Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3644 OF 2008
(Arising out of SLP (C) No. 11726 of 2006)
M/s. Ponds India Ltd. (Merged with H.L. Ltd.) … Appellant
Versus
Commissioner of Trade Tax, Lucknow … Respondent
WITH
CIVIL APPEAL NO. 3647,3645,3646 2008
(Arising out of SLP(C) No. 13202, 13204 of 2006 and 3637 of 2007)
J U D G M E N T
S.B. Sinha, J.
1. Leave granted.
2. Whether petroleum jelly is a ‘drug’ or a ‘cosmetic’ within the
meaning of the provisions of U.P. Trade Tax Act, 1948 is the question
involved herein.
The factual matrix of the matter is undisputed.
2
The Legislature of the State of U.P. enacted U.P. Sales Tax Act,
1948. Entry 26(a) as inserted in the Schedule appended thereto by
notification No.ST-II-1233/X – 10(1)-1974 dated 14.04.1974 includes
petroleum jelly for the purpose of levy of sales tax. It was however,
substituted by notification dated 7.9.1981. We would deal with effect
thereof on the issue involved herein a little later.
3. We may at the outset notice the provisions of the Drugs and
Cosmetics Act, 1940 (for short, “the Act”). Section 39(aaa) defines
“cosmetic” as:-
“Section 3(aaa) “cosmetic” means any article
intended to be rubbed, poured, sprinkled or sprayed
on, or introduced into, or otherwise applied to, the
human body or any part thereof for cleansing,
beautifying, promoting attractiveness, or altering the
appearance, and includes any article intended for use
as a component of cosmetic.”
‘Drug’ has been defined in Section 3(b) in the following terms;
“Section 3(b) “drug” includes –
[(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;
3
(ii) such substances (other than food) intended
to affect the structure or any function of
the human body or intended to be used for
the destruction of vermin or insects which
cause disease in human beings or animals,
as may be specified from time to time by
the Central Government by notification in
the Official Gazette;
(iii) all substances intended for use as
components of a drug including empty
gelatin capsules; and
(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;”
4. Chapter 4 of the Act provides for manufacture, sale and
distribution of drugs and cosmetics. Section 16 provides for the
standards of quality in the following terms:
“16. Standards of quality – (1) For the purpose 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
4
(b) in relation to a cosmetic, that the cosmetic
complies with such standard as may be
prescribed.
(2) The Central Government, after consultation
with the Board and after giving by notification in the
Official Gazette not less than three months’ notice
of its intention so to do, may by a like notification
add to or otherwise amend the Second Schedule for
the purposes of this Chapter, and thereupon the
Second Schedule shall be deemed to be amended
accordingly.
5. Entry 5 of the second schedule appended thereto lays down the
standard in respect of other drugs in the following terms;
5
“5.
Other drugs : -
Standards of identity, purity
and strength specified in
the edition of the Indian
Pharmacopoeia for the time
being in force and such
other standards as may be
prescribed.
In case the standards of
identity, purity and strength
for 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 be those
occurring in such
immediately preceding
edition of the Indian
Pharmacopoeia and such
other standards as may be
prescribed.
(a)
Drugs included in the
Indian Pharmacopoeia
6
(b
) Drugs not included in the
Indian Pharmacopoeia but
which are included in the
official Pharmacopoeia of
any other country.
Standards of identity, purity
and strength specified for
drugs in the edition of such
official Pharmacopoeia of
any other country for the
time being in force and
such other standards as may
be prescribed.
In case the standards of
identity, purity and strength
for drugs are not specified
in the edition of such
official Pharmacopoeia for
the time being in force, but
are specified in the edition
immediately preceding the
standards of identity, purity
and strength shall be those
occurring in such
immediately preceding
edition of such official
Pharmacopoeia and such
other standards as may be
prescribed.”
6. The Central Government, in exercise of the power conferred upon
it under Sections 6(2), 12, 33 and 33(N) of the Act, made Rules, known
as the Drugs and Cosmetics Rules, 1945 (for short, “the Rules”).
Rule 123 of the Rules provides for exemption from Chapter IV of
the Act stating;
“123. The drugs specified in Schedule K shall be
exempted from the provisions of Chapter IV of the
Act and the rules made thereunder to the extent
and subject to the conditions specified in that
Schedule.
7
7. Schedule “K” as specified in Rule 123 specifies the drugs and lays
down the conditions under which such exemptions are to be granted.
White or Yellow Petroleum Jelly I.P. (Non-perfumed) has been specified
in item No. 28 in the following terms:
“28. White or Yellow
Petroleum Jelly I.P.
(Non-perfumed)
The Provisions of Chapter IV of the
Act and the rules made thereunder
which require them to be covered by a
sale licence subject to the conditions
that such a product has been
manufactured under a valid drug
manufacturing licence.”
8. The exemption granted is subject to the condition that such a
product has been manufactured under a valid drug manufacturing license.
It is not denied or disputed that the appellants herein are licensees
under the said Act. It is also not in dispute that cosmetics within the
meaning of the provisions thereof are not included in the Schedule.
9. These cases relate to the assessment years 1981-1982 to 1988-
1989.
8
Indisputably again, the Sales Tax Tribunal by an Order dated
30.3.1990 in respect of assessment year 1981-1982 accepted the
notification of the said product as falling under Entry No. 5 being
pharmaceutical preparation and, it was therefore, not classified as a
cosmetic and toilet preparation. The said order has not been questioned.
A similar order was passed by the Sales Tax Tribunal, Ghaziabad on
21.3.1991 relying on its earlier judgment dated 30.3.1990.
A report of the Government Analyst is also in favour of the
appellant.
10. The said decision of the Tribunal has also not been questioned by
the Revenue. Similar orders of assessment had been passed for the
assessment years 1984-1985 to 1986-1987.
The Allahabad High Court refused to interfere with the said orders
of Tribunal on a revision application filed by the respondents herein.
