THE STATE OF ANDHRA PRADESH versus M/S LINDE INDIA LTD. on 13 April 2020

SUPREME COURT REPORTS

[2020] 5 S.C.R.

ATHE STATE OF ANDHRA PRADESH

v

M/S LINDE INDIA LTD. (FORMERLY BOC INDIA LTD)

(Civil Appeal No. 2230 of 2020)

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APRIL 13, 2020

[DR. DHANANJAYA Y CHANDRACHUD ANDAJAY RASTOGI, JJ.]

Andhra Pradesh Value Added Tax Act, 2005 – Entry 88,Schedule IV; Schedule V – Respondent-Company registered underCthe 2005 Act is engaged in manufacturing, trading of industrialgases and also Medical Oxygen IP and Nitrous Oxide IP – Issue asto whether Medical Oxygen IP and Nitrous Oxide IP are taxable u/Entry 88, Schedule IV or as ‘unclassified goods’ u/Schedule V andthe resultant rate of tax to be levied on them – Held: Schedule IVDprescribes a uniform tax rate of 4%/5% for listed goods – Entry 88includes drugs and medicines, as defined in clauses (i), (ii) & (iii)of s.3(b), 1940 Act – Any drug or medicine that falls within theambit of clauses (i), (ii) & (iii) of s.3(b) falls within the ambit ofSchedule IV – Schedule V stipulates that all goods that do not fallwithin the ambit of Schedules I, III, IV & VI shall be taxed @ 14.5%E– s.16, 1940 Act r/w the Second Schedule and the specification ofMedical Oxygen in the Indian Pharmacopoeia (an autonomousinstitution of Ministry of Health and Family Welfare, Govt. of India,through its publication titled “Indian Pharmacopoeia” prescribesstandards for identity, purity and strength of the drugs specifiedFtherein) lends support to respondent’s contention that MedicalOxygen IP is a drug as defined in s.3(b)(i), 1940 Act – Further,2013 Prices Control Order contains the National List of EssentialMedicines 2011 – Inclusion of Oxygen and Nitrous Oxide asAnesthesia therein lends support to its use in the diagnosis andtreatment of a disorder or disease as specified in s.3(b)(1), 1940GAct – Medical Oxygen IP and Nitrous Oxide IP are medicines usedfor or in the diagnosis, treatment, mitigation or prevention of anydisease or disorder in human beings falling within the ambit ofs.3(b)(i), 1940 Act and are consequently covered in Entry 88, 2005Act – Drugs and Cosmetics Act, 1940 – s.3(b)(i)-(iv); s.16 –H

Interpretation of Statutes – Essential Commodities Act, 1955 – s.3 –Drug (Prices Control) Order 2013.

Dismissing the appeals, the Court

HELD: 1.1 Schedule IV of the 2005 Act prescribes a uniformtax rate of 4%/5% for listed goods. Entry 88 includes drugs andmedicines, whether patent or proprietary as defined in clauses(i), (ii) and (iii) of Section 3(b) of the 1940 Act. Any drug ormedicine that falls within the ambit of clauses (i), (ii) and (iii) ofSection 3(b) falls within the ambit of Schedule IV. Entry 88 alsostipulates that hypodermic syringes, hypodermic needles, catguts,sutures, surgical cotton, dressing, plasters, catherters, cannulae,bandages and ‘similar articles’ are also included, save and exceptfor the three specified exclusions. Schedule V stipulates that allgoods that do not fall within the ambit of Schedules I, III, IV, andVI shall be taxed at a rate of 14.5%. Clause (i) of Section 3(b)defines a drug as all medicines for internal or external use ofhuman beings or animals and all substances “intended to be usedfor or in the diagnosis, treatment, mitigation or prevention of anydisease or disorder in human being, or animals”, includingspecified preparations. Clause (iv) of Section 3(b) includes alldevices ‘intended’ for internal or external use in the diagnosis,treatment, mitigation or prevention of disease or disorder inhuman beings or animals. [Paras 10-12][846-B, E-G; 847-D]

Chimanlal Jagjivandas Sheth v. State of MaharashtraAIR 1963 SC 665 : [1963] Suppl. SCR 344; IshwarSingh Bindra v. The State of UP [1969] 1 SCR 219 –referred to.

