Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989 Equivalent citations: 1989 AIR 1230, 1989 SCR (2) 37, AIR 1989 SUPREME COURT 1230, (1989) 1 JT 539 (SC), 1989 (1) JT 539, 1989 29 STL 65, (1989) 21 ECC 112, (1989) 73 STC 346, 1989 (2) SCC 285, (1989) 40 ELT 273 Author: R.S. Pathak Bench: R.S. Pathak, Misra Rangnath PETITIONER: AYURVEDA PHARMACY & ANR. Vs. RESPONDENT: STATE OF TAMIL NADU DATE OF JUDGMENT15/03/1989 BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) MISRA RANGNATH CITATION: 1989 AIR 1230 1989 SCR (2) 37 1989 SCC (2) 285 JT 1989 (1) 539 1989 SCALE (1)624 ACT: Tamil Nadu General Sales Tax Act, 1959 Validity of Notification dated 4.3.1974 and Tamil Nadu Act No. 23 of 1974 imposing a higher levy on two Ayurvedic medicin al preparations--Arishtams and Asavas--While all other medic i- nal preparations under different systems of medicines e n- joyed a lower levy. HEADNOTE: Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  1 Arishtams and Asavas are Ayurvedic preparations whi ch were originally subject to a uniform levy applicable to a ll medicinal preparations belonging to the different systems of medicine under the Tamil Nadu General Sales Tax Act, 195 9. Firstly by a notification dated 4.3.1974, and later, by t he Tamil Nadu Act, No. 23 of 1974, the State Government singl ed out Arishtams and Asavas for a higher rate of levy of 3 0% while all other medicinal preparations were subjected to a levy of 7%, with a view to curb the abuse of Arishtams a nd Asavas for their alcoholic content by drink addicts and to eliminate the mushroom growth of Ayurvedic pharmacies pr e- paring sub-standard Arishtams and Asavas for purposes oth er than medicinal use. The appellants filed writ petitio ns contending that Arishtams and Asavas manufactured by th em are essentially Ayurvedic medicines, that the object of controlling consumption of liquor is being served by sever al other existing statutes, that there are over 130 Allopath ic medicines containing alcohol which are potable, and th at therefore, the levy of tax at 30% on Arishtams and Asav as alone while other medicinal preparations are subjected to tax at 7% results in an invidious discrimination against t he manufacturers of those Ayurvedic preparations. The Hi gh Court dismissed the petitions. Allowing the appeals, HELD: The two preparations, Arishtams and Asavas, a re medicinal preparations, and even though they contain a hi gh alcohol content, so long as they continue to be identifi ed as medicinal preparations they must be treated, for t Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  2 he purposes of the Sales Tax Law, in like manner as medicin al preparations generally, including those containing a low er percentage of alcohol. The appellants are entitled to a refund of the excess paid as sales tax. [41H; 42A, C] 38 There is no reason why Arishtams and Asavas should be treated differently from the general class of Ayurved ic medicines. It is open to the Legislature, or the Sta te Government if it is authorised in that behalf by the Legi s- lature, to select different rates of tax for differe nt commodities. But where the commodities belong to the sa me class or category, there must be a rational basis for di s- criminating between one commodity and another for the pu r- pose of imposing tax. It is commonly known that consider a- tions of economic policy constitute a basis for levyi ng different rates of sales tax. For instance, the object m ay be to encourage a certain trade or industry in the conte xt of the State policy for economic growth, and a lower ra te would be considered justified in the case of such a commod i- ty. There may be several such considerations bearing direc t- ly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from oth er commodities no complaint can be made. What the actual ra te should be is not a matter for the courts to determine gene r- ally, but where a distinction is made between commoditi es failing in the same category a question arises at on ce before a Court whether there is justification for the di s- Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  3 crimination. In the present case, we are not satisfied th at the reason behind the rate of 30% on the turnover of Aris h- tams and Asavas constitutes good ground for taking those t wo preparations out from the general class of medicinal prep a- rations to which a lower rate has been applied. [40F- H; 41A-C] Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca ( P) Ltd. and others v. Union of India, [1963] 3 SCR 957, reli ed on. JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1868 of 1974. From the Judgment and order dated 2.9.1974 of the Madr as High Court in Writ Petition No. 2729/1974. F.S. Nanman, C.S. Vaidyanathan and K.R. Nambiar for t he Appellants. T.S. Krishnamoorthy Iyer, A.V. Rangam and T.V. Ratn am for the Respondent. S. Balakrishnan (not present) for the Intervener. The Judgment of the Court was delivered by PATHAK, CJ. The appellants in these two appeals a re