 AP allowed the appeal filed by the respondent. The appellants 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 1940 [1940 Act.] 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 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 oxy
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