1.2 The term “medicine” is not defined in the 1940 Act.The ordinary or popular understanding of the term medicine ischaracterized by its curative properties in general and specifically,its use for or in diagnosis, treatment, mitigation or prevention ofany disease or disorder. [Paras 16, 18][849-G; 852-B]

State of HP v. Pawan Kumar (2005) 4 SCC 550; Stateof Goa v. Leukoplast (India) Ltd. (1997) 4 SCC 82 :[1997] 2 SCR 516 – relied on.

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AState of Himachal Pradesh v Pawan Kumar 2005Cr.L.J. (SC) 2008; State of Haryana v Suresh (2007)15 SCC 186 : [2007] 7 SCR 961; State of Rajasthan vBabu Ram (2007) 6 SCC 55 : [2007] 7 SCR 939;Commissioner of Customs (Import), Mumbai v DilipKumar and Company (2018) 9 SCC 1 : [2018] 7 SCRB1191 – referred to.

Black’s Law Dictionary; Collins Dictionary; CambridgeDictionary – referred to.

1.3 The Indian Pharmacopoeia Commission is anCautonomous institution of the Ministry of Health and FamilyWelfare, Government of India. The IPC, through its publicationtitled ‘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 specificationDof Medical Oxygen in the Indian Pharmacopoeia lends supportto the contention urged by the respondents that Medical OxygenIP is a drug as defined in Section 3(b)(i) of the 1940 Act.Furthermore, in exercise of the powers conferred by Section 3 ofthe Essential Commodities Act 1955, the Central GovernmentEissued the Drug (Prices Control) Order 2013. Para 2(t) stipulatesthat the ‘National List of Essential Medicines’ means the NationalList of Essential Medicines 2011 published by the Ministry ofHealth and Family Welfare as updated and revised from time totime. It also specifies that the National List of Essential Medicines2011 is included in the First Schedule to the order. Para 2(2)Fstipulates that all other words and expressions used therein andnot defined, but defined in the 1940 Act shall have meaningsrespectively assigned in the 1940 Act. The first Schedule containsthe National List of Essential Medicines 2011. Section 1.1includes both Nitrous Oxide and Oxygen as medicines withinGthe ambit of ‘Anesthesia’. The inclusion of Oxygen and NitrousOxide as Anesthesia lends support to its use in the diagnosisand treatment of a disorder or disease as specified in Section3(b)(1) of the 1940 Act. [Paras 20-23][853-F-H; 854-A-B, G-H]

Southern Gas Ltd. v. State of Kerala (2005) 3 KLT 78;HIndian Oxygen Ltd. v. State of Karnataka (1989) SCC

STATE OF A.P. v M/S LINDE INDIA LTD. (FORMERLY BOCINDIA LTD.)

Online Kar 459; State of Tamil Nadu v. Ram Oxygen(Pvt.) Ltd. 2010 (35) VST 478; Panki Oxygen v. Stateof Uttar Pradesh (2014) SCC Online All 2144 –referred to.

1.4 Medical Oxygen IP and Nitrous Oxide IP are medicinesused for or in the diagnosis, treatment, mitigation or preventionof any disease or disorder in human beings falling within the ambitof Section 3(b)(i) of the 1940 Act. Medical Oxygen IP and NitrousOxide IP fall within the ambit of Section 3(b)(i) of the 1940 Actand are consequently covered in Entry 88 of the 2005 Act. Theimpugned judgment of the High Court, to the extent it held thatMedical Oxygen IP and Nitrous Oxide IP fall within Entry 88 ofthe 2005 Act is upheld. [Paras 31, 32][859-B-C]

Inox Air Products Ltd v The Assistant Commissioner(CT), Hyderabad 2014 VIL 339 AP; Southern Gas vState of Kerala 2005 (139) STC 504 (Ker); State ofTamil Nadu v Ram Oxygen [2011] 5 GST 87 (Mad HC);Chimanlal v State of Maharashtra 2004 (137) STC 68;Indian Oxygen v State of Karnataka 1990 (79) STC351; State of Kerala v Indian Oxygen 2003 (129) STC471; ACTO, Special Circle Jodhpur v M/s JodhpurGases (2009) SCC Online 2459 – referred to.

