Medical Oxygen IP And Nitrous Oxide Should Be Taxed As Per Entry 88 Of VAT Act: SC Upholds The Decision Of HC Of Andhra Pradesh & Telangana [Read Judgment]

While providing the purposive interpretation to the 'similar substances' in Entry 88, the Division Bench of Justice DY Chandrachud and Justice Ajay Rastogi upheld the judgment of the High Court the extent it held that Medical Oxygen IP and Nitrous Oxide IP fall within Entry 88 of the 2005 Act.

The court observed:

'There is no doubt that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act.'

The legal question before the court was whether 'Medical Oxygen IP' and 'Nitrous Oxide IP' are taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005 or as 'unclassified goods' under Schedule V.

The Respondents in the present appeal, Linde India Pvt Ltd, had earlier assailed the imposition of outstanding tax liability of ₹5,11,062 by the Commercial Tax Officer, before the Appellate Duty Commissioner.

The Appellate Duty Commissioner by an order dated affirmed the decision taken by the Commercial Tax Officer. However, an appeal was filed before the Sales Tax Appellate Tribunal which was ruled in the favour of the Respondent company.

Post this, the State of Andhra Pradesh moved an appeal before the High Court of Andhra Pradesh and Telangana which got dismissed. Therefore, the state moved the present appeal before the Supreme Court.

The High Court had justified its observation by noting that Section 3(b)(i) of the Drugs and Cosmetics Act 1940, the expression 'drug' covers within its ambit any substance which is used for or in the treatment, prevention and mitigation of a disease or a disorder.

Therefore, the High Court held, that the said substances should fall under the said section as Medical Oxygen IP is used for the treatment of patients and to mitigate the intensity of diseases and disorders; and Nitrous Oxide IP is used as an anesthetic in surgical operations and procedures of a short duration.

Challenging the said decision of the High Court, the State of Andhra Pradesh made the following submissions before the court:

1. The decision of the Andhra Pradesh High Court in Inox Air, in so far as it held that Medical Oxygen IP and Nitrous Oxide IP are covered by the expression "similar articles" in Entry 88, is erroneous. Applying the principle of ejusdem generis, it cannot be said that gases are 'similar articles' to the other products specified in the entry
2. The term used in Section 3(b)(i) qualifies only substances and not medicines. Consequently, it cannot be used to broaden the scope of Entry 88.
3. Though Section 3(b)(i) of the 1940 Act includes substances that are necessary aids for treating surgical or other cases, Entry 88 also contains an exclusion clause. Entry 100(36) of Schedule IV specifically excludes "medical grade oxygen". Absent a specific inclusion of Medical Oxygen IP and Nitrous Oxide IP in Entry 88, they fall within the ambit of unclassified goods in Schedule V
4. Every 'substance' cannot be said to fall within the ambit of Entry 88 merely because it is used for medicinal purposes. For a substance to fall within the ambit of Entry 88, it must accord with the definition stipulated in Section 3(1)(b) of the 1940 Act.

After taking into consideration a publication from World Health Organisation and various judgments of the different High Courts, the court highlighted the curative and instrumental use of Medical Oxygen IP and Nitrous Oxide IP in the mitigation and prevention of disease or disorder.

Therefore, the court upheld the decision of the High Court by noting that that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act.

Consequently, the court held, the aforesaid drugs are covered under Entry 88 of the 2005 Act.

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