11. The Revenue prayed for re-opening of the assessment for the years
1986-1987 to 1988-1989 which was denied, despite its attention having
been drawn to a decision of the learned Single Judge of the Allahabad
High Court in M/s. Balaji Agency, Gorakhpur Vs. CST [1994 UPTC-
184], stating;
9
“Therefore, in the above circumstances since against
all the above three years judgments have been
passed in the Appeals. Therefore, after the aforesaid
judgment, the tax assessing officer has no
jurisdiction to make amendment in the tax
assessment order and in such cases only the
appellate authority, who has passed the last
judgment has jurisdiction to make amendments. In
the light of aforesaid facts in all the above three
years the action taken by the Tax Assessing Officer
under Section-22 is not just and proper in the eye of
law cannot be supported. Therefore, orders passed
under Section 22 in all the above three years are set
aside.”
The said judgment of the Tribunal has been affirmed by the
Allahabad High Court.
However, relying on Balaji (supra), the authorities changed the
basis of the assessment from the assessment year 1989-90 onwards
without producing any new material or proof to establish that the product
was not a medicinal preparation and should be classified as a cosmetic.
In respect of the assessment years 1990-91, 1991-92, 1992-93 when the
matter reached the appellate tribunal, it however opined that the product
of the petitioner being ‘Vaseline White Petroleum Jelly’ should be taxed
at the rate of 12 per cent as “cosmetics and toilet preparation”. The
revision petition filed by the petitioner thereagainst before the Allahabad
10
High Court has been dismissed by reason of the impugned judgment
dated 28.10.2005.
12. We may place on record that in Civil Appeals arising out of SLP
(C) No. 11726 of 2006 and SLP(C) No. 3637 of 2007, the appellant did
not move the Allahabad High Court in revision and have filed the special
leave petition directly before this Court.
13. Mr. Ashok Desai, learned senior counsel appearing on behalf of
the appellant would contend:
(i) The product, having consistently being held to be
pharmaceutical/medicine from 1990 onwards, and there
having been no change in the subsequent period, the
purported order of classification of goods is illegal.
(ii) The burden as regards classification of goods being on the
Revenue and no material has been placed on record by it to
discharge the burden.
(iii) The product is a pharmaceutical preparation falling under
Entry 29 as it is used for cure and treatment of various skin
disorders.
11
(iv) Entry 5 relating to cosmetics and toilet preparations cannot
have any application in the instant case as the said goods are
not used for beautification or care of the skin in the normal
circumstances.
(v) Furthermore, the State of U.P. having issued the notification
dated 7.9.1981 whereby vaseline was deleted from Entry 5,
hence, the same could not have been assessed as a cosmetic
and toilet preparation.
(vi) As commercial meaning or meaning in common parlance
must prevail over the dictionary meaning or technical
meanings,
(vii) The Appellant having filed a large number of affidavits in
support of its case and the deponents thereof having not
been cross-examined, the averments contained therein must
have been held to have been accepted.
(viii) In any event, if an entry is capable of two meanings, the
meaning which has been accepted continuously should be
held to be valid, unless it is held to be an implausible view.
12
(ix) Balaji Agency ( supra ) being not ex-facie applicable, the
Tribunal and the High Court committed an error in relying
thereupon despite the amendment made by reason of the
notification dated 7.9.1981.
14. Mr. Dinesh Dwivedi, learned senior counsel appearing on behalf
of the respondent, on the other hand, would contend:
(i) As Entry 5 contains an elusive definition, it cannot be said
to have a fixed meaning but an extended meaning.
(ii) The product being applied for care of skin, it comes within
the purview of the definition of “cosmetics” and not within
the definition of “medicine”.
(iii) Entry 5, as inserted in 1981 would clearly show that all
drugs and cosmetics would come within the purview thereof
except those which are specifically excluded, and in that
view of the matter, Vaseline manufactured by the appellant
in a cosmetic.
(iv) Vaseline having no curative value and merely being used for
taking care of one’s skin, it cannot be a drug within the
meaning of the provisions of the U.P. Trade Tax Act.
13
15. Indisputably, a license has been granted to the appellant under the
provisions of the Act.
A drug as defined in Section 3(b) thereof would not only include a
medicine which is used for external use of human beings, but if used for
prevention of any disease or disorder in human being, shall also come
within the purview thereof. The said definition is an extensive one. It
even applies to preparations applied on human body for the purpose of
killing insects like mosquitoes, which per se does not have any medicinal
or any value for curing any disease or disorder in human beings.
We may furthermore notice that Parliament consciously used a
restrictive meaning while defining the term “cosmetic” but an extensive
meaning has been given to the word “drug”.
The effect of such inclusive definition vis-à-vis restrictive
definition is well known. In Hamdard (Wakf) Laboratories Vs. Dy.
Labour Commissioner and Others [(2007) 5 SCC 281], this Court held;
“33. When an interpretation clause uses the
word “includes”, it is prima facie extensive.
When it uses the word “means and includes”, it
will afford an exhaustive explanation to the
meaning which for the purposes of the Act must
invariably be attached to the word or
expression.”
14
Almost to the same effect is the decision of this Court in N.D.P.
Namboodripad (Dead) by Lrs. Vs. Union of India and Others [(2007) 4
SCC 502], wherein the law was stated in the following terms:
“18. The word “includes” has different meanings in
different contexts. Standard dictionaries assign more
than one meaning to the word “include”. Webster’s
Dictionary defines the word “include” as
synonymous with “comprise” or “contain”.
Illustrated Oxford Dictionary defines the word
“include” as: ( i ) comprise or reckon in as a part of
a whole; ( ii ) treat or regard as so included. Collins
Dictionary of English Language defines the word
“includes” as: ( i ) to have as contents or part of the
contents; be made up of or contain; ( ii ) to add as
part of something else; put in as part of a set, group
or a category; ( iii ) to contain as a secondary or
minor ingredient or element. It is no doubt true that
generally when the word “include” is used in a
definition clause, it is used as a word of
enlargement, that is to make the definition extensive
and not restrictive. But the word “includes” is also
used to connote a specific meaning, that is, as
“means and includes” or “comprises” or “consists
of.”