Principles of Statutory Interpretation by Justice G PSingh; Craies on Statute Law; KD Tripathi, Essentialsof Medical Pharmacology, VIIth Ed., at p. 378 –referred to.

V Lew, E McKay, M Maze, Past, present, and future ofnitrous oxide, British Medical Bulletin, Volume 125,Issue 1, March 2018, Pages 103–119; WHO ModelPrescribing Information: Drugs Used in Anaesthesia(1989) – referred to.

Case Law Reference

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From the Judgment and Order dated 25.01.2016 of the High Courtof Judicature at Hyderabad for the States of Telangana and AndhraCPradesh in Tax Revision Case No. 53 of 2015.

With

Civil Appeal Nos. 2233-34, 2231 and 2232 of 2020

Sanjib Sen, Sr. Adv., Guntur Prabhakar, Hemal Kiritkumar Sheth,DT. Vijaya Bhaskar Reddy, Digvijay Harichandan, G. N. Reddy,Shabyashechi Patra, Sanjeev Kumar, M/s. Khaitan & Co, Annam D. N.Rao, Annam Venkatesh, Rahul Mishra, Ananya Kandelwal, Avni Sharma,and Ms. Sangeetha M., Advs. for the appearing parties.

The Judgment of the Court was delivered byEDR. DHANANJAYA Y CHANDRACHUD, J.

1. Leave granted.

2. The short point of law that arises in the present appeals iswhether ‘Medical Oxygen IP’ and ‘Nitrous Oxide IP’ are taxable underFEntry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act2005[1] or as ‘unclassified goods’ under Schedule V. The classification ofthe two products determines the rate of tax to be levied on them – 4%/5%[2] under Entry 88 or 12.5%/14%[3] under Schedule V.

3. The facts in the appeals before this Court being similar, weGproceed to elucidate the factual context of the lead appeal.

4. The respondent – Linde India Ltd, is a registered companyunder the 2005 Act and is an assessee on the rolls of the Commercial 1 2005 Act.

2 5% substituted for the figure 4% by Act 11 of 2012 dated 20 April 2012.H3 14.5% substituted for the figure 12.5% by Act 9 of 2010 dated 20 April 2010.

Tax Officer, Gajuwaka and Dwarakanagar Circle. The respondent isengaged in the manufacturing and trading of industrial gases as well asMedical Oxygen IP and Nitrous Oxide IP. On 12 December 2005, theCommercial Tax Officer communicated to the respondent that anoutstanding tax liability of Rs. 5,11,062 was due and payable for theperiod between 1 August 2005 and 31 August 2005.

5. Aggrieved, the respondent filled an appeal before the AppellateDeputy Commissioner who, by his order dated 26 June 2006, affirmedthe assessment of the Commercial Tax Officer. By an order dated 25November 2014, the Sales Tax Appellate Tribunal, relying on a judgmentof the Andhra Pradesh High Court in Inox Air Products Ltd v TheAssistant Commissioner (CT), Hyderabad[4], allowed the appeal filedby the respondent. The appellants appeal before the High Court for theState of Telangana and the State of Andhra Pradesh was dismissed.Aggrieved, the appellant is in appeal before this Court.

