STATE OF GOA AND OTHERSversusLEUKOPLAST (INDIA) LTD. ETC.

A                       STATE OF GOA AND OTHERS
                                    v.
                       LEUKOPLAST (INDIA) LTD. ETC.

                               FEBRliARY 27, 1997
B
              [SUHAS C. SEN AND SUJATA V. MANOHAR, JJ.]


           Central Sales Tax Act, J95(r-Section 8(2-A)-Goa Local Sales Tax
    Act-Section JO and schedule II, Entry 77--Goa Governn:ient Notification
                                                                                      -
    No. 14/41/81-FIN (R & C) dated 28.8.1981-Notification No. 515/1987 (R
c   and C)S-Whether products manufactured by Assessee under licence from
    Drng Controller are "drngs anc medicines" within the purview of notification
                                                                                      '
    No. 14/41/81 FIN (R&C) and No. 515/87 (Rand C)-8 and as such assessee
    entitled to refund sought-Held : Drngs and medicines not defined either in
    Central Sales Tax Act or Goa Local Sales Tax Act-Issuance of licence by
D   Drng Controller not decisive of the question-To be ascertained on the basis
    of medicinal content-Curative effect-Ordinary Commercial sense of the
    products-Basically questions of fact-Can be decided only by statutory
    authority-Not by High Court in Writ petition under Article 226 of Constitu-
    tion-Assessee can not bypass statutory authorities for challenging assess-
    ment-Decision of High Court holding products to be 'drngs and medicines'
E   set aside-With liberty to assessee to agitate before proper statutory authority
    within the specified period of time-<:onstitution of India, Art. 226.

        The assessee company had been manufacturing different kinds of
  plasters, dressings and bandages under a licence granted by the Drug
F Controller under Drugs and Cosmetics Act, 1940. The goods were liable to
  local sales tax at the rate of six percent and Central Sales Tax at the rate
  of four percent prior to 1.11.1981. By notification No. 14/41/81--flN (Rand
  C) dated 28.8.1981, drugs and medicines were exempted from the levy of
  local sales tax in excess of three percent. By another notification No: 5/5/87
  (Rand C)-8, the goods were totally exempted from levy of local Sales Tax.
G The assessee company had been paying Central Sales Tax at the rate of
  four percent and local sales tax at the rate of six percent from 1.11.1981
  to 1.4.1987. They made representations to the Assistant Sales Tax Officer
                                                                                      I
  praying for refund of the excess tax paid on their goods which fall under
  "drugs and medicines" as "drugs and medicines" were liable to local and
H central Sales Tax at the rate of three percent on the from 1.11.1981 to
                                        516
                         STATE v. LEUKOPLAST(I)LTD.                           517

    1.4.1987. They also filed revised Sales Tax returns for the disputed period.     A
    The Assistant Sales Tax Officer rejected their claim for refund vide his


-   order dated 24.12.1987 and also made order~ of assessment for the period
    from 1.1.1983 to 31.12.1983 without giving any exemption. The assessee
    company filed two writ petitions in the High Court for setting aside the
    assessment orders and also claiming refund on the ground that it was             B
    entitled for the refund of the tax paid under mistake of law and collected
    by the State withoqt thr authority of law. The High Court allowed both the
    petitions holding the products of the company to be drugs and medicines
    and therefore the assessee was entitled for the refund claimed. The State
    filed the present appeal against the judgment of the High Court.
                                                                                     c
          Dismissing the appeal, this Court

          HELD : 1.1. The question whether the products manufactured by the
    assessee can be treated as "drugs and medicines" cannot be answered
    straightway. There is no statutory definition given in the local Sales Tax
    Act or in the Central Sales Tax Act of these terms. It has to be found out       D
    how these products are understood and treated in the market. The
    medicinal content of the products, it any, has to be ascertained. Its curative
    function has to be found out. In order to ascertain the same, the questions
    to be decided are, whether the products can be called medicament, whether
    these are used to cure or alleviate or to prevent disease or to restore health   E
    or to reserve health or whether these products are treated as 'drugs and
    medicines' in common parlance. These are basically questions of fact, and
    can not be decided by reference to any definition of the Drugs and cosmetic
    Act, 1940 or the product control licence issued by the Drug Controller to
    the assessee under the Act. These can be decided only by the statutory
    appellate authority. [522-C-D]                                                   F
         Customs and Excise Commissioners v. Beecham Foods Ltd., (1972)
    W.L.R. 241 (H.L.), referred to.