Yet again in Bharat Coop. Bank (Mumbai) Ltd. Vs. Coop. Bank
Employees Union [(2007) 4 SCC 685], it was held;
15
“….. It is trite to say that when in the definition
clause given in any statute the word “means” is
used, what follows is intended to speak
exhaustively. When the word “means” is used in the
definition, to borrow the words of Lord Esher, M.R.
in Gough v. Gough it is a “hard-and-fast” definition
and no meaning other than that which is put in the
definition can be assigned to the same. (Also see P.
Kasilingam v. P.S.G. College of Technology .) On
the other hand, when the word “includes” is used in
the definition, the legislature does not intend to
restrict the definition: it makes the definition
enumerative but not exhaustive. That is to say, the
term defined will retain its ordinary meaning but its
scope would be extended to bring within it matters,
which in its ordinary meaning may or may not
comprise. Therefore, the use of the word “means”
followed by the word “includes” in Section 2( bb )
of the ID Act is clearly indicative of the legislative
intent to make the definition exhaustive and would
cover only those banking companies which fall
within the purview of the definition and no other.”
Yet again in Commercial Taxation Officer, Udaipur Vs. Rajasthan
Taxchem Ltd. [(2007) 3 SCC 124], it was held;
“22. We have already extracted the definition of raw
material under Section 2(34) which specifically
includes fuel required for the purpose of manufacture as
raw material. The word includes gives a wider meaning
to the words or phrases in the statute. The word
includes is usually used in the interpretation clause in
order to enlarge the meaning of the words in the statute.
When the word include is used in the words or phrases,
it must be construed as comprehending not only such
things as they signify according to their nature and
impact but also those things which the interpretation
clause declares they shall include. There is no dispute
16
in the instant case that the diesel and lubricant is used
to generate electricity through DG sets which is
admittedly used for the purpose of manufacturing yarn.
Thus, it is seen that as diesel is specifically and
intentionally included in the definition of raw material
by the legislature, the question that whether it is
directly or indirectly used in the process of manufacture
is irrelevant as argued by Mr Sushil Kumar Jain.”
In Associated Indem Mechanical (P) Ltd. Vs. W.B. Small
Industries Development Corporation Ltd. and Others [(2007) 3 SCC
607], this Court held;
“13. As the language shows, the definition of the
word “premises” as given in Section 2( c ) of the Act
is a very comprehensive one and it not only means
any building or hut or part of a building or hut and a
seat in a room, let separately, but also includes
godowns, gardens and outhouses appurtenant thereto
and also any furniture supplied or any fittings or
fixtures affixed for the use of the tenant in such
building, hut or seat in a room, as the case may be.”
16. In M/s. Mahalakshmi Oil Mills Vs. State of Andhra Pradesh [AIR
1989 SC 335], under the provisions of Section 8 of the A.P. General
Sales Tax Act, the “tobacco” is defined in the following term:
“Tobacco means any form of tobacco, whether cured
or uncured and whether manufactured or not, and
includes the leaf, stalks and stems of the tobacco
plant, but does not include any part of a tobacco plant
while still attached to the earth.”
17
It was held that the same consists of two separate parts which
specify what the expression means and also what it includes is obviously
meant to be exhaustive.
17. Mr. Dwivedi placed strong reliance on the following observations
occurring in the well known treatise of Justice G.P.Singh titled
“Principles of Statutory Interpretation”:
“…But the word ‘include’ is susceptible of
another construction, which may become
imperative, if the context of the Act is sufficient
to show that it was not merely employed for the
purpose of adding to the natural significance of
the words or expressions used. It may be
equivalent to ‘mean and include’ and in that
case it may afford an exhaustive explanation of
the meaning which for the purposes of the Act
must invariably be attached to those words or
expressions”. Thus, the word include may in
certain contexts be a word of limitation.”
There cannot be any dispute with regard to the bare principles of
law stated therein. Each question posed in each case has to be
determined having regard to the purport and object for which the same
had been enacted.
18
18. Reference to Carter v. Bradbeer [(1975) 3 All ER 158], has been
made in the aforementioned treatise. The House of Lords was dealing
therein with a case where one word “bar” had more than one meaning
and in that context, it was opined:
“It may well be that the contention advanced on behalf of
the appellant sought to derive from the interpretation
section a measure of support which that section does not
yield. By s. 201(1) of the 1964 Act it is provided that in
the Act, unless the context otherwise requires, ‘“bar”
includes any place exclusively or mainly used for the sale
and consumption of intoxicating liquor’. It is important
to note the word ‘includes’. As used in s. 201, I regard
the word ‘includes’ as denoting that the word ‘bar’ may
refer to and may comprehend not only what would
ordinarily and in common parlance be spoken of as a bar
but also some place (such as a bar-room) which is
exclusively or mainly used for the sale and consumption
of intoxicating liquor.”
It was noticed;
“I feel not the slightest doubt that anyone asked if the
sales took place at a bar would unhesitatingly answer
Yes. Parliament must be assumed to use the English
language in its ordinary natural sense unless the context
shows a contrary intention. If no contrary intention is
shown, then one is driven to the conclusion that
Parliament intended in s 76(5) the word ‘bar’ to include
counters such as were present in this case, and to
prohibit the use of such counters during the substituted
permitted hours.
Sometimes a room is called a bar, for instance, a saloon
bar or a lounge bar. Such a room, it is not disputed, is
19
a bar within s. 76(5). Ordinarily a saloon bar will have
a counter in it over which drinks are supplied, but the
definition in s 201 extends the meaning of ‘bar’ to
include any place exclusively or mainly used for the
sale and consumption of intoxicating liquor. So, for
the purpose of s 76(5), a place can be a bar even though
it has not within it any bar counter.