6. The High Court was of the view that in Section 3(b)(i) of theDrugs and Cosmetics Act 1940[5] the expression ‘drug’ covers within itsambit any substance which is used for or in the treatment, preventionand 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 mitigatethe intensity of diseases and disorders; and (ii) Nitrous Oxide IP is usedas an anesthetic in surgical operations and procedures of a short duration.The High Court held:

“…Both “nitrous oxide” and “medical oxygen” are clearlyidentifiable, and are used as surgical aids (Indian Oxygen Ltd.State of Karnataka; Southern Gas Ltd). Going by the user testand 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 ofdisorders in human beings, and as they are generally understoodin the trade to be surgical aids, both these substances would fallunder the definition of ‘drug’ under Section 3(b)(i) of the DrugsAct, and consequently, fall under Entry 88 of Schedule IV of theAct liable to tax only at 4%/5%”

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A7. Assailing the judgment of the High Court, learned counsel forthe appellant urged:

(i) The decision of the Andhra Pradesh High Court in InoxAir, in so far as it held that Medical Oxygen IP and NitrousOxide IP are covered by the expression “similar articles”Bin Entry 88, is erroneous. Applying the principle of ejusdemgeneris, it cannot be said that gases are ‘similar articles’ tothe other products specified in theentry;

(ii) The term, ‘used for or in’ employed in Section 3(b)(i)qualifies only ‘substances’ and not ‘medicines’.CConsequently, it cannot be used to broaden the scope ofEntry 88;

(iii) Though Section 3(b)(i) of the 1940 Act includes substancesthat are necessary aids for treating surgical or other cases,Entry 88 also contains an exclusion clause. Entry 100(36)Dof Schedule IV specifically excludes “medical gradeoxygen”. Absent a specific inclusion of Medical OxygenIP and Nitrous Oxide IP in Entry 88, they fall within theambit of unclassified goods in Schedule V; and

(iv) Every ‘substance’ cannot be said to fall within the ambit ofEEntry 88 merely because it is used for medicinal purposes.For a substance to fall within the ambit of Entry 88, it mustaccord with the definition stipulated in Section 3(1)(b) ofthe 1940 Act.

8. Opposing the above submissions, learned counsel for therespondents urged:F

(i) Section 3(b)(i) of the 1940 Act defines a ‘drug’ broadly asa medicine or substance used for or in the diagnosis,treatment, mitigation or prevention of any disease or disorder.Medical Oxygen IP and Nitrous Oxide IP are widely knownfor their curative properties and as medicines in the diagnosis,Gtreatment, mitigation and prevention of diseasesanddisorders;

(ii) Medical Oxygen and Nitrous Oxide are included in theIndian Pharmacopoeia which prescribes standards fordrugs. The Indian Pharmacopoeia has legal status underH

Section 16 of the 1940 Act. Consequently, Medical Oxygenand Nitrous Oxide are drugs within the ambit of Section3(1)(b) of the 1940 Act. As Medical Oxygen IP and NitrousOxide IP are ‘medicines’ within the ambit of Section 3(1)(b)of the 1940 Act, they are expressly included in Entry 88 ofthe 2005 Act;

(iii) Goods must be classified according to their popular meaningor as they are understood in their commercial sense. Oxygenis used widely as an emergency medicine as well as for thedelivery of medical services. Nitrous Oxide is used in surgeryand dentistry for anesthetic purposes. Applying the commonparlance test, there is no doubt that the products in questionare used in the mitigation of diseases and disorders and fallwithin the ambit of Entry 88 as drugs defined in Section3(b)(i) of the 1940 Act;

(iv) Several High Courts in the country have uniformly held thatMedical Oxygen IP and Nitrous Oxide IP are medicineswithin the meaning of their respective state enactments.These include Southern Gas v State of Kerala[6], State ofTamil Nadu v Ram Oxygen[7], Panki Oxygen v State ofUttar Pradesh[8], Chimanlal v State of Maharashtra[9],Indian Oxygen v State of Karnataka[10], State of Keralav Indian Oxygen[11] and ACTO, Special Circle Jodhpurv M/s Jodhpur Gases[12];

(v) The National List of Essential Medicines 2011 whichconstitutes Schedule I of the Drug Price (Control) Order2013, includes ‘Oxygen’ and ‘Nitrous Oxide’ as ‘anesthesia’under Section 1; and

(vi) The decision of the High Court from which the presentappeal arises was rightly based on the judgment of that 6 2005 (139) STC 504 (Ker)

7 [2011] 5 GST 87 (Mad HC)

8 2014 SCC Online All 2144

9 2004 (137) STC 68

10 1990(79) STC 351

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AHigh Court in Inox Air, both of which must be upheld bythis Court.