           1.2. The assessee company should not have been allowed to bypass
    the statutory remedies where the questions of fact could have been proper- G
    ly agitated and questioned. The High Court should not have entertained
    the Writ Petition challenging sales tax assessment in view of the statutory
    remedies provided under the Act. The impugned orders of.assessment can
    only be challenged by the mode prescribed by the Act and not by a Writ
    Petition under Article 226 of the Constitution. The appeal therefore, is H
    518                   SUPREME COURT REPORTS                   (1997] 2 S.C.R.

A allowed and the order of the High Court is set aside.
          Titaghur Paper Mills Cd. Ltd. & Anr. v. State of 01issa and Another,
    (1983) 142 ITR 663, relied on. [522-H; E-G; 523-A-B]

          2. The assessee will be at liberty to prefer appeal against the assess-
B   ment order in accordance with law within a period of six weeks form date.
    If such appeal is preferred within the specified period, the appellare
    authority will entertain the appeal without raising any question of limita-
    tion. All questions of law and fact are left to be decided by appellate
    authority. [523-B-C]

c        CIVIL APPELLATE JUR~SDICTION: Civil Appeal No. 2461 of
    1988 Etc.

         From the Judgment and Order dated 3.2.88 of the Bombay High
    Court in W.P. No. 234 of 1987.
D
          T.L. Viswantha Iyer and Ms. A. Subhashini for the Appellants.

         Ravinder Narain, Ms. Vikram Nan Rani, Ms. A.K. Verma, Ranjan
    Narain for JBD and Co. for the Respondents.

E         The Judgment of the Court was delivered by

          SEN, J. Leukoplast (India) Limited, the assessee-company was
    granted a licence by the Drugs Controller under the Drugs and Cosmetics
    Act, 1940. It was amended on September 7, 1987. Under this licence, the
    assessee was· entitled to produce inter alia Zinc Oxide Adhesive Plaster
F   B.P.C. (Leukoplast), Surgical Wound Dressing (Handyplast); Ballado~a
    Plaster B.P.C.; Capsicum Plaster B.P.C. and Cotton Crape Bandages
    B.P.C. (Leukocrapes).




G
          The aforesaid goods or products were liable to local sales tax as well
    as Central sales tax and prior to 1.11.1981, the rate of the local sales tax
    leviable on them was at the rate of 6 per cent and under Section 8(2A) of
                                                                                     J
    the Central Sales Tax Act, the rate of tax was 4 per cent. By the notification
    No. 14/41/81 Fin (R & C), dated 28.8.1981, drugs and medicines were
    exempted from the levy of local sales tax in excess of 3 per cent and thus,
    according to the assessee-compa~y, as result of this exemption, the Central
H   Sales Tax leviable under Section 8(2-A) of the Central Sales Tax Act was
                       STATE v. LEUKOPLAST (I) LTD. [SEN, J.]                   519

       also reduced to 3 per cent.                                                    A
             The assessee-company, however, had been paying Central Sales Tax
       at the rate 4 per cent on the sale of the goods and also local sales tax at
       the rate of 6 per cent from 1.11.1981 to 1.4.1987.

              By another notification No. 5/5/87 (R & C)-8, the State of Goa in       B
       exercise of the powers under Section 10 of the local Sales Tax Act,
       amended the Second Schedule to the local Sales Tax Act, inter alia,
       inserting Entry No. 77 which speaks of "drugs and medicines, including all
       1.V. Drips". By the said notification, the goods were totally exempted from
       levy of the local sales tax, and consequently. The Sales Tax Authorities,      C
       ceased to ·collect Central sales tax from 2.4.1987 on the above mentioned
..._   products or goods manufactured by the assessee-company.