It is to be noted that the definition in s 201 does not say
that ‘bar’ means something but that ‘bar’ included
something. That is appropriate where it is sought to
apply a word in a sense which it does not normally
bear, or to make it clear that the word has a meaning
about which otherwise some doubt might be felt.”
Such a question does not arise herein for our consideration.
19. Indisputably, having regard to the provisions contained in Rule
123 of the Rules, white Jelly IP (non-perfumed) is a drug. The Act and
the Rules framed thereunder do not provide that non-perfumed white
jelly IP would also be a cosmetic.
20. This Court is called upon to interpret Entry 5 of the notification
dated 7.9.1981. While doing so, it is necessary to consider that with a
view to attract the applicability thereof, it must not only be a kind of
cosmetic but also be the one which is used for the care of the face, skin,
nails, eyes or brows.
What would be the effect of such a provision came up for
consideration before this Court in Ramavatar Budhaiprasad Etc. Vs.
20
Assistant Sales Tax Officer, Akola [1962 1 SCR 279], wherein it was
held;
“Thus under the Act all articles mentioned in the
Schedule were exempt from Sales Tax and articles
not so specified were taxable. In the Schedule
applicable there were originally two items which
are relevant for the purposes of the case. They
were items Nos. 6 and 36.
Item 6 Vegetables – Except when sold in sealed
containers.
Item 36 Betel leaves.
The Schedule was amended by the C.P. & Berar
Sales Tax Amendment Act (Act XVI of 1948) by
which item No. 36 was omitted. It is contended
that in spite of this omission they were exempt
from Sales Tax as they are vegetables. The
intention of the legislature in regard to what is
“vegetables” is shown by its specifying vegetables
and betel leaves as separate items in the Schedule
exempting articles from Sales Tax. Subsequently
betel leaves were removed from the Schedule
which is indicative of the legislature’s intention of
not exempting betel leaves from the imposition of
the tax. But it was submitted that betel leaves are
vegetables and therefore they would be exempt
from Sales Tax under item 6.”
21. It is therefore, difficult to agree with Mr. Dwivedi that a medicinal
preparation must be one which has the effect of curing a disease. While
interpreting an entry in a taxing statute, the Court’s role would be to
consider the effect thereof, upon considering the same from different
21
angles. Different tests are laid down for interpretation of an entry in a
taxing statute namely dictionary meaning, technical meaning, users point
of view, popular meaning etc.
It is true that the Court must bear in mind the precise purpose for
which the statute has been enacted, namely, herein for the purpose of
collection of tax, but the same by itself would not mean that an assessee
would be made to pay tax although he is not liable therefor, or to pay
higher rate of tax when is liable to pay at a lower rate.
An exemption notification may require strict construction, but
where a statute merely provides for different rates of tax, application of
the principles of strict construction may not be appropriate.
Whether a product would be a drug or a cosmetic sometimes poses
a difficult question and, thus, answer thereto may not be easy. For the
said purpose, the Court may not only be required to consider the contents
thereof, but also the history of the entry, the purpose for which the
product is used, the manner in which it has been dealt with under the
relevant statute as also the interpretation thereof by the implementing
authorities.
22
22. Pharmacopeia of India, Third Edition, Volume -1, page 362 deals
with Yellow Soft Paraffin and White Soft Paraffin. White petroleum
jelly is included in the term white soft paraffin. Standards therefor had
been laid down. We have noticed hereinbefore that the product has
specifically been mentioned in Schedule “K” of the Rules. It comes
within the purview of the exemption envisaged under Rule 123 of the
Rules.
23. Mr. Dwivedi referred to Wikipedia in respect of white petroleum
which describes the product in the following terms :
“ Petroleum jelly , vaseline, petrolatum or soft
paraffin is a semi-solid mixture of
hydrocarbons (with carbon numbers mainly
higher than 25), originally promoted as a
topical ointment for its healing properties. Its
folkloric medicinal value as a "cure-all" has
since been limited by better scientific
understanding of appropriate and inappropriate
uses (see Uses below). However, it is
recognized by the U.S. Food and Drug
Administration (FDA) as an approved over-the-
counter (OTC) skin protectant and remains
widely used in cosmetic skin care. It is
commonly referred to as Vaseline as a
genericized trademark.”
23
24. Contention of Mr. Dwivedi is that it is merely a skin protectant and
remains widely used in cosmetic skin care and thus it does not have any
curative value.
Wikipedia, like all other external aids to construction, like
dictionaries etc, is not an authentic source, although the same may be
looked at for the purpose of gathering information. Where an express
statutory definition of a word exists, a Wiki definition cannot be
preferred. It cannot normally be used for the purpose of interpreting a
taxing statute or classification of a product vis-à-vis an entry in statute.
However, as a source of authority, Wikipedia is frequently cited by
judges around the world. This is not restricted to India alone. The New
York Times reports that beginning in 2004, more than 100 opinion in the
States have cited Wikipedia, including 13 from federal appeals courts.
Is this a good thing? There’s a split of authority. Let us notice
some.
• Said the Seventh Circuit’s Judge Posner, who recently cited the
online encyclopedia in this opinion: Wikipedia is a terrific
resource . . . Partly because it so convenient, it often has been
24
updated recently and is very accurate. He added: It wouldn’t be
right to use it in a critical issue. If the safety of a product is at
issue, you wouldn’t look it up in Wikipedia.
• Cass Sunstein , a visiting professor at Harvard Law who once fixed
an error on Posner’s Wikipedia entry: I love Wikipedia, but I don’t
think it is yet time to cite it in judicial decisions . . . it doesn’t have
quality control.” He told the Times that “if judges use Wikipedia
you might introduce opportunistic editing” to influence the
outcome of cases.