9. The rival submissions fall for consideration.

10. We must begin with the statutory framework. Schedule IV ofthe 2005 Act prescribes a uniform tax rate of 4%/5% for listed goods.BEntry 88 of Schedule IV reads asfollows:

“Drugs & Medicines whether patent or proprietary, as defined inclauses (i), (ii) and (iii) of Section 3(b) of Drugs and CosmeticsAct, 1940 (Central Act 23 of 1940), including hypodermic syringes,hypodermic needles, catguts, sutures, surgical cotton, dressing,Cplasters, catherters, cannulae, bandages and similar articles butnot including:

(a) Medicated goods;

(b) Products capable of being used as cosmetics and toiletDpreparations including Toothpastes, Tooth powders, cosmetics,Toilet articles and soaps; and

(c) Mosquito repellents in anyform.”

Entry 88 includes drugs and medicines, whether patent orproprietary as defined in clauses (i), (ii) and (iii) of Section 3(b) of theE1940 Act. Any drug or medicine that falls within the ambit of clauses (i),(ii) and (iii) of Section 3(b) falls within the ambit of Schedule IV. Entry88 also stipulates that hypodermic syringes, hypodermic needles, catguts,sutures, surgical cotton, dressing, plasters, catherters, cannulae, bandagesand ‘similar articles’ are also included, save and except for the threespecified exclusions.F

11. Schedule V of the 2005 Act readsthus:

“Goods taxable at standard rate (RNR) of [14.5%]

All goods other than those specified in Schedules I, III, IV, VI.”

Schedule V stipulates that all goods that do not fall within theGambit of Schedules I, III, IV, and VI shall be taxed at a rate of 14.5%.

12. Section 3(b) of the 1940 Act defines a “drug” in the followingterms:

“(i) All medicines for internal or external use of human beings oranimals and all substances intended to be used for or in theH

diagnosis, treatment, mitigation or prevention of any disease ordisorder in human beings, or animals, including preparations appliedon human body for the purpose of repelling insects like mosquitoes; …

(iv) such devices intended for internal or external use in thediagnosis, treatment, mitigation or prevention of disease or disorderin human beings or animals, as may be specified from time to timeby the Central Government by notification in the Official Gazette,after consultation with the Board.”

Clause (i) of Section 3(b) defines a drug as all medicines for internalor external use of human beings or animals and all substances “intendedto be used for or in the diagnosis, treatment, mitigation or prevention ofany disease or disorder in human being, or animals”, including specifiedpreparations. Clause (iv) of Section 3(b) includes all ‘devices’ intendedfor internal or external use in the diagnosis,treatment, mitigation orprevention of disease or disorder in human beings oranimals.

13. In the early decision of this Court in Chimanlal JagjivandasSheth v State of Maharashtra,[13] the question before a four judge Benchwas whether absorbent cotton wool, roller bandages, and gauzes wouldfall within the ambit of Section 3(b) of the Act of 1940. The Court held:

“3. The said definition of “drugs” is comprehensive enough totake in not only medicines but also substances intended to be usedfor or in the treatment of diseases of human beings or animals.This artificial definition introduces a distinction between medicinesand substances which are not medicines strictly so-called. Theexpression “substances”, therefore, must be somethingother than medicines but which are used for treatment. Thepart of the definition which is material for the present case is“substances intended to be used for or in the treatment”. Theappropriate meaning of the expression “substances” in the sectionis “things”’. It cannot be disputed, and indeed it is not disputed,that absorbent cotton wool, roller bandages and gauze are A

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848SUPREME COURT REPORTS

[2020] 5 S.C.R.

A“substances” within the meaning of the said expression. If so, thenext question is whether they are used for or in”treatment”.

