STATE OF GUJARAT Versus CADILA HEALTHCARE LTD

STATE OF GUJARAT Versus CADILA HEALTHCARE LTD

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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[REPORTABLE]

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7322 OF 2021

STATE OF GUJARAT  .. Appellant

Versus

CADILA HEALTHCARE LTD. ..Respondent

J U D G M E N T

M.R. Shah, J.

1. Feeling   aggrieved   and   dissatisfied   with   the   impugned

judgment and order dated 05.07.2016 passed by the High

Court of Gujarat, at Ahmedabad in STR No.4 of 2005 by

which the High Court has answered the reference in favour

of   the   respondent   –   assessee   –   dealer   holding   that   the

product   “KADIPROL”   sold   by   the   respondent   can   be

categorized   as   “Poultry   Feed”   falling   under   Entry   25   of

Schedule I of the Gujarat Sales Tax Act (hereinafter referred

to as “GST Act”) and not as a “Drug and Medicine” under

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Entry 26(1) of Schedule II Part A of the GST Act, the State of

Gujarat has preferred the present Appeal.  

2. At the outset it is required to be noted that the present

proceeding arise out of the Determination Order passed by

the Deputy Commissioner of Sales Tax under Section 62 of

the GST Act by which the Deputy Commissioner held that

the product in question – KADIPROL would be covered as

“Drug and Medicine” under Entry 26(1) of Schedule II Part A

of the GST Act.  

2.1 The   respondent   filed   an   application   before   the   Deputy

Commissioner of Sales Tax under Section 62 of the GST Act

to determine the rate of tax on “KADIPROL” sold under their

invoice dated 20.03.1989. The respondent also preferred an

application   before   the   Assistant   Commissioner,   Food   and

Drugs   Control   Administration   regarding   whether   the

respondent is required to obtain a license under the Drugs

and Cosmetics Act, 1940 (hereinafter referred to as “Act,

1940”) for manufacturing the product “KADIPROL”. That, the

Authority under the Act, 1940 informed the respondent that

the license for manufacturing of product “KADIPROL” under

the   Act,   1940   was   not   required.   However,   the   Deputy

Commissioner of Sales Tax, by his order dated 16.04.1990

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held that the product in question contains some preventive

medicine and therefore, categorized as “Drug and Medicine”

as per Entry 26(1) of Schedule II Part A of the GST Act. The

Tribunal upheld the order of the Deputy Commissioner. The

respondent preferred a Reference Application under Section

69 of the GST Act before the Tribunal for referring the matter

for decision of the High Court. The reference was made to

the High Court which was numbered as Sales Tax Reference

No.4 of 2005. 

2.2 By   impugned   judgment   and   order,   the   High   Court   has

answered   the   reference   in   favour   of   the   respondent   –

assessee and has held that the product “KADIPROL” would

be covered as “Poultry Feed” under Entry 25 of Schedule I of

the GST Act. 

2.3 Feeling   aggrieved   and   dissatisfied   with   the   impugned

judgment and order passed by the High Court holding that

the product “KADIPROL” manufactured by the respondent

would be covered by Entry 25 of Schedule I of the GST Act

as “Poultry Feed”, the State of Gujarat has preferred the

present Appeal.

3. Ms. Aastha Mehta, learned Counsel has appeared on behalf

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of  the  appellant  –  State  of  Gujarat  and  Ms.  Kavita Jha,

learned Counsel has appeared on behalf of the respondent –

assessee. 

4. Ms. Aastha Mehta, learned Counsel appearing on behalf of

the appellant – State of Gujarat has submitted that in the

facts and circumstances of the case, the High Court has

committed grave error in overturning the findings given by

the   Tribunal   and   the   Deputy   Sales   Tax   Commissioner

holding that the product “KADIPROL” can be categorized as

“Drug and Medicine”. 

4.1 It is submitted that the High Court has not given any reason

whatsoever to overturn the findings given by the Tribunal as

well as the Deputy Sales Tax Commissioner. It is submitted

that both the authorities below in fact considered the expert

literature   on   the   subject   which   ought   not   to   have   been

brushed   aside   by   the   High   Court   without   giving   any

independent reasoning.

4.2 It is submitted that the composition of “KADIPROL” for every

100 gm was (a) Emporium (Amprolium) Hydrochloride – 25

gm and (b) Vitamin K3 – 250 gm.