              Further, the case of the assessee is that the sales tax payable from
       1. 11.81 to 1.4.87 was at the rate of 3 per cent only and as such by two letters
       both dated 3.4. 1987, they pointed out to the Sales Tax Officer that the D
       goods in question were "drugs and medicines", and on and from 1.11.1981
       to 1.4.1987 the said goods were liable to local and Central sales tax at the
       rate of 3 per cent. They further prayed for refund of the duty paid in excess
       of local and Central sales tax levied and collected as a result of the Sales
       tax assessment which had been completed. They also filed revised sales tax E
       returns for the assessment periods. 1.1.1985 to 31.12.1985 and 1.1.1986 to
       31.12.1986. However, despite these two letters, no action was taken by the
       State of Goa as regards claim for refund of the Central and local sales tax
       collected in excess. They further prayed for the completion of the assess-
       ment proceedings which were still pending for the subsequent periods, that
       is, from 1.1.1983 to 31.12.1986.                                                 F

             They further contended that after the admission of the writ petition,
       the Assistant Sales Tax office( made orders dated December 24, 1987 for
       the period commencing on 1.1.1983 and ending on 31.12.1983. He rejected
       the claim for refund, applying· the doctrine of unjust enrichment.
                                                                                      G
              Thereupon, the assessee-company filed a writ petition challenging
       the decision of the Assistant Sales Tax Officer. The contention of the
       assessee was that the assessment orders should be set aside and it was
       entitled to the refund of the tax paid under mistake of law and collected
       by the State without the authority of law. On behalf of the State, however,    H
    520                   SUPREME COURT REPORTS                   (1997] 2 S.C.R.

A it was contended that the product> were not "drugs and medicines" and as
    such no question of refund of tax paid did arise. The Court formulated two
    questions which had to be decided in the writ petition. The questions were:

            "(a) Whether the products manufactured by the petitioners and
            listed in the paragraphs 2 and 4 of the petition are 'drugs and
B           medicines' with the purview of the aforesaid Notification No.
            14/41/81·Fin (R & C) and No. 5/5/87 (R & C)-8 and

            (b) whether the petitioners are entitled to the refund sought".

C         After a long discussion about the nature of the products of the
    assessee-company and after referring to Pharmaceutical Codex incorporat-
    ing the British Pharmaceutical Codex, the meaning given to 'drugs and
    medicines' in Drugs and Cosmetics Act and also to the understanding of
    the phrase "drugs and medicines" by the excise authorities, and several
    affidavits filed on behalf of the assessee, the High Court came to the
D   decision that the products manufactured by the assessee-company had to
    be treated as "drugs and medicines" and the writ petition was entitled to
    succeed.

          There was a second writ petition in which the dispute was in respect
E   of entitlement to refund of tax payable under mistake of law. Following the
    decision in the first writ petition, the second writ petition was also decided
    in favour of the assessee-company with some modifications.

        The State has come up in appeal. We have heard the case in extenso.
  The dispute basically centres around the contention of the assessee that its
F products like Zinc Oxide Adhesive Plaster B.P.C. (Leukoplast). Surgical
  Wound Dressing (Handyplast; Balladona Plaster B.P.C.; Capsicum Plaster
  B.P.C. and Cotton Crape Bandages B.P.C. (Leukocrapes) can be treated
  as "drugs and medicines". 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
G does not conclude the matter. The question is how these terms are under-
  stood 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 defini-
  tion of the Drugs and Cosmetics Act or product control licence issued by
H the Drug Controller. There is no definition given in the local Sales Tax Act
                     STATEv. LEUKOPLAST(I)LTD. [SEN,J.)                       521.

    or in the Central Sales Tax Act of these terms. It has to be found out how       A
    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 facts.