manufacturers of Ayurvedic drugs and medicines, 'includi ng Arishtams and Asavas. Arishtams and Asavas contain alcoho l, and it is said that the presence of alcohol is essential f or the effective and easy absorption of the medicine by t he human system and also because it acts as a preservative. A ll the Ayurvedic preparations as well as Allopathic, Siddha a nd Unani medicines were originally subject to a multi-poi nt levy of 31/2 % under the Tamil Nadu General Sales Tax Ac t, 1959. By a notification dated 4 March, 1974, the State of Tamil Nadu included a large number of items in the Fir st Schedule to the aforesaid Act in order to make them subje ct to a single-point levy. While all other patent or propri e- tary medicinal preparations belonging to the differe nt systems of medicines were taxed at the rate of 7% onl y, Arishtams prepared under the Ayurvedic system were ma de subject to a levy of 30%. It seems that representations we re made to the State Government against the high rate of tax on Arishtams, and therefore a separate entry was introduced by Tamil Nadu Act No. 23 of 1974 in the First Schedule as it em 135 dealing specifically with Arishtams and Asavas. Th ey were shown as attracting a rate of 30% while all oth er medicinal preparations were shown under item No. 95 a nd subjected to tax at 7%. The appellants filed writ petitions in the High Court of Madras challenging the levy of 30% on Arishtams and Asava s, but on 2 September, 1974 the High Court dismissed the wr it petitions. Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  4 From the counter affidavit filed by the Government of Tamil Nadu in the writ petition, out of which one of t he present appeals arises, it appears that the higher levy of sales tax on Arishtams and Asavas was introduced by t he State Legislature to curb the abuse of medicinal prepar a- tions for their alcoholic content by drink addicts and to eliminate the mushroom growth of Ayurvedic Pharmacies pr e- paring sub-standard Arishtams and Asavas for purposes oth er than medicinal use. The appellants contend that Arishta ms and Asavas manufactured by them are essentially Ayurved ic medicines, and that in any event the object of controlli ng the consumption of liquor is amply served by several oth er existing statutes, including the Medicinal and Toilet Prep a- rations (Excise Duty) Act, 1955, Drugs and Cosmetic Ac t, 1940, as amended in the year 1964, and Spirituous Prepar a- tions (Inter State Trade and Commerce) Control Act, 1955. It is said that there are over 130 Allopathic medicines co n- taining alcohol which are potable as against only thr ee Ayurvedic medicines, and that therefore the levy of tax at 30% of Arishtams and Asavas alone while other medicinal preparations are subjected to tax at 7% (n ow increased to 8%) results in an invidious discriminati on against the manufacturers of those Ayurvedic preparatio ns thus violating Art. 14 of the Constitution. It is contend ed that the impugned rate of tax also offend Article 19(1)( g) of the Constitution. The appellants in Civil Appeal No. 18 of 1974 have also taken the point that the high rate of t ax on Arishtams and Asavas has been imposed by the State of Tamil Nadu with the object of discouraging the import of these Ayurvedic medicines from the neighbouring State of Kerala, and consequently the measure is violative of Ar t. 301 as well. While dismissing the writ petitions the High Cou rt observed that the imposition of the rate of 30% on the sa le of Arishtams and Asavas must be regarded principally as a measure for raising revenue, and it repelled the argume nt that the rate of tax was discriminatory or that Ar t. 19(1)(g) was infringed. It rejected the plea of the appe l- lants that Art. 301 was contravened and refused to acce pt that there was any ulterior object in imposing a high ra te of tax on those two commodities. Now there is no doubt that Arishtams and Asavas a re Ayurvedic medicinal preparations. The question is wheth er these two medicines attract different considerations fr om those applied to other medicinal preparations. Reference is made by the State to their high content of alcohol, a nd that, it is said, attracts a class of customers who purcha se them for their alcoholic content rather than their medicin al value. On that basis, it is urged, there is justificati on for a higher rate of tax. We think that the appeals are entitled to Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  5 succeed. It em 95 mentions the rate of 7% (now 8%) as the tax to be levi ed at the point of first sale in the State. Item 135 provides a rate of 30% in respect of Arishtams and Asavas at the poi nt of first sale. We see no reason why Arishtams and Asav as should be treated differently from the general class of Ayurvedic medicines covered by Item 95. It is open to t he Legislature, or the State Government if it is authorised in that behalf by the Legislature, to select different rates of tax for different commodities. But where the commoditi es