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4.3 It is submitted that the same product was used to provide

protection against coccidiosis due to anti­coccodial property

of emporium. It is submitted that the presence of Vitamin K

in “KADIPROL” prevents loss of blood by ensuring adequate

availability of prothrombin and thus supplements the anticoccidial action for emporium. It is submitted that product

also eliminates subclinical coccidian infection and improves

the health of the blood. It is submitted that therefore the

predominant purpose for which the product in question was

used by persons rearing poultry is to eliminate subclinical

coccidian infection. It is submitted that the indirect effect of

the said drug is only consequential and may be to improve

the health of the poultry or help in growth of poultry. It is

submitted   that   however   that   does   not   dilute   the   main

purpose of the ingredients, the composition as well as the

purpose for which it was administered. It is submitted that

therefore   the   product   would   fall   under   Entry   26(1)   of

Schedule II Part A of the GST Act as “Drug and Medicine”.

4.4 It is further submitted on behalf of the State that a drug can

be   administered   either   for   prevention   or   treatment   of

disease. The Deputy Sales Tax Commissioner considering

the  expert literature  specifically  held  that the  drug is  to

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ensure that an infectious disease does not spread and was

administered to the poultry feed as a “preventive measure”.

It is submitted that if the nutrition is not for predominant

purpose, then the product cannot be ‘poultry feed’.

4.5 It is submitted that the Tribunal considered the decision of

the High Court in the case of State of Gujarat vs. M/s. Pfizer

(India) Ltd. in Sales Tax Reference No.38 of 1980 in which

the High Court held that if main purpose is medicinal and

not nutrition, then even if there is some indirect help in

increasing  production   of   eggs,   the   product  would   not   be

called “poultry feed”. It is submitted that in the present case

the Tribunal specifically held that the product is a “nonnutritional additive” which as per the existing literature falls

within the category of “Drug”. It is submitted that even in

the   case   of   M/s.   Pfizer   (India)   Ltd.   (Supra),   one   of   the

products   which   had   Terramycin   and   was   used   for   the

purpose of preventing or treating diseases was held to be a

“drug”. It is submitted that in the case of M/s. Pfizer Ltd.

(Supra), it was specifically held that the product which does

not have any nutritional value as predominant use cannot

be a poultry feed. It is submitted that while deciding the

reference in the case of M/s. Pfizer (India) Ltd. (Supra), the

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High Court also considered its earlier decision in the case of

Glaxo   Laboratories   (India)   Ltd.   vs.   State   of   Gujarat

[(1979)   43   STC   386   (Guj)].   It   is   submitted   that   neither

Pfizer judgment nor Glaxo judgment of the High Court have

held that non­nutritional additives would be considered as

“poultry feed”.

4.6 It is submitted that the view taken by the High Court relying

on the decision in case of M/s. Pfizer (India) Ltd. (Supra) has

widened the ambit of “poultry feed” so as to restrict the

meaning of Entry “Drug and Medicine”. It is submitted that

no Entry under the Schedule can be interpreted so broadly

so   as   to   include   even   products   which   have   medicinal

properties. It is submitted that since the product is sought to

be exempted under Entry 25, the meaning given to “poultry

feed” cannot be widened and has to be construed strictly. It

is submitted that such an interpretation gives undue and

subjective power on dealers to use any product as “poultry

feed” thereby getting exemption of tax.

4.7 It is submitted that in the case of  Eskayef   Limited   vs.

Collector of Central Excise [(1990 4 SCC 680], it is held

by   this   Hon’ble   Court   that   the   products   “Neftin­50   and

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Neftin­200” which are used for prevention and treatment of

ailments   such   as   “coccidiosis”   and   “histomonoiasis”   in

poultry cannot be considered as ‘poultry feed’ and ought to

be categorized as a “drug”. It is submitted that in the said

decision   it   is   specifically   held   that   merely   because   these

products   can   be   used   for   improving   egg   production   and

increase in growth rate of broilers would not in any way

detract from the fact that said products are medicine. It is

submitted that in the present case also, “KADIPROL” is used

for the purpose of prevention and treatment, with an indirect

positive consequence for the health of the poultry.