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It is not necessary for the purpose of this appeal to defineexhaustively “the substances” falling within the definition ofB“drugs”; and we consider that whether or not surgical instrumentsare “drugs”, the articles concerned in this caseare.”

(Emphasis supplied)

This Court held that the comprehensive nature of the definitionCincludes both medicines and something other than medicines, but whichare used for treatment. In that case, the question concerned whetherabsorbent cotton wool, roller bandages and gauze are ‘substances’ withinthe ambit of Section 3(b). It is in that context that this Court held thatsubstances are ‘things’. The Court clarified that it was not necessary toexhaustively define ‘the substances’ which fall within the ambit of drugsDas defined in Section 3(b). A substance may be a product, which thoughnot specifically used as a medicine is used for diagnosis, treatment,mitigation or prevention of diseases.[14] Where a product other than amedicine is intended to be used for or in the diagnosis, treatment, mitigationor prevention of any disease or disorder, the same would be a ‘substance’Efalling within the ambit of Section3(b)(i).

14. The learned counsel for the appellants urged that the phrase“intended to be used for or in the diagnosis, treatment, mitigation orprevention of any disease or disorder” in Section 3(b)(i) is only applicableto ‘substances’ and not ‘medicines’. In Ishwar Singh Bindra v TheState of UP,[15] the central question before a three judge Bench of thisFCourt was the interpretation of Section 3(b)(i) of the 1940 Act. ThisCourt held:

“11. Now if the expression “substances” is to be taken to meansomething other than “medicine” as has been held in our previousdecision it becomes difficult to understand how the word “and”Gas used in the definition of drug in Section 3(b)(i) between“medicines” and “substances” could have been intended to have 14 Barium, for example, is a substance used as an element in the diagnostic process in X-rays.H15 (1969) 1 SCR 219

been used conjunctively. It would be much more appropriate inthe context to read it disjunctively. In Stroud’s Judicial Dictionary,3rd Edn. it is stated at p. 135 that “and” has generally a cumulativesense, requiring the fulfilment of all the conditions that it joinstogether, and herein it is the antithesis of or. Sometimes, however,even in such a connection, it is, by force of a contexts, read as“or”. Similarly, in Maxwell on Interpretation of Statutes, 11th Edn.,it has been accepted that “to carry out the intention of thelegislature it is occasionally found necessary to read theconjunctions ‘or’ and ‘and’ one for the other”.

This Court held that as the word ‘substances’ in the clause isused to mean something other than ‘medicine’, it was not the intentionof the legislature that the word “and” was meant to be read conjunctively.Accordingly, this Court held that the two parts of the definitional clausemust be read disjunctively.

15. In the above view, Section 3(b)(i) stipulates that medicines orsubstances used for or in the diagnosis, treatment, mitigation or preventionof any disease or disorder in human beings, or animals shall be includedwithin the ambit of the definition. It is significant to note the use of thephrase ‘for’ or ‘in’ in the definitional clause. Section 3(b)(i) includesboth medicines or substances used for the diagnosis, treatment, mitigationor prevention of any disease or disorder or in the diagnosis, treatment,mitigation or prevention of any disease or disorder. Where the formerhighlights the direct use of the product in question in diagnosing, treating,mitigating or preventing a disease or disorder, the latter highlights itsinstrumental use as a facilitative agent in the diagnosis, treatment,mitigation or prevention of any disease or disorder. The relevant enquiryfor this Court is whether Medical Oxygen IP and Nitrous Oxide IP areused in or for any of the purposes specified therein.

16. The term, medicine is not defined in the 1940 Act. It is a triteprinciple of interpretation that the words of a statute must be construedaccording to the plain, literal and grammatical meaning of the words.Justice G P Singh in his seminal work Principles of StatutoryInterpretation states:

“The words of a statute are first understood in their natural, ordinaryor popular sense and phrases and sentences are construedaccording to their grammatical meaning, unless that leads to some AB

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absurdity or unless there is something in the context or in theobject of the statute to suggest the contrary…in the statement ofthe rule, the epithets ‘natural’, ‘ordinary’, ‘literal’, grammaticaland ‘popular’ are employed almost interchangeably.

