Case: THE STATE OF ANDHRA PRADESH Vs. M/S LINDE INDIA LTD. (FORMERLY BOC INDIA LTD)

3. The facts in the appeals before this Court being similar, we proceed to elucidate the factual context of the lead appeal4. The respondent – Linde India Ltd, is a registered company under the 2005 Act and is an assessee on the rolls of the Commercial Tax Officer, Gajuwaka and Dwarakanagar Circle. The respondent is engaged in the manufacturing and trading of industrial gases as well as Medical Oxygen IP and Nitrous Oxide IP. On 12 December 2005, the Commercial Tax Officer communicated to the respondent that an outstanding tax liability of Rs 5,11,062 was due and payable for the period between 1 August 2005 and 31 August 2005.5. Aggrieved, the respondent filled an appeal before the Appellate Deputy Commissioner who, by his order dated 26 June 2006, affirmed the assessment of the Commercial Tax Officer. By an order dated 25 November 2014, the Sales Tax Appellate Tribunal, relying on a judgment of the Andhra Pradesh High Court in Inox Air Products Ltd v The Assistant Commissioner (CT), Hyderabad 2014 VIL 339 AP , allowed the appeal filed by the respondent. The appellants appeal before the High Court for the State of Telangana and the State of Andhra Pradesh was dismissed. Aggrieved, the appellant is in appeal before this Court6. The High Court was of the view that in Section 3(b)(i) of the Drugs and Cosmetics Act 1940 (1940 Act) the expression drug covers within its ambit any substance which is used for or in the treatment, prevention and mitigation of a disease or a disorder. The High Court held that (i) Medical Oxygen IP is used for the treatment of patients and to mitigate the intensity of diseases and disorders; and (ii) Nitrous Oxide IP is used as an anesthetic in surgical operations and procedures of a short duration. The High Court held:…Both nitrous oxide and medical oxygen are clearly identifiable, and are used as surgical aids (Indian Oxygen Ltd. State of Karnataka; Southern Gas Ltd). Going by the user test and the functional test, it is evident that medical oxygen and nitrous oxide serve as medicines. As medical oxygen IP and Nitrous Oxide IP are used in the treatment and mitigation of disorders in human beings, and as they are generally understood in the trade to be surgical aids, both these substances would fall under the definition of drug under Section 3(b)(i) of the Drugs Act, and consequently, fall under Entry 88 of Schedule IV of the Act liable to tax only at 4%/5%

Court's reasoning:
15. In the above view, Section 3(b)(i) stipulates that medicines or substances used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings, or animals shall be included within the ambit of the definition. It is significant to note the use of the phrase for or in in the definitional clause. Section 3(b)(i) includes both medicines or substances used for the diagnosis, treatment, mitigation or prevention of any disease or disorder or in the diagnosis, treatment, mitigation or prevention of any disease or disorder. Where the former highlights the direct use of the product in question in diagnosing, treating, mitigating or preventing a disease or disorder, the latter highlights its instrumental use as a facilitative agent in the diagnosis, treatment, mitigation or prevention of any disease or disorder. The relevant enquiry for this Court is whether Medical Oxygen IP and Nitrous Oxide IP are used in or for any of the purposes specified thereinThe question in the present case does not concern all variants of oxygen and nitrogen, but only Medical Oxygen IP and Nitrous Oxide IP21. Drugs specified in the Second Schedule are required under the 1940 Act to comply with specified standards. Entry 5 prescribes that other drugs means drugs included in the Indian Pharmacopeia, for which standards are specified therein. The Indian Pharmacopoeia Commission (IPC) is an autonomous institution of the Ministry of Health and Family Welfare, Government of India. The IPC, through its publication titled Indian Pharmacopoeia prescribes standards for the identity, purity and strength of the drugs specified therein. Medical oxygen (at 99.9% purity) is included as a drug termed as Oxygen IP. Section 16, read with the Second Schedule and the specification of Medical Oxygen in the Indian Pharmacopoeia lends support to the contention urged by the respondents that Medical Oxygen IP is a drug as defined in Section 3(b)(i) of the 1940 Act22. Furthermore, in exercise of the powers conferred by Section 3 of the Essential Commodities Act 1955, the Central Government