          In fact, the difficulty of defining what is drug and medicine was
    discussed in the case of Customs and Excise Commissioners v. Beecham             B
    Foods Ltd., (1972) 1 W.L.R. 241 (H.L.) where the question was whether
    Ribena blackcurrant juice B.P.C. could be treated as a drug or medicine.
    The plaintiffs case was"that this product consisted of syrup of blackcurrant
    made in accordance with the British Pharmaceutical Codex and containing
    some natural vitamin C and a syrup made in accordance with the British           C
    Pharmacopoeia and synthesised vitamin C. It had a prophylactic function
    when taken by those who needed vitamin C. It was sold and advertised on
    the basis of that function. The plaintiffs sought a declaration of that Ribena
    was a "drug or medicine" and was entitled to the benefit of exemption from
    Purchase Tax Act, 1936. It was held by the House of Lords that Ribena


-   Could not be treated as a drug or medicine. In coming to this decision
    certain interesting observations were made which have to be borne in mind.

          Lord Reid pointed out that in the Purchase Tax Act, "medicine" had
                                                                                     D



    not been defined. So it had to be understood as an ordinary word of
    English language. Lord Reid observed :                                           E
            "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 were 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       F
            be a misuse of language to call Ribena a medicine and I would
            therefore allow the appeal".

          Lord Morris who delivered a dissenting judgment tried to define the
    term "medicine" in the following manner :
                                                                                     G
            ''What then is medicine? The learned judge (1969) 1 W.L.R. 1518,
            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        H
    522                   SUPREME COURT REPORTS                  [1997] 2 S.C.R.

A            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."

           Lord Wilberforce, who agreed with Lord Reid, pointed out that the
    fact that a drug was present in something did not convert that preparation
B   as a whole into a drug. Merely because Vitamin C. was present in Ribcna,
    it did not become a drug.

         In our view, whether the products manufactured by the asscssee can
  be treated as "drugs or medicines" cannot be answered straightaway. The
C medicinal content of the products, if any, has to be ascertained. Its curative
                                                                                    -
  function has to be found out. Can the product be called a medicament at
  all? Is it used to cure or alleviate or to prevent disease or to restore health
  or to preserve health? Are these products treated as drugs or medicines
  in common parlance? These are basically questions of fact. There was no
  reason for the assessee-company to bypass the statutory remedy and come
D to the Court with a writ petition. These questions basically of fact should
  be agitated before the statutory appellate authority.

          In the case of Titaghur Paper Mills Co. Ltd. and Another v. State of
    Orissa and Another, (1983) 142 ITR 663, a Bench of three Judges of this
E   Court pointed out the inadvisability of entertaining a writ petition ·ques-
    tioning a sales tax assessment. This Court held :

             "Under the scheme of the Act, there is a hierarchy of authorities
             before which the petitiOners can get adequate redress against the
             wrongful acts complained of. The petitioners have the right to
F            prefer an appeal before the prescribed authority under sub-s. (1)
             of s.23 of the Act. If the petitioners are dissatisfied with the
             decision in the appeal, they can prefer a further appeal to the
             Tribunal under sub-s. (3) of s. 23 of the Act, and then ask for a
             case to be stated upon a question ·of law for the opinion of the
             High Court under s.24 of the Act. The Act provides for a compete
G            machinery to challenge an order of assessment, and the impugned
             orders of assessment can only be challenged by the mode
             prescribed by the Act and not by a petition under Art. 226 of the
             Constitution."

H          We are of the view that the assessee should not have been allowed
                       STATEv. LEUKOPLAST(I) LTD. [SEN,J.]                      523

      to bypass the statutory remedies where the questions of fact could have A
      been properly agitated and ascertained.

           The appeal, therefore, is allowed. The impugned order of the High
      Court is set aside.

            The assessee-company will be at liberty to prefer appeal against the       B
      assessment order in accordance with law within a period of six weeks from
    ~ date. If such appeal is preferred within the said period of six weeks, the
      appellate authority will entertain the appeal without raising any question
      of limitation. All the questions of fact and law are left to be decided by the
      appellate authority.
                                                                                       c
             There will be no order as to costs.

             CIVIL APPEALS NOS. 2462-63 OF 1988

          In view of our decision in Civil Appeal No. 2461 of 1988, the above


-     Appeals are also allowed. There will be no order as to costs.

      H.K.
                                                                              D
                                                                  Appeals allowed.