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Issue: Whether the body builder is entitled to the benefit
of section 5(3) of the Central Sales Tax Act, 1956 in relation to his sale to
the manufacturer of chassis of buses as penultimate sale?
Held: Matter referred to
larger bench
Facts of the case
Respondents are body builder on the chassis of buses
supplied by dealers like Tata & Ashok Leyland. Manufacturer of such chassis
have got orders for export of buses from foreign buyers. They have built the
chassis and delivered them to respondents to built body on the same.
Respondents have build the body on the chassis supplied by the manufacturer of
chassis and delivered them the complete bus to the manufacturers. Respondents
have claimed benefit of section 5(3) of the CST Act, 1956, in relation to his
sale to manufacturer as penultimate sale. The High Court held that the body
respondents; i.e., body builder is entitled to the benefit of section 5(3) of
the CST Act. [2001] 123 STC 473 (Kar.). The revenue preferred an appeal
against the said order of the High Court.
Contention of appellant; i.e., revenue: It was argued that
to avail benefit u/s 5(3) respondents should have manufactured and sold the
complete bus and not only the body. It was also contended, the purpose behind
introduction of section 5(3) is not to include goods to the benefit of
exemption other than those which are ultimately exported.
Contention of respondent; i.e., the dealer: It was argued
that reasons behind amendment to section 5 of the CST Act is to make exports
competitive in the international market and to boost earnings in foreign
exchange. It was also contended that the courts are required to place a
purposive interpretation keeping in view the current realities and
developments in the international market. According to assessee the expression
"in relation to" in section 5(3) is of wide import.
Courts observation and decision: According to Hon’ble
judges Supreme Court decision in case of K Gopinath Nair vs. State of
Kerala (1997) 10 SCC 1 wherein it has been held that section 5(3) will
apply to penultimate sales if such sales satisfy two conditions, namely, (a)
that such penultimate sale must take place after the agreement or order under
which the goods are to be exported, and (b) it must be for the purposes of
complying with such agreement or export order, is correct law and judgments
pronounced by Supreme Court in case of M/s Sterling Foods (1986) 3 SCC 469
and Vijay Laxmi Cashew Co. (1996) 1 SCC 468 need reconsideration.
Accordingly matter referred to larger bench.
[State of Karnataka vs. Azad Coach Builders Pvt. Ltd. 145
STC 176]
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Issue : Whether products manufactured by appe-llant are
‘medicaments’ or cosmetics?
Held: Medicaments
Facts of the case
The appellants are manufacturer of ayurvedic products which
are intended to cure certain ailments of the human body. A question has arisen
as to whether the products manufactured by the appellants are ‘medicine’ or
‘cosmetics’. The issue was under excise law to determine as to whether the
goods classifiable under the Central Excise Tariff Act, 1955, as cosmetics
under Chapter 33 or as ‘medicaments’ under Chapter 30. As cosmetics, the rate
of excise duty is quiet high while as medicament, the duty is ‘Nil’.
Contention of appellant: The products are manufactured as
per ayurveda text books and the ingredients found in ayurveda text books.
Products have curatives therapeutic prophylactic value and they are basically
meant to give relief in body ailments. Therefore they are ‘medicament’ and not
‘cosmetics’. In support of their contention appellant has placed on record
material from ayurvedic texts or pharmacopoeia. Certificates and letters from
doctors, ayurvedic practitioners, experts and users of the products in
question.
Revenue did not put any evidence to rebut the evidence led
by the appellant.
Courts observation and decision: It is settle law that the
burden of showing correct classification lies on revenue.
Further it is observed that for determining classification
of products opinion of chief chemist is of no importance/relevant. The role of
chief chemist is only to supply analytical data. Whereas opinion of competent
authority and in the present case of the Directorate of Ayurveda, Maharashtra
is of great relevance. In order to determine whether product is a cosmetic or
a medicament, relying the SC decision in case of Collector of Central
Excise vs. Richardson Hindustan Ltd. 42 ELT A 100, twin test are applied
by the court (1) Whether the product is commonly understood as medicine? (2)
Are the product ingredients mentioned in authorative text book of Ayurveda.