4.8 Making   above   submissions   and   relying   upon   above

decisions, it is prayed to allow the present appeal and quash

and set aside the impugned judgment and order passed by

the High Court and restore the decisions of the Sales Tax

Tribunal as well as the Deputy Sales Commissioner and to

hold that the product “KADIPROL” can be categorized as

“Drug and Medicine” under Entry 26(1) of Schedule II Part A

of the GST Act and not as “poultry feed” falling under Entry

25 of Schedule I of the GST Act.  

5. Present appeal is vehemently opposed by Ms. Kavita Jha,

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learned Counsel appearing for the respondent. 

5.1 Ms. Jha, learned Counsel appearing for the respondent –

dealer – assessee has submitted that as such as on date

there is no existing demand on the respondent pertaining to

the issue and even all the assessments under the GST Act

are   also   closed   with   respect   to   the   respondent.   It   is

submitted that therefore as such the issue involved in the

present appeal would be academic.

5.2 Making submissions on merits, learned Counsel appearing

for the respondent has vehemently submitted that in the

facts and circumstances of the case, the High Court has not

committed any error in categorizing the product “KADIPROL”

as “poultry feed” under Entry 25 of Schedule I of the GST

Act. It is submitted that while holding so the High Court has

taken into consideration the fact that over a period of time

concept of “poultry feed” has changed considerably.

5.3 It is submitted that the words “poultry feed” has acquired

definite connotation in livestock farming and so also has the

concentrates and whereas the feed simpliciter is essential for

the maintenance of poultry, the concentrates i.e. vitamins in

the   food   stuff   enable   the   poultry   to   maintain   energy;   to

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perform the vital process of life and provide the material to

replace the essential tissues; breakdown of which occurs in

the body continuously. It is submitted that the ration of

poultry may be divided for convenience into two parts: (1)

maintenance ration, viz. the portion of the died which just

enables   the   poultry   at   rest   to   carry   on   the   essential

processes of life, such as breathing and circulation of blood,

without either gain or loss of weight; and (2) feed supplied

over and above the maintenance requirement for augmenting

the production for growth or fattening; or for augmenting egg

laying capacity.

5.4 It   is   submitted   that   in   the   present   days   when   the

maintenance of the poultry has become so costly, the poultry

is not kept in a farm in a state of non­production. It is

submitted that to make the poultry financially viable, it is

but necessary to supply a balanced poultry feed to increase

the production of eggs or fat and growth if the poultry is kept

for consumption  of its meat. It is submitted that over a

period of time, when the concept of poultry feed has changed

considerably,   it   does   not   mean   food   for   poultry   in

conventional sense. It consists not only of concentrates but

even additives, like vitamins, minerals and antibodies which

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are essential for better development of poultry etc. which is

purpose   of   having   a   good   yield   from   such   activities.   In

support   of   above   submissions,   reliance   is   placed   on   the

following decisions.

(1)  Glaxo Laboratories (India) Limited vs. State of Gujarat

(1979) 43 STC 386 (Guj)

(2)  Glindia Ltd. vs. Union of India

1989 (22) ECC 311

(3) State of Gujarat vs. Pfizer Ltd.

(1991) 82 STC 374 (Guj)

(4) Sun Export Corporation vs. Collector of Customs,     

Bombay (1997) 6 SCC 564

(5) M/s. Golden Streak Drug & Pharmaceuticals Ltd.,   

Lucknow  vs. Commissioner Trade Tax Lucknow

2017­TIOL­2502­HC­ALL­CT

5.5 It is submitted that the product “KADIPROL” is added to

“poultry feed” so as to make good deficiency of Vitamin K.

The product “KADIPROL” is aimed at preventing loss of blood

in the intestine by enhancing clotting time of blood in birds.

It is submitted that the said product is an essential poultry

feed supplement and is liable to be classified as “poultry

feed” under Entry 25 of Schedule I of the GST Act.

5.6 It   is   further   submitted   by   Ms.   Jha,   learned   Counsel

appearing   for   the   respondent   that   this   Court   has

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consistently taken the view that in determining the meaning

of an article in a tariff schedule, one principle which is fairly

well­settled is that those words and expressions should be

construed in the sense in which they are understood in the

trade by the dealer and the consumer. It is submitted that

therefore while considering a particular product / article, a

common parlance test is to be applied. In support of above

submissions,   reliance   is   placed   on   the   decisions   of   this

Court in the case of  Collector  of Central Excise, Kanpur

vs.   Krishna   Carbon   Paper   Co.   [(1989)   1   SCC   150]  and

Plasmac   Machine   Manufacturing   Company   Private

Limited vs. Collector of Central Excise, Bombay  [(1992)

84 STC 107 (SC) : [1990] Supp 3 SCR 384].

5.7 It  is   submitted   that  in   the  present  case,  poultry  rearing

industry, poultry feed concentrates like “KADIPROL” are not

bought   as   “Drug   and   Medicine”,   but   infact   the   same   is

bought   as   “poultry   feed”.   It   is   submitted   that   even   the

respondent is marketing its product “KADIPROL” as “not for

medicinal   use”.   It   is   submitted   that   therefore   applying

common parlance test also, the product “KADIPROL” is to be

considered as “poultry feed”.

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5.8 It is submitted that the subsequent decision of this Court in

the case of  Commissioner  of  Customs   (Import)  Mumbai

vs. Dilip Kumar and Company and Ors. [(2018) 9 SCC 1]

by which this Court overruled the decision of this Court in

the   case   of  Sun   Export   Corporation   vs.   Collector   of

Customs,   Bombay   [(1997)   6   SCC   564]  to   the   extent

wherein Sun Export Case held that in case of ambiguity,

benefit of exemption notification should go to the assessee,

shall not be applicable to the facts of the case on hand. It is

submitted that in the present case, it is not the case of

respondent that the product “KADIPROL” was covered within

the ambit of any exemption notification and therefore, in

case of ambiguity, the benefit should go to the respondent. It

is submitted that present case pertains to the classification

of the product “KADIPROL” which is poultry feed supplement

as to whether the same is classifiable as “poultry feed” or as

“Drug and Medicine”.

5.9 It   is   further   submitted   by   Ms.   Jha,   learned   Counsel

appearing for the respondent that even under the Gujarat

Value   Added   Tax   Act,   2003   (hereinafter   referred   to   as

“Gujarat VAT Act”), sale and purchase of “poultry feed” are

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exempt from tax under Entry 48 Schedule I of the Gujarat

VAT Act. It is submitted that even under the Gujarat VAT

Act, food and dietary supplements are specifically excluded

within the ambit of Drug and Medicine. It is submitted that

thus, the same reflects intention of the legislature that entry

“Drug   and   Medicine”   will   not   imbibe   food   and   dietary

supplements   within   its   ambit.   It   is   submitted   that   by

drawing an analogy in the present case as well, it can be

argued   that   even   “poultry   feed”   supplements   like

“KADIPROL” will not be covered within the ambit of “Drug

and Medicine” under Entry 26(1) of Schedule II of the GST

Act.

Making above submissions, it is prayed to dismiss the

present appeal. 

6. Heard learned Counsel appearing for the respective parties

at length.

7. Having heard the learned counsel appearing on behalf of the

respective parties and having perused the order passed by

the learned Tribunal as well as the impugned judgment and

order   passed   by   the   High   Court,   it   is   noticed   that   the

product in question was sold in a sachet/packet of 100 gm.

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It was not meant to be given as a food to the poultry.  It was

required   to   be   mixed   with   the   feed   given   to   the

poultry/birds.  It cannot be directly fed and/or given to the

birds.  Therefore, there is some merit in the contention of the

Revenue that the impugned judgment and order does not

deal with the reasoning given by the Tribunal.   It merely

quotes and  relies  upon the  two  decisions in  the  case  of

Glaxo   Laboratories   (India)   Ltd.   (supra)  and  M/s.   Pfizer

(India)   Ltd.   (Supra)  without   a   detailed   and   an   in­depth

examination of the facts as found.  Therefore, usually in the

aforesaid background, we would have remitted the matter to

the High Court for a fresh decision.   However, we are not

inclined to pass an order of this nature as it is accepted that

the issue in question is of academic interest and even if we

decide the appeal in favour of the Revenue, it would not have

any revenue implication as there are no tax dues.  

8. In view of the above facts and as the issue in question is in

the academic interest and as there is no revenue implication

as there are no tax dues and therefore there is zero tax

effect, we close the present proceedings keeping the larger

question   on   the   Common   Parlance   Test   open,   to   be

considered in an appropriate case in a like matter. 

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With this, the present appeal stands disposed of. 

……………………………..J.

    [M.R. SHAH]

……………………………..J.

   [SANJIV KHANNA]

New Delhi,

July  11, 2022