IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER MONDAY, THE 16TH JUNE 2008 / 26TH JYAISHTA 1930 ST.Rev..No. 59 of 2006 ------------------------------ TA.490/2003 of S.T.A.T.ADDL.BENCH,ERNAKULAM .................... PETITIONER/APPELLANT / ASSESSEE ------------------------------------------------------- DR. REDDY'S LABORATORIES LIMITED (FORMERLY AMERICAN REMEDIES LIMITED), 42-2159E, II FLOOR, C.B. TOWERS, K.K. PADMANABHAN ROAD, COCHIN-682 018, REPRESENTED BY ITS AUTHORISED SIGNATORY MR.SRIKANTH. BY ADV. SRI.P.R.VENKITESH RESPONDENT / RESPONDENT: --------------------------------------------- STATE OF KERALA, REPRESENTED BY THE ASST.COMMISSIONER (ASSMT) I, SPECIAL CIRCLE-II, ERNAKULAM. BY SR. GOVERNMENT PLEADERSRI.MUHAMMED RAFIQ THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 12/06/2008, ALONG WITH S.T.REV.NO.112 OF 2006 AND S.T.REV.NO. 251 OF 2003, AND SPOKEN TO ON 16/06/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L. DATTU, C.J. & A.K. BASHEER, J. ------------------------------------- S.T. Revn Nos 251 of 2003, 59 of 2006 & 112 of 2006 ------------------------------------ Dated, this the 16th day of June 2008 O R D E R H.L. DATTU, C.J.: Since the assessee is common in all these revision petitions and since the legal issues involved are also common, these revision petitions are clubbed, heard and disposed of by this common order. 2. The assessee is a dealer registered under the provisions of Kerala General Sales Tax Act (KGST Act for short). The assessee had filed its annual returns conceding a particular total and taxable turn over for the assessment years 1997-98, 1998-99 and 1999-2000. Apart from others, the assessee had effected sales of GLA-120 Capsules (Gamma Linolenic Acid) and in the returns filed had requested the assessing authority to treat the sales of GLA-120 as an unclassified item and liable to tax only at the rate of 12.5%. The assessing authority after rejecting the returns filed has completed the best judgment; treating the commodity in question as food supplement/food preparation in the form of capsule just like Bournvitta, Horlicks which are taxable at 20% under Entry No. 87 of First Schedule to KGST Act. 3. The first appellate authority in the appeals filed by the assessee has confirmed the assessment orders for the assessment years in question. In the S.T. Rev. No. 251/03 & connected cases = = 2 = = second appeal filed before the Tribunal, the Tribunal following its earlier decision for the previous assessment years, has rejected the appeal. The reasoning and conclusions reached by the Tribunal are as under: “Next issue raised is the rate of tax for food supplement sold by the appellant. The name of the commodity sold by the appellant is 'GLA-120' i.e., gamolenic acid. The assessee claimed that it is taxable at 12.5% under entry 56 of the 1st schedule to the Act. This entry is for the items of food including vegetative or animal preparation sold in air tight containers and food colours, essence of all kinds and powders or tablets used for making food preparations. The goods under dispute is not coming under any of the items. However, entry 87 to the 1st schedule is non-alcoholic drinks, squashes, sauces, aerated waters, mineral water, beverages, Glucose D, Glucovita and similar items whether bottled, canned or packed. The commodity sought by the appellant have more related under this entry. Therefore 20% tax levied by the assessing authority is found correct. Moreover this Tribunal in T.A. No. 286 and 287/02 decided the same issue in the same line. Thus we decided the issue against the appellant. The appeal filed under the KGST Act is thus dismissed without any consideration.” 4. The assessee being aggrieved by the orders passed by the Tribunal is before us in these Tax Revision Petitions filed under Section 41 of the KGST S.T. Rev. No. 251/03 & connected cases = = 3 = = Act. The questions of law framed are as under: “(i) Did not the Tribunal and the authorities below committed error in law in holding that the item in question 'GLA-120' namely soft gelatin capsule containing Gamma Linonelic Acid 120 mg as item similar to the items enumerated in Entry 124 and thereafter 141 of the First Schedule to the General Sales Tax Act, namely, 'non alcoholic drinks, squashes, sauces, aerated water, mineral water, beverages, glucose D, glucovita and similar items whether bottled, canned or packed ? (ii) Whether the item in question is only a dietary supplement sold in the form of soft gelatin capsule containing Gamma Linolenic Acid 120 mg., does it not come under Entry 156 of the First Schedule to the General Sales Tax Act under Entry 156 of the First Schedule to the Act ?” 5. The core issue involved in these Revision Petitions is whether GLA-120 Capsules (Gamma Linolenic Acid Capsules) are to be classified under Entry 87 or under Entry 56 of the First Schedule to the KGST Act or to be treated as unclassified items and taxable under residuary Entry of First Schedule to the Act. 6. The assessee has taken different stance before the assessing authority and the Tribunal and before us also. Before the assessing authority S.T. Rev. No. 251/03 & connected cases = = 4 = = the claim was that the commodity in question requires to be classified as an unclassified item liable to be taxed under the residuary clause and in the appeal filed before the Tribunal, the claim was that the product requires to be classified under Entry 56 of First Schedule to KGST Act and taxable at the rate of 12.5% and before us at the time of hearing of this revision, the claim of the learned counsel for the assessee is that, it requires to be classified as Medicine under Entry 79 of the First Schedule to KGST Act and if it does not fit in that entry, then at least it requires to be classified as unclassified item falling under residuary entry. 