Case: State of Goa &amp; Others Vs. Leukoplast (India) Limited

Leukoplast (India) Limited, the assessee-company was granted a licence by the Drugs Controller under the Drugs and Cosmetics Act, 190. It was amended on September 7. 1987 Under this licence, the assessee was entitled to produce inter alia 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)The aforesaid goods or products were liable to local sales tax as well as Central sales liable to local sales Tax as well as Central sales tax and prior to 1.11.1981, the rate of 6 per cent and under Section 8(2A) of the Central Sales Tax Act, the rate of Tax was 4 per cent. By the notification No. 14/41/81-Fin (R&), 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- company, as a result of this exemption, the Central Sales Tax leviable under Section 8(2-A) of the Central Sales Tax Act was also reduced to 3 per centThe assessee-company, however, has been paying Central Sales Tax at the rate of 4 per cent on the sale of the goods and also local sales tax at the rate of 6 per cent goods and also local sales tax at the rate of 6 per cent from 1.11.1981 to 1.4.1 987By another notification No. 5/5/67 (R&)-8, the State of Goa in exercise of the powers under Section 10 of the Local Sales Tax Act, Amended the Second Schedule to local Sales Tax Act, inter alia, inserting Entry No. 77 which speak o f "drugs and medicines, including all I.V. Drips". By the aid notification, the goods were totally exempted from levy of the local sales tax and consequently. The 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 per cent only and as such by two letter both dated 3.4.1987, they pointed out to the Sales Tax Officer that the 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 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 a regards the claim for refund of the Central and local sales tax collected in excess. They further prayed for the completion of the assessment proceedings which were still pending for the subsequent periods, that is, from 1.1.1983 to 31.12.1986They further contended that after the admission of the writ petition, the Assistant Sales Tax officer made order 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 enrichmentThereupon, 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, it was contended that the products 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 write petition. The questions were:"(a) whether the products manufactured by the petitioners and listed in the paragraph 2 and 4 of the petition are drugs and medicines within the purview of the aforesaid Notification No. 14/41/81-Fin (R &C) and NO. 5/5/87 (R&)-8 and(b) Whether the petitioners are entitled to the refund sought"After a long discussion about the nature of the products of the assessee-company and after referring to Pharmaceutical Codex incorporating the British Pharmaceutical Codex, the meaning given to "drugs and medicines in Drugs and Cosmetics Act and also to the under standing 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 decision that the products manufactured by the assessee-company had to be treated as "drugs and medicines" and the writ petition was entitled to succeedThere was a second writ petition in which the disputed was in respect 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 modificationsThe State has come up in appeal.

Reasoning: In our view, whether the products manufactured by the assessee can be treated as "drugs or medicine" cannot be answered straightway. The 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 of medicines in common parlance? These are basically questions of fact. These was no reason for the assessee-company to bypass the statutory remedy and come to the Court with a writ petition. These questions basically of fact should be agitated before the statutory appellate authorityIn the case of Titaghur Paper Mill Co. Ltd. and another v. State of Orissa and another, a Bench of three Judges of this Court pointed out the inadvisability of entertaining a writ petition questioning a sale 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 or. The petitioners have the right to 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 complete 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." *We are of the view that the assessee should not have been allowed to bypass the statutory remedies where questions of fact could have been properly agitated and ascertained.