belong' to the same class or category, there must be a rational basis for discriminating between one commodity a nd another for the purpose of imposing tax. It is common ly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For i n- stance, the object may be to encourage a certain trade or industry in the context of the State policy for econom ic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choi ce of the rate of sales tax, and so long as there is go od reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is n ot a matter for the courts to determine generally, but where a distinction is made between commodities fairing in the sa me category a question arises at once before a Court wheth er there is justification for the discrimination. In t he present case, we are not satisfied that the reason behi nd the rate of 30% on the turnover of Arishtams and Asav as constitutes good ground for taking those two preparatio ns out from the general class of medicinal preparations to which a lower rate has been applied. In Adhyaksha Math ur Babu's Sakti Oushadhalaya Dacca (P) Ltd. and others v. Uni on of India, [1963] 3 SCR 957 this Court considered whether t he Ayurvedic medicinal preparations known as Mirtasanjiban i, Mritasanjibani Sudha and Mritasanjibanj Sura, prepared in accordance with an acknowledged Ayurvedic formula, could be brought to tax under the relevant State Excise Act wh en medicinal preparations were liable to excise duty under t he Medicinal and Toilet Preparations (Excise Duty) Act, whi ch was a Central Act. The Court held that the three prepar a- tions were medicinal preparations, and observed that t he mere circumstance that they contained a high percentage of alcohol and could be used as ordinary alcoholic beverag es could not justify their being treated differently from oth er medicinal preparations. The Court said: "So if these preparations are medicinal preparations but a re also capable of being used as ordinary alcoholic beverage s, they will fail under the (Central) Act and will be liable to duty under item No. 1 of the Schedule at the rate of R s. 17.50nP per gallon of the strength of London Proof spiri t. On a consideration of the material that has been plac ed before us, therefore, the only conclusion to which we c an come is that these preparations are medicinal preparatio ns according to the standard Ayurvedic text books referred to already, though they are also capable of being used as ordinary alcoholic beverages. They cannot however be tax ed under the various Excise Acts in force in the concern ed States in view of their being medicinal preparations whi ch are governed by the Act." Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  6 We are of opinion that similar considerations should app ly to the appeals before us. The two preparations, Arishta ms and Asavas, are medicinal preparations, and even though th ey contain a high alcohol content, so long as they continue to be identified as medi c- inal preparations they must be treated, for the purposes of the Sales Tax Law, in like manner as medicinal preparatio ns generally, including those containing a lower percentage of alcohol. On this ground alone the appellants were entitl ed to succeed. In the circumstances, we do not consider it necessary to enter upon the question whether there is substance in t he complaint of the appellants that there is a violation of Art. 301 of the Constitution. In the result, the appeals must be allowed and t he appellants held entitled to a refund of the excess paid as sales tax on account of the turnover being treated und er Item 135 rather than under Item 95. Learned counsel for t he appellants states that the appellants will inform all the ir customers, from whom the higher rate has been charged, th at the customers are entitled to a refund of the excess paid by them and that an application will be invited for such refu nd and that if any part of the excess remains unrefunded to t he customers the appellants undertake that such balance will be paid over to the Arya Vaidya Rama Varier Educational Found a- tion of Ayurveda. The appeals are allowed, the judgment and order of t he High Court on each writ petition are set aside and the Sal es Tax Authorities are directed to reassess the turnover of t he Arishtams and Asavas at the rate mentioned in Item No. and to refund to the appellants the amount of tax paid in excess. The appellants, in their turn, on obtaining su ch refund will within one month thereof, serve notice on t he customers from whom such excess has been recovered to obta in a refund from the appellants of such corresponding exces s. In the event of any balance of the excess remaining unr e- funded by the appellant to the customers upon the expiry of three months from such notice, the balance will be paid ov er by the appellants to the Arya Vaidya Rama Varier Education al Foundation of Ayurveda. There is no order as to costs. H.L.C. Appeals allowed. Ayurveda Pharmacy & Anr vs State Of Tamil Nadu on 15 March, 1989  7