7. At the time of hearing of these Revision Petitions, the learned counsel appearing for the assessee has produced before us the product manual/literature of the commodity in question. 8. The product manual/literature provides the contents of GLA-120 which is sold in capsule form. It contains Gamma Linolenic Acid which is a type of fatty acid found in oils. GLA-120 capsule is supposed to help in nerve growth/functioning. It is particularly promoted for diabetic neuropathy. Having seen the literature/product manual of GLA-120 and the purpose for which it is used, let us come back to the entries in the First Schedule to the KGST Act. According to the assessing authority, it would fall under the Entry No. 87 of the First Schedule to the KGST Act. The said Entry reads as under: S.T. Rev. No. 251/03 & connected cases = = 5 = = Rate of Tax “Sl.No. Description of Goods Point of Levy (percent) --------- ------------------------- ---------------- -------------- Non-alcoholic drinks, squashes, At the point of 87. sauces, aerated waters, mineral first sale in the 20% water, beverages, Glucose D, State by a Glucovita and similar items dealer who is whether bottled, canned or liable to tax packed. under Section 5.” 9. The residuary Entry of First Schedule of KGST Act is as under: Rate of Tax “Sl.No. Description of Goods Point of Levy (percent) ---------- ------------------------- ------------------ -------------- 177 /141 All other goods not At the point of first 12.5 coming under any entry sale in the State by a in any of the schedules. dealer who is liable to tax under section 5.” 10. The question for consideration and decision is whether GLA-120 is a dietary supplement or an item like Glucose and Glucovita etc. or Medicine. 11. Before we proceed to answer the issue which we have raised for our consideration, it would be appropriate to note the stand of the assessee before the Tribunal. The contention of the assessee's representative is noticed by the Tribunal in its order and the same is extracted: “Sri. K. Sankara Narayanan, C.A. appeared for the appellant argued that the similar issue were considered by the Full Bench of this Tribunal and passed the order S.T. Rev. No. 251/03 & connected cases = = 6 = = against the appellant. Therefore, the issue may be decided after accepting the contentions of the appellant. According to the company commodities sought by them are GLA-120. The said capsule contain evening primrose oil and borage oil. The product is classified as 'dietary supplement'. But the assessing authority has included the item in food like Glucose and Glucovita etc. The commodity is also prescribed for the cure of the above disease or disorders. This is not commonly used as in the case of Glucose and Glucovita which have no specific entry in the schedule. Therefore it is to be taxed including data residual entry of the schedule to the Act.” 12. The word medicine means, any substance/chemical which when used in a disease will lead to cure or improvement. The dietary supplement means any substance (usually a food item/ingredient) which helps in maintenance of health. The clear distinction between health and disease is not there. What is healthy for a particular person/sex/ethnic group is a disease for some one else (for example being slim is healthy for a model but is a sign of malnutrition for a pregnant woman or for doctors). Since the distinction between disease and health itself is not clear, dietary supplement versus medicine is also not clear in many circumstances. In some way, we need to draw a distinction for various reasons (for rigorous pre-clinical and post marketing testing and for taxation purpose). We can say that the distinction S.T. Rev. No. 251/03 & connected cases = = 7 = = can be based on the condition for which the molecule is used. If GLA-120 is used to treat diabetic neuropathy then it should be considered a medicine. If for some reason it is used in normal healthy people (which it is not supposed to) as a tonic to improve the general well being, then it is a dietary supplement. If GLA-120 is a medicine then question still remains whether it has undergone the same rigorous stage I (testing in healthy volunteers), stage II (testing in diseased people) and stage III (randomized trials) clinical trials and whether its entire side effect profile and harmful effects are known in large group of people. If it is a dietary supplement it may not require such rigorous clinical testing and it may be available over the counter without doctors' prescription. 13. In the instant case, since there is no finding by any one of the authorities under the Act in regard to the nature of the commodity sold by the assessee, in our view, the matter requires to be reconsidered by the authorities under the KGST Act, firstly, to find out whether the commodity in question is dietary supplement or is it a medicine or is it a commodity that would not fall in any of the description that is enumerated in the Schedule to the Act. This cannot be done by us in a petition filed under Section 41 of the Act. Therefore, we set aside all the orders by the authorities under the Act and the Tribunal for the assessment years in question and we further issue a direction to the assessing authority to pass a fresh order in accordance with law after S.T. Rev. No. 251/03 & connected cases = = 8 = = verifying the commodity in question and the purpose for which it is sold etc. This exercise the assessing authority shall complete as expeditiously as possible and at any rate within six months from the date of receipt of a copy of this court order. It is needless to say, that, before completing the assessment proceedings the assessee is afforded a reasonable opportunity of hearing. Accordingly, we dispose of these revision petitions. 13. All the pending interlocutory applications are closed. Ordered accordingly. (H.L. DATTU) CHIEF JUSTICE (A.K. BASHEER) JUDGE jes/dk.