• Kenneth Ryesky , a New York tax attorney, says “citation of an
inherently unstable source such as Wikipedia can undermine the
foundation not only of the judicial opinion in which Wikipedia is
cited, but of the future briefs and judicial opinions which in turn
use that judicial opinion as authority.
• Stephen Gillers , NYU law professor and legal ethics guru: The
most critical fact is public acceptance, including the litigants, he
said. A judge should not use Wikipedia when the public is not
prepared to accept it as authority. He said it’s best used for “soft
facts.”
25
• Lawrence Lessig , a Stanford law professor urges using a system
such www.webcitation.org that captures in time online sources like
Wikipedia, so that a reader sees “a stable reference” — i.e., the
same material that the writer saw.
These points must be kept in mind by us when we intend to rely on
Wikipedia as a source of authority.
The said material itself shows that it helps keep the outside world
out and it protects the skin from the effects of weather and exposure.
Secondly, it acts like a sealant to help keep the inside world in.
25. It is, therefore, accepted that if used as a preventive measure, of
course, it would have a curative value. In any event having regard to the
definition of drugs, any product which prevents a disorder of human
function would also come within the purview of drug.
If the submission of Mr. Dwivedi is taken to its logical conclusion,
even a Plaster of Paris or other ingredients used for setting a fractured
right bone may not be treated to be coming within the purview of the
definition of “drug”.
26. This Court in Chamanlal Jagjivandas Sheth Vs. State of
Maharashtra [(1963) Supp. 1 SCR 344], opined that even absorbent,
26
cotton wool, roller bandages and gauze would be drugs within the
meaning of the provisions of the Act, stating :
“…..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”. The said articles are sterilized or
otherwise treated to make them disinfectant and then
used for surgical dressing; they are essential
materials for treatment in surgical cases. Besides
being aseptic these articles have to possess those
qualities which are utilized in the treatment of
diseases. Thus, for instance, in the case of gauze –
one of the articles concerned in this appeal – it has
to conform to a standard of absorbency in order that
it might serve its purpose: otherwise the fluid which
oozes is left to accumulate at the site of the wound
or sore. The Legislature designedly extended the
definition of “drug” so as to take in substances
which are necessary aids for treating surgical or
other cases. The main object of the Act is to
prevent sub-standards in drugs, presumably for
maintaining high standards of medical treatment.
That would certainly be defeated if the necessary
concomitants of medical or surgical treatment were
allowed to be diluted: the very same evil which the
Act intends to eradicate would continue to subsist.”
27
27. We may, however, place on record that in State of Goa and Others
Vs. Leukoplast (India) Ltd. [(1997) 4 SCC 82] while considering Entry
77 of the Sales Tax Act which spoke of drugs and medicines, including
all I.V. Drips to hold that Zinc Oxide Adhesive Plaster BPC
(Leukoplast), Surgical Wound Dressing (Handyplast); Belladona Plaster
BPC; Capsicum Plaster BPC and Cotton Crape Bandages BPC
(Leukocrapes) were held to be not ‘medicine’ or ‘drug’. Apart from the
fact that this Court did not take into consideration the decision in
Chimanlal (supra), it was opined;
“The assessee’s contention that it has got a licence
to manufacture these products under the Drugs and
Cosmetics Act and its production is controlled at
every stage by the Drug Control Authorities does
not conclude the matter. The question is how
these terms are understood by people generally?
For example, can a bandage be treated as a drug or
a medicine? Will the position be different if the
bandage is medicated? These questions cannot be
decided by reference to any definition of the Drugs
and Cosmetics Act or product control licence
issued by the Drugs Controller. There is no
definition given in the Local Sales Tax Act or in
the Central Sales Tax Act of these terms. It has to
be found out how these products are understood
and treated in the market. In the ordinary
commercial sense, are these articles considered as
drugs or medicines? These are basically questions
of fact.”
28
28. The said decision, therefore, in our opinion, cannot be held to be
of any assistance for determining the issue involved herein. For the
purpose of finding out the definition of ‘drug’, within the meaning of the
Sales Tax Act, this reference to the statutory meaning contained in the
Act would be permissible. However, if the definition contained therein
does not fit in with the object and purport for which an entry had been
introduced under the local Sales Tax Act, the matter would be different.
It has not been suggested nor could it be that even the ordinary meaning
of ‘medicine’ cannot be read into the taxing statute while interpreting an
Entry made therein.
It is interesting to note that in Leukoplast (supra), this Court itself
observed;
“12. Lord Reid pointed out that in the Purchase
Tax Act, “medicine” had not been defined. So it
had to be understood as an ordinary word of
English language. Lord Reid observed:
“As with so many English nouns there is
no clear limit to the denotation of the
word medicine. All the circumstances
must be considered and there may be
cases where it is extremely difficult to
decide whether or not the term medicine
is properly applicable. But here I think
that however one approaches the matter
it would be a misuse of language to call
29
Ribena a medicine and I would therefore
allow the appeal.”
13. Lord Morris who delivered a dissenting
judgment tried to define the term “medicine” in
the following manner:
“What then is a medicine? The learned
Judge (1969) 1 WLR at p. 1527
pointed to a dictionary definition of
medicine (when used in a sense other
than a substance) as ‘the science and art
concerned with the cure, alleviation,
and prevention of disease, and with the
restoration and preservation of health’.
In line with the learned Judge I think
that a fair approach is to regard a
medicine as a medicament which is
used to cure or to alleviate or to prevent
disease or to restore health or to
preserve health.”
14. Lord Wilberforce, who agreed with Lord
Reid, pointed out that the fact that a drug was
present in something did not convert that
preparation as a whole into a drug. Merely
because Vitamin C was present in Ribena, it did
not become a drug.”
29. Mr. Dwivedi has placed strong reliance on a decision of this Court
in Shree Baidyanath Ayurved Bhavan Ltd. Vs. Collector of Central
Excise, Nagpur etc. [(1996) 9 SCC 402]. This Court therein applied
common sense test in relation to ‘Dant Manjan’ (Tooth powder) to hold
that it is not a medicine, opining :
30
“ 3. We have heard the learned counsel at some length.
He also invited our attention to the provisions of the
Drugs and Cosmetics Act, 1940, the opinion of the
experts, the statements of a few consumers as well as
the description given in certain Ayurvedic books and
contended that the preparation would fall within the
relevant entry in the exemption notification. The
Tribunal rightly points out that in interpreting statutes
like the Excise Act the primary object of which is to
raise revenue and for which purpose various products
are differently classified, resort should not be had to
the scientific and technical meaning of the terms and
expressions used but to their popular meaning, that is
to say the meaning attached to them by those using
the product. It is for this reason that the Tribunal came
to the conclusion that scientific and technical
meanings would not advance the case of the
appellants if the same runs counter to how the product
is understood in popular parlance.”
30. Tooth powder is never treated to be a medicinal preparation. It is a
toiletary preparation. No evidence on record therein was produced to
prove that common man who uses ‘dant manjan’ daily to clean his teeth
consider it as a medicine and not as a toilet requisite. It does not have a
limited use for a limited time. The said decision, in our opinion having
regard to the entry contained in the Schedule “K” appended to the Drugs
and Cosmetics Rules cannot be said to have any application in the instant
case.
The product, in question, however, is treated to be a “drug”. For
its production, a license is required. Further, it finds place in Indian
31
Pharmacopeia; and it does not contain any perfume. A cosmetic
ordinarily would contain some perfume.
31. Reliance has also been placed by Mr. Dwivedi on Alpine
Industries Vs. Collector of Central Excise, New Delhi [(2003) 3 SCC
111], wherein this Court was considering a product known as “Lip
Salve”. It was principally to be used by the soldiers stationed at a high
altitude. It was, however, found to be used as protection from dry, cold
weather or sun rays. It was noticed that it is neither prescribed by any
doctor nor obtained from the chemist or pharmaceutical shops in the
market. This Court, categorically noticed that under Chapter 30 of the
Central Excise Rules, pharmaceutical product was a “medicament” under
Heading 30.03, what was covered, having regard to the provisions
contained in the Chapter Note, that even if they have “therapeutic or
prophylactic properties”, are excluded therefrom. “Medicament” was
defined in Note 2 as item in “goods which are either products comprising
two or more constituents which have been mixed or compounded
together for therapeutic or prophylactic use”. It is on the
aforementioned premise this Court opined;
” 13. Reading the above italicized portions of Note 2
and Note 5 with Entry 33.04, we find ourselves in
agreement with the majority opinion of the Tribunal
that the product “Lip Salve” is a kind of “barrier cream”
32
or a protective cream against skin irritants. It, therefore,
clearly falls under Entry 33.04 and conforms to the
description “ preparations for the care of the skin
(other than medicaments) ”. The learned counsel of the
appellant has not been able to persuade us to take a
different view from the one taken in the majority
opinion of the Tribunal. We confirm that the product
“Lip Salve” is essentially a preparation for protection of
lips and skin and is not a “medicament”. Such
preparations which have a subsidiary curative or
prophylactic value clearly fall under Entries 33.03 to
33.07 as per Note 2 under Chapter 33. The product
clearly is covered by Entry 33.04 read with Note 5 of
Chapter 33, it essentially being a preparation for
protection of lips or skin. We have also gone through
the minority opinion expressed by one of the members
of the Tribunal and the reasoning therein supported
before us on behalf of the appellant. For the reasons
aforesaid, we are unable to agree with the minority
view. In the result, we find no merit in these appeals
and the same are hereby dismissed.”
The said decision, therefore, is also not applicable to the facts of
the instant case.
32. “Lip Salve” was found to have no Ayurvedic ingredient and it was
perfumed, whereas, the production, in question finds place in Indian
Pharmacopeia, and is also not perfumed.
33. The learned senior counsel has also placed reliance on the decision
of this Court in State of Goa & Anr. Vs. M/s. Colfax Laboratories Ltd. &
Anr. [JT 2003 8 SC 203]. This Court therein inter alia followed BPL
Pharmaceuticals (supra). In that case, this Court was dealing with “after
33
shave lotion” which has been considered as a cosmetic and toilet
preparation by the Excise Commissioner who was an expert in the field.
It is in that view of the matter, the decision of the Excise Commissioner
was not interfered with.
Answer to the questions posed therein, therefore, must be found
having regard to the facts and circumstances of the cases noticed supra.
34. In the context of Ayurvedic Products, vis-à-vis their medicinal
value came up for consideration in Puma Ayurvedic Herbal (P) Ltd. Vs.
Commissioner, Central Excise, Nagpur [(2006) 3 SCC 266], wherein it
was stated:
“20. It will be seen from the above definition of
“cosmetic” that the cosmetic products are meant to
improve appearance of a person, that is, they enhance
beauty, whereas a medicinal product or a medicament
is meant to treat some medical condition. It may
happen that while treating a particular medical
problem, after the problem is cured, the appearance of
the person concerned may improve. What is to be
seen is the primary use of the product. To illustrate, a
particular Ayurvedic product may be used for treating
baldness. Baldness is a medical problem. By use of
the product if a person is able to grow hair on his
head, his ailment of baldness is cured and the person’s
appearance may improve. The product used for the
purpose cannot be described as cosmetic simply
because it has ultimately led to improvement in the
appearance of the person. The primary role of the
34
product was to grow hair on his head and cure his
baldness.”
35. The authorities referred to hereinbefore clearly show that there
does not exist difference of opinion on legal principles. What is
however required is the application thereof to the fact of each case and
the statute involved.
36. In determination of the question involved herein, we cannot be
oblivious of the fact that Revenue itself thought 100 per cent pure white
petroleum jelly of I.P. grade (non-perfumed) to be a pharmaceutical
preparation from 1981 to 1989. No material change has occurred after
the said period.