issued the Drug (Prices Control) Order 2013 which came into force on the date of its publication in the Official Gazette (15 May 2013). Para 2(t) stipulates that the National List of Essential Medicines means the National List of Essential Medicines 2011 published by the Ministry of Health and Family Welfare as updated and revised from time to time. It also specifies that the National List of Essential Medicines 2011 is included in the First Schedule to the order. Para 2(2) stipulates that all other words and expressions used therein and not defined, but defined in the 1940 Act shall have meanings respectively assigned in the 1940 ActIn the exercise of the power conferred under the 2013 Order, the Government of India, by its order dated 20 December 2013 prescribed the selling price for both Nitrous Oxide Inhalation and Oxygen Inhalation. This was evidently done keeping in mind the regulation of the selling prices of essential medicines in the market. The inclusion of Oxygen and Nitrous Oxide as Anesthesia lends support to its use in the diagnosis and treatment of a disorder or disease as specified in Section 3(b)(1) of the 1940 Act29. The above judgments highlight the curative and instrumental use of Medical Oxygen IP and Nitrous Oxide IP in the mitigation and prevention of disease or disorder. Nitrous Oxide is used as anesthetic agent. Medical oxygen with 99.9% purity is predominantly used in hospitals. Medical Oxygen is also used for the treatment of patients and to mitigate the intensity of disease or disorder in human beings. It is utilised to prevent a sudden collapse of patients and to aid in the recovery of health. As stated in the Counter Affidavit filed by the respondents, in order to carry out critical surgical procedures, supplemental oxygen is administered to patients. Medical Oxygen is also administered in resuscitation, major trauma, anaphylaxis, major hemorrhage, shock and active convulsions, amongst other conditions30. Nitrous Oxide is used in surgery and dentistry for its anesthetic and analgesic effects. An article published in the British Medical Bulletin titled Past, Present and Future of Nitrous Oxide (V Lew, E McKay, M Maze, Past, present, and future of nitrous oxide, British Medical Bulletin, Volume 125, Issue 1, March 2018, Pages 103–119. ) highlights the medical use of Nitrous Oxide in the following terms:As an anaesthetic gas, N 2 O has many unique properties that have historically been used to great benefit in the operating room. These include a high FA/FI ratio allowing for rapid onset and offset, anxiolytic as well as analgesic and amnestic properties, lack of an odour and lack of irritation to the tracheobronchial tree. These same properties have made it increasingly popular in areas outside of the OR including paediatric procedural sedation, the emergency room, obstetrics, and potentially psychiatry, for attenuation of treatment-resistant depressionThe World Health Organisation in its publication titled Model Prescribing Information: Drugs Used in Anesthesia (WHO Model Prescribing Information: Drugs Used in Anaesthesia (1989). ) states that Nitrous Oxide has the following uses:Maintenance of surgical anaesthesia in combination with other anaesthetic agents (halothane, ether, thiopental or ketamine) and muscle relaxantsIn subanaesthetic doses, to provide analgesia for obstetric practice, for emergency management of injuries, during postoperative physiotherapy and for refractory pain in terminal illnessK D Tripathi in Essentials of Medical Pharmacology (KD Tripathi, Essentials of Medical Pharmacology, VIIth Ed., at p. 378) states:3. Nitrous oxide The patient is made to breathe 100% oxygen through a nose piece or hood and N2O is added in 10% increments (to a maximum of 50%, rarely 70%) till the desired level of sedation assessed by constant verbal contact is obtained. This is maintained till the procedure is performed. Thereafter, N2O is switched off, but 100% O2 is continued for next 5 min. The patient is generally roadworthy in 30–60 minThe above extracts demonstrate the medical use of Nitrous Oxide as a general anesthetic as well as in operation rooms for its analgesic and anxiolytic properties31. In the proceedings before this Court, it was not seriously disputed that Medical Oxygen IP and Nitrous Oxide IP sub-serve a medicinal purpose. There is no doubt that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act. We hold that Medical Oxygen IP and Nitrous Oxide IP fall within the ambit of Section 3(b)(i) of the 1940 Act and are consequently covered in Entry 88 of the 2005 Act.