If the product falls in the category of medicament it will
not to be an item of common use. And the user will discontinue the use after
the ailment is cured. Medicaments will not be an item of common use, whereas
cosmetic products are used to enhance appearance of user. It may happen that
while treating particular medical problem, the appearance of the user may
improve. What is important is the primary use of the product and not
subsidiary result. When ingredients are known both to Ayurvedic and western
science the product is medicament. The essential character of medicine and
primary function is derived from the active ingredients contained therein and
certainly has bearing in classification under Central excise. In order to be a
medical preparation, it is not necessary that it must be sold under a doctor’s
prescription. Similarly availability of the products across the counter in
shops is not relevant as it makes difference either way. 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. The extent or the quantity of medicament used in a
particular product will also not be a relevant factor. Normally, the extent of
use of will also not be a relevant factor since a larger use may be harmful
for human body.
In background of above observations it is held that
products which are intended to treat certain medical conditions on human body
are medicines.
[Puma Ayurvedic Herbal (P) Ltd. vs. Commissioner - Central
Excise (SC) 145 STC 220]
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Issue: Whether ‘skimmed milk powder’ and ‘UHT milk’ be
covered by separate entry when there is entry for ‘fresh milk and pasteurized
milk’?
Held : Yes
Facts of the case
There are two separate entry under Andhra Pradesh Value
Added Tax Act, 2005 for ‘Fresh milk and pasteurized milk’ and ‘skimmed milk
powder and UHT milk’. ‘Fresh milk & pasteurized milk’ are not exigible to tax
whereas ‘skimmed milk powder and UHT milk’ are exigible to tax. According to
the petitioner levying tax on ‘skimmed milk powder and UHT milk’ is
unconstitutional contending that skimmed milk powder and UHT milk are nothing
but milk and therefore they could not be made exigible to tax. Accordingly the
petitioner filed writ petition and challenged the entry of ‘skimmed milk
powder and UHT milk’.
Contention of Petitioner: It is a case of over
classification and it is violative of Article 14 of the Constitution of India.
Following the decision of State of Andhra Pradesh vs. Guntur District Milk
Producers Co-op. Unit Ltd. (79 STC 211) wherein it was held that since the
milk cannot be preserved for a long period, it is converted into powder and
sold as such and it is nothing but dehydrated form of pasteurized milk which
is exempted from payment of tax and accordingly, to the petitioner, ‘skimmed
milk powder and UHT milk’ should fall in the entry of ‘fresh milk and
pasteurized milk’ and separate entry for skimmed milk powder and UHT milk is
unconstitutional.
Contention of respondent: Following the decision of Supreme
Court in case of State of Andhra Pradesh vs. McDowell & Co. 3 SCC 709
wherein the Supreme Court categorically stated that an enactment cannot be
struck down on plea that it was unreasonable, unnecessary or unwarranted, it
was contended that plea of petitioner in contending that separate entry of
‘skimmed milk powder and UHT milk’ is unconstitutional is not justified and
there could be two separate entry under the Act.
Courts observations and decision: Since there were
judgments of the courts that dehydrated milk was milk, the legislature, in its
wisdom thought it fit to plea milk and milk products under different entries
and tax ‘skimmed milk powder and UHT milk’ and exempt ‘fresh milk and
pasteurized milk’ and accordingly items shown under two different entries
could be taxed separately. Therefore there is no merit in the writ petition
and accordingly it is dismissed.
[M/s A G K Associates & Another vs. State of Andhra Pradesh
& Others 145 STC 316 – Andhra Pradesh High Court]
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Issue: Whether seeds of wheat, pulses, paddy, mustard are
food grains and covered by cereals or pulses or are ‘seeds by themselves’?
Held: Not covered by entry of ‘cereals or pulses’
Facts of the case
Petitioner were assessed, levying tax on the sale of
various types of seeds, like wheat, pulses, paddy, mustard etc. Being
aggrieved by the order, petitioner filed writ where it was contended that the
seeds are ‘cereals and pulses’and are to be treated as cereals in all its form
and are exempted from payment of tax under entry of ‘cereals and pulses’.
Rejecting the plea of petitioner High Court observed that,
"The terms ‘cereals’ and ‘seeds’ have therefore to be
interpreted not as understood according to strict dictionary, technical,
scientific, botanical meaning but has to be understood or construed in its
popular sense; i.e., sense with which people conversant with the subject –
matter with which the statute is dealing would attribute to it. If so
understood and interpreted and given the popular sense meaning, then it only
means ‘cereals’ are grains that are edible or fit for human consumption. It
may be, the cereals, if sown produce saplings but they are not used as seeds
to raise a new crop. In the same way ‘seeds’ are to be interpreted as is
understood in common parlance and given its popular sense meaning and if so
understood, it only means seeds of a cereal grown or used for raising a new
crop."
[Assam Seeds Corporation Ltd. vs. Commissioner of Sales
Tax, Assam & Others 145 STC 274]