The question was referred to by a learned Single Judge of the
Allahabad High Court in M/s. Balaji Agency, Gorakhpur Vs.
Commissioner of Sales Tax [1994 UPTC 184]., wherein only on the basis
that vaseline finds place in Entry 26A of the Schedule as inserted by
notification dated 14.4.1974, it was held to be a cosmetic or a toilet
requisite.
35
37. Submission of Mr. Dwivedi that in Balaji (supra), common
parlance test was also applied to Vaseline, is stated to be rejected.
Vaseline is dealt with in paragraph 5 of the judgment which was on the
premise that it was included in the entry in question. With regard to
other products, namely Emami Naturally etc., the “user test” was applied.
Only in view of the said decision, an application was filed in terms of
Section 22 of the Act. The Tribunal and the High Court took a different
view only having regard to Balaji (supra), without noticing the
distinctive features thereof.
38. There cannot be any doubt whatsoever that artificial definition of a
term under a statute is permissible in law, but when goods which were
included in one notification is consciously taken out in the latter, the
same meaning cannot be attributed thereto simply on the basis of judicial
interpretation.
39. When a case of obvious intent on the part of the Legislature is
made out, a meaning which subserves the legislative intent must be given
effect to. It is however also well known that when a word is defined by
the legislature itself, the same meaning may be attributed even in the
changed situation.
36
Entry 5 relates to “cosmetics” and “toilet preparation”. If the
common parlance test is to be applied, vaseline must come within the
purview of cosmetic or toilet preparation. With a view to satisfy the
requirements of the said definition, it must be held to be used for
beautification or care of the skin in the normal circumstances. If the
product, in question does not satisfy the aforementioned twin tests, it is
difficult to presume any legislative intention in this behalf despite the
fact that Vaseline had been deleted from the entry relating to cosmetic
and toilet preparation.
This Court in The Commissioner of Sales Tax, Madhya Pradesh,
Indore Vs. M/s. Jaswant Singh Charan Singh [AIR 1967 SC 1454],
clearly held;
“….There were two items in the Schedule, namely,
item 6, “vegetables”, and item 36, “betel leaves”,
and subsequently item No. 36 was deleted by an
amendment of the Act. This Court held that the
use of two distinct and different items, i.e.,
“vegetables’ and “betel leaves” and the subsequent
removal of betel leaves from the Schedule were
indicative of the Legislature’s intention of not
exempting betel leaves from taxation.”
37
40. Even if the Tribunal or the High Court did not apply the common
parlance test, what should necessarily be applied is the commercial
meaning test or the meaning in common parlance test.
It is interesting to note that application of common parlance test
was applied in M/s. Jaswant Singh (supra) stating that only because
“charcoal” contains the word ‘coal’, the same would not mean to be a
species of coal.
41. Reliance has rightly been placed for the said proposition on His
Majesty the Kind v. Planters Nut and Chocolate Co. Ltd. [1951 CLR
(Ex) 122] wherein it is stated:
“It will be noted that none of these definitions of
‘fruit’ and ‘vegetable’ (except in the strictly botanical
sense) include ‘nuts’ of any sort.
It is of considerable interest, also, to note that
in the tariff rates under The Customs Act (which,
as a revenue Act, I consider to be in pari material),
separate items are set up for fruits, for vegetables, and
also for ‘nuts of all kinds, not otherwise provided,
including shelled peanuts.’ This would seem to
indicate that in the minds of the legislators, nuts were
not included in the categories of fruits or vegetables,
and also that peanuts fell within the category of nuts.
I do not think that their view of the matter differs at
all from the common understanding of the words.
38
My findings must be that as products and as
general commodities in the market, neither salted
peanuts nor cashews, or nuts of any sort, are generally
denominated or known in Canada as either fruits or
vegetables. I think it may be assumed, therefore, that
if Parliament had intended to include ‘nuts’ among
the exempted foodstuffs, the word ‘nuts’ would have
appeared in the schedule. That being so, it must
follow that salted peanuts and cashew nuts, which as I
have said above are considered generally in Canada to
be within the category of ‘nuts,’ do not fall within the
exemptions provided for fruit and vegetables in
Schedule III.”
In M/s. Asian Paints India Ltd. Vs. Collector of Central Excise
(1988) 2 SCC 470], this Court opined;
“ 8. It is well-settled that the commercial meaning has
to be given to the expressions in tariff items. Where
definition of a word has not been given, it must be
construed in its popular sense. Popular sense means
that sense which people conversant with the subject-
matter with which the statute is dealing, would
attribute to it. See CIT v. Taj Mahal Hotel. This Court
observed in Indo International Industries v. CST that
in interpreting items in statutes like the Excise Act or
Sales Tax Acts, whose primary object was to raise
revenue and for which purpose to classify diverse
products, articles and substances, resort should be had
not to the scientific and technical meaning of the
terms or expressions used but to their popular
meaning, that is to say, the meaning attached to them
by those dealing in them.
9. Justice Cameron of the Canadian Exchequer Court
in King v. Planter’s Co. and the decision of the
United States Supreme Court in “ Two Hundred
39
Chests of Tea ” emphasised that commercial
understanding in respect of the tariff items should be
preferred. It was observed that the legislature does not
suppose our merchants to be naturalists or geologists,
or botanists.”
{See also Shri Bharuch Coconut Trading Co. and Others Vs.
Municipal Corporation of the City of Ahmedabad and Others [1992
Supp. (1) SCC 298]. }
42. The assessee had filed a large number of affidavits. The deponents
of the said affidavits have not been cross-examined. It is even from that
point of view the application of common parlance test stood satisfied in
the instant case.
43. Furthermore, an expert in the field has also given his opinion in
favour of the appellant. This Court in Quinn India Ltd. Vs.
Commissioner of Central Excise, Hyderabad [(2006) 9 SCC 559],
classified a product relying, inter alia, on the report of the clerical
examiner as under :
“7. ..The Tribunal has completely ignored the report
of the Chemical Examiner dated 6-10-1981 and the
final opinion of the Chief Chemist dated 2-4-1992
coupled with the classification issued by the
Department regarding use of wetting agents in the
textile industries falling under Sub-Heading
3402.90. Test reports of the Chemical Examiner and
Chief Chemist of the Revenue unless demonstrated
40
to be erroneous, cannot be lightly brushed aside.
The Revenue has not made any attempt to discredit
or to rebut the genuineness and correctness of the
reports of the Government, Chemical Examiner and
Chief Chemist. Thus, the reports are to be accepted
along with other documentary evidence in the form
of classification issued by the Department regarding
use of wetting agents in the textile industries to hold
that the product Penetrator 4893 possessed surface
active properties and, therefore, is covered by
Exemption Notification No. 101/66 dated 17-6-1966
as amended from time to time.”
In this case also, the report of the Chemical Examiner is in favour
of the assessee. Furthermore, in a case of this nature, where the revenue
itself has been holding the assessee to be a producer of a pharmaceutical
product, the burden would be on the Revenue to establish that the goods
cease to fall under a given entry. For the said purpose, no material was
placed by the Revenue which was imperative.
In Hindustan Ferodo Ltd. Vs. Collector of Central Excise, Bombay
[(1997) 2 SCC 677], this Court held;
” 4. It is not in dispute before us, as it cannot be, that
the onus of establishing that the said rings fell
within Item 22-F lay upon the Revenue. The
Revenue led no evidence. The onus was not
discharged. Assuming therefore, that the Tribunal
was right in rejecting the evidence that was
produced on behalf of the appellants, the appeal
should, nonetheless, have been allowed.
41
5. It is not the function of the Tribunal to enter into
the arena and make suppositions that are tantamount
to the evidence that the party before it has failed to
lead. Other than supposition, there is no material on
record that suggests that a small-scale or medium-
scale manufacturer of brake linings and clutch
facings “would be interested in buying” the said
rings or that they are marketable at all. As to the
brittleness of the said rings, it was for the Revenue
to demonstrate that the appellants’ averment in this
behalf was incorrect and not for the Tribunal to
assess their brittleness for itself. Articles in question
in an appeal are shown to the Tribunal to enable the
Tribunal to comprehend what it is that it is dealing
with. It is not an invitation to the Tribunal to give its
opinion thereon, brushing aside the evidence before
it. The technical knowledge of members of the
Tribunal makes for better appreciation of the record,
but not its substitution.”
Yet again in Union of India and Others Vs. Garware Nylons Ltd.
and Others [(1996) 10 SCC 413], this Court opined :
“…The burden of proof is on the taxing
authorities to show that the particular case
or item in question is taxable in the manner
claimed by them. Mere assertion in that
regard is of no avail...”
44. If an entry had been interpreted consistently in a particular manner
for several assessment years, ordinarily it would not be permissible for
the Revenue to depart therefrom, unless there is any material change.
42
{See Bharat Sanchar Nigam Ltd. and Another Vs. Union of India and
Others [(2006) 3 SCC 1].}
45. Applying the dominant intention test, vis-à-vis, the Aspect Theory,
this Court in M/s. United Offset Process Pvt. Ltd. Vs. Asst. Collector of
Customs, Bombay and Others [1989 Supp.(1) SCC 131], opined :
“If there is no meaning attributed to the expressions
used in the particular enacted statute then the items in
the customs entries should be judged and analysed on
the basis of how these expressions are used in the
trade or industry or in the market or, in other words,
how these are dealt with by the people who deal in
them, provided that there is a market for these types
of goods. This principle is well known as
classification on the basis of trade parlance. This is an
accepted form of construction. It is a well known
principle that if the definition of a particular
expression is not given, it must be understood in its
popular or common sense viz. in the sense how that
expression is used everyday by those who use or deal
with those goods.
46. In Bharat Sanchar Nigam Ltd. and Another Vs. Union of India and
Others [(2006) 3 SCC 1], with respect to the dominant intention test vis-
à-vis the aspect theory, this Court held:
“…The Courts will generally adopt an
earlier pronouncement of the law or a
conclusion of fact unless there is a new ground
urged or a material change in the factual
43
position. The reason why Courts have held
parties to the opinion expressed in a decision in
one assessment year to the same opinion in a
subsequent year is not because of any principle
of res judicata but because of the theory of
precedent or the precedential value of the
earlier pronouncement. Where facts and law in
a subsequent assessment year are the same, no
authority whether quasi judicial or judicial can
generally be permitted to take a different view.
This mandate is subject only to the usual
gateways of distinguishing the earlier decision
or where the earlier decision is per incuriam.
However, these are fetters only on a coordinate
bench which, failing the possibility of availing
of either of these gateways, may yet differ with
the view expressed and refer the matter to a
bench of superior strength or in some cases to a
bench of superior jurisdiction.”
In Imagic Creative Pvt. Ltd. v. The Commissioner of Commercial
Taxes and Ors., [(2008) 2 SCC 614] where applicability of Article 246 of
the Constitution of India, read with Seventh Schedule was in question,
the Court took recourse to various theories including the Aspect Theory.
{See M/s Deepak Agro Solution Ltd. v. Commissioner of Customs,
Maharashtra (Civil Appeal No. 5210 of 006) disposed of on 8.5.2008 by
this Court}
47. We have noticed hereinbefore that the meaning of “drug” is very
wide and same has been held to be so in a large number of cases. Balaji
44
(supra) was clearly not applicable whereupon reliance has been placed by
the High Court and/or the Tribunal. In our opinion, the impugned
judgments, for these reasons, cannot be sustained. They are set aside
accordingly.
48. The appeals are allowed with costs. Counsel’s fee assessed at
Rs.50,000/-.
……………..…………J.
[S.B. Sinha]
.………………….……J.
[V.S. Sirpurkar]
New Delhi
May 16, 2008