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It is often said that a word, apart from having a natural, ordinaryor popular meaning (including other synonyms i.e. literal,grammatical and primary), may have a secondary meaning whichis less common e.g technical or scientific meaning. But once it isaccepted that natural, ordinary or popular meaning of the word isCderived from its context, the distinction drawn between differentmeanings loses much of its relevance.”

Similarly, Craies on Statute Law states:

“One of the basic principles of interpretation of Statutes is toconstrue them according to plain, literal and grammatical meaningDof the words. If that is contrary to, or inconsistent with, any expressintention or declared purpose of the Statute, or if it would involveany absurdity, repugnancy or inconsistency, the grammatical sensemust then be modified, extended or abridged, so far as to avoidsuch an inconvenience, but no further. The onus of showing thatEthe words do not mean what they say lies heavily on the partywho alleges it. He must advance something which clearly showsthat the grammatical construction would be repugnant to theintention of the Act or lead to some manifest absurdity.”

The words of a statute should be first understood in their natural,Fordinary or popular sense and phrases and sentences should be construedaccording to their grammatical meaning, unless that leads to someabsurdity or unless there is something in the context, or in the object ofthe statute to suggest the contrary. Where a word has a secondarymeaning, the assessment is whether the natural, ordinary or popularmeaning flows from the context in which the word has been employed.GIn such cases, the distinction disappears and courts must adopt themeaning which flows as a matter of plain interpretation and the contextin which the word appears.

17. In State of HP v Pawan Kumar,[16] it was contended that thesafeguards provided in Section 50 of the Narcotics Drugs andH16 (2005) 4 SCC 550

Psychotropic Substances Act 1985 regarding search of any person wouldalso apply to any bag, briefcase or any such article or container, which isbeing carried by the person. The word ‘person’ was not defined in theAct. A three judge Bench of this Court, having regard to the scheme ofthe Act and the context in which the word — ‘person’ has been used,rejected the contention and held thus:

“8. One of the basic principles of interpretation of statutes is toconstrue them according to plain, literal and grammatical meaningof the words. If that is contrary to, or inconsistent with, any expressintention or declared purpose of the statute, or if it would involveany absurdity, repugnancy or inconsistency, the grammatical sensemust then be modified, extended or abridged, so far as to avoidsuch an inconvenience, but no further. The onus of showing thatthe words do not mean what they say lies heavily on the partywho alleges it. He must advance something which clearly showsthat the grammatical construction would be repugnant to theintention of the Act or lead to some manifest absurdity.”

The above canon of statutory interpretation has been consistentlyfollowed by this Court in State of Himachal Pradesh v PawanKumar[17], State of Haryana v Suresh[18], State of Rajasthan v BabuRam[19] and Commissioner of Customs (Import), Mumbai v DilipKumar and Company[20].

18. The word ‘medicine’ is defined in Black’s Law Dictionarythus:

“Medicine – the science and art dealing with the prevention, cureand alleviation of diseases; in a narrower sense that part of scienceand art of restoring and preserving health which is the province ofthe physician as distinguished from the surgeon and obstetrician.”

Collins Dictionary for Advanced Learners defines ‘medicine’

thus:

“Medicine is the treatment of illness and injuries by doctors andnurses; is a substance that you drink or swallow to cure an illness”

17 2005 Cr.L.J. (SC) 200818 (2007) 15 SCC 18619 (2007) 6 SCC 5520 (2018) 9 SCC 1

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852SUPREME COURT REPORTS

ACambridge Dictionary defines ‘medicine’ as:

“A drug that is used to treat illness or injury; the science dealingwith the preserving of health and with preventing and treating disease orinjury.”

The ordinary or popular understanding of the term medicine isBcharacterized by its curative properties in general and specifically, itsuse for or in diagnosis, treatment, mitigation or prevention of any diseaseor disorder.

19. In State of Goa v Leukoplast (India) Ltd,[21] the questionbefore this Court concerned whether Zinc Oxide Adhesive Plaