18. What is the classification and rate of tax for the product ‘Empty Hard Gelatin Capsules?

Transaction date: 14-6-2005

Held –E-1, 12.5%

Facts in issue :
 

The applicant is having place of business at three locations for which it is registered separately. The applicant has charged tax at 12.5%. However, the purchasing parties have claimed that the product is a drug and falls under Schedule entry C-29, attracting tax at 4%.
 

The applicant holds valid drugs licence under the Drugs & Cosmetics Act, 1940.

Submissions of the applicant :

The applicant argued that the product being manufactured under a licence granted under the Drugs and Cosmetics Act, 1940 would be classified as ‘drugs’. Also, the definition of ‘drugs’ under the Drugs & Cosmetics Act, 1940 includes ‘Empty Gelatin Capsules’. And as required by Schedule entry C-29, the applicant’s products are manufactured under a licence issued under the Drugs and Cosmetics Act, 1940.

Case Laws relied upon :

1. B.P.L. Pharmaceuticals vs. Collector of Central Excise, Vadodara (104 STC 164) (SC)
    

2. United Trading Agency vs. Additional Commissioner of Commercial Taxes, Zone II, Bangalore (104 STC 182 HC)
    

3. Dabur India Limited vs. Commissioner of Sales Tax, Orissa and Others (104 STC 198)
    

4. Khandelwal Drug Agencies vs. Commercial Taxes Officer, "E" Circle, Jaipur (104 STC 198)
    

5. Leukoplast (India) Ltd. vs. State of Goa and Others (71 STC 180)

Relying on the above judgments, the applicant submitted that since the product was manufactured under the licence granted under the Drugs & Cosmetics Act, 1940, the same may be treated as a drug/medicine under the Sales Tax Act.

The applicant further submitted that his case was based on the principles of referential legislation and that the words ‘drugs/medicine/medicinal products be given the same meaning as defined under the Drugs and Cosmetics Act, 1940 and when there is a Central enactment which covers the subject referred in the State Act, the definition under the Central Act would prevail over the State Act.

The applicant, therefore, prayed that the product be declared as a ‘drug covered by Schedule entry C-29.

Views of the Department :

The Commissioner examined the definition of ‘drug’ as per section 3(b) of the Drugs & Cosmetics Act, 1940 and as per the Schedule entry C-29 of the MVAT Act, 2002, and concluded that the meaning of drug as per entry C-29 of MVAT Act, 2002 and as per Drugs & Cosmetics Act, 1948 was not identical. The entry C-29 was not a referential entry.

There was no reference to the Drugs & Cosmetics Act, 1940 in the Schedule entry C-29.

To qualify as a drug for the purposes of Schedule entry C-29, the product has to satisfy all the five conditions simultaneously.

In the relevant case, the product does not have therapeutic quality or attributes. It does not mitigate or treat diseases. Therefore, the product ‘Empty Hard Gelatine Capsule’ cannot be considered to be a drug.

The judgments relied upon by the applicant were not applicable to the case as these related to either the Central Excise Act, medicinal properties or the Drugs and Cosmetics Act, 1940.

Therefore, the product got placed in the residuary entry E-1, attracting tax at 12.5%.

Held

The Commissioner held the product ‘Empty Hard Gelatin Capsules’ as covered by residuary Schedule entry E-1, attracting tax at 12.5%.

[M/s. Associated Capsules Pvt. Ltd. DDQ No. DDQ-11-2005/Adm-5/61/64/60/B-2 dated 2-6-2006]

19. Whether an institute for the blind is an educational institute to which Exception-II to the Section 2(8) of the MVAT Act, 2002 is applicable?

Transaction date: 5-10-2005

Held –Educational institute, not a dealer

Facts in issue :

The applicant is a Industrial Home for the blind which was established with the sole intention of providing education and training to the visually impaired persons. The applicant is registered under the Bombay Public Trust Act.
 

The object of the trust is to run and maintain a home for imparting Industrial education to the blind with the object of training them in crafts and workmanship to enable them to be self supporting in their life after the training period and to provide facilities for the rehabilitation, recreation, sports and general welfare of the blind, for the all round development of the trainee.
 

The Home runs a full-fledged Vocational Training and Rehabilitation Centre for the Blind and conducts four year courses in industrial training for the blind inmates in the training units.
 

The home is an aided institution and also recognized by the Commissioner, Handicapped Welfare, as the vocational training centre for visually impaired.
 

The income of the institution is totally exempt from tax under section 10(23)(c)(iv) of the Income-tax Act, 1961 and all donations given to the institution are exempt from income tax u/s. 80G of the Income-tax Act, 1961.

Submissions of the applicant :

The applicant argued that the Trust was an educational institution running a school for the blind. Some items were manufactured while imparting training, however, there was no commercial activity.

The applicant contended that the trust be considered an educational institute to which Exception II to section 2(8) would be applicable and be excluded from the purview of the definition of ‘dealer’.

Views of the Department :

The Commissioner observed that the applicant was enjoying the benefits of exemption from payment of taxes under the Bombay Sales Tax Act, 1959. Under the BST Act, 1959, the definition of dealer did not include "public charitable trusts".
 

Under the MVAT Act, 2002, the definition of dealer is widened so as to include under its ambit a "public charitable trust" as per Explanation (iva) to section 2(8) as deemed dealer for which carrying on of business would not be a prerequisite.
 

However, under Exception II to the definition of a dealer, an educational institute will not be deemed to be a dealer for those activities of manufacturing, buying or selling which are performed for achieving its objects.
 

The educational institutes which would be excluded from the purview of the definition of ‘dealer’ are those institutes which satisfy the following criteria simultaneously,

1. recognition as an Educational Institution by a University or the UGC, or as the case may be, by a technical or educational board;
    

2. having prescribed courses or syllabus for the alumni;
    

3. having a teaching staff which is on the payroll of the college or institution;
    

4. issuing of certificates to its alumni; and
    

5. conducting of tests/exams as per prescribed rules.

The applicant holds a valid recognition as educational institution from the Social Welfare Department under the provisions of the Handicapped Person Act, 1995. It has prescribed syllabus for students and the students are required to appear for examinations. It has teaching staff on its payroll. The Commissioner, Handicapped Welfare regulates its activities. It has been certified as a Residential Activity School for the Blind.
 

Thus the applicant is an educational institution as contemplated in Exception II to the definition of dealer.
 

Further, the Income and Expenditure Account submitted by the applicant showed that the applicant effected sales of various items while imparting training. These items were made by the trainees while imbibing skills for the particular course. There was no commercial activity.
 

Therefore, the applicant is an institute to which benefits of Exception-II would apply.

Held

The Commissioner held the institute as an educational institute to which Exception II to section 2(8) would be applicable and it would not be considered a dealer under the provisions of MVAT Act, 2002.

[M/s. M.N. Banajee Industrial Home for the Blind DDQ No. DDQ-11-2005/Adm-5/82/B-1 dated 2-6-2006]