STATE OF GUJARAT Versus CADILA HEALTHCARE LTD

STATE OF GUJARAT Versus CADILA HEALTHCARE LTD

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



// 1 //
[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
// 2 //
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
// 3 //
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
// 4 //
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.
// 5 //
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
// 6 //
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
// 7 //
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
// 8 //
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,
// 9 //
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
// 10 //
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
// 11 //
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
// 12 //
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”.
// 13 //
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
// 14 //
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.
// 15 //
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. 
// 16 //
With this, the present appeal stands disposed of. 
……………………………..J.
    [M.R. SHAH]
……………………………..J.
   [SANJIV KHANNA]
New Delhi,
July  11, 2022

Comments

Popular posts from this blog

100 Questions on Indian Constitution for UPSC 2020 Pre Exam

संविधान की प्रमुख विशेषताओं का उल्लेख | Characteristics of the Constitution of India

भारतीय संविधान से संबंधित 100 महत्वपूर्ण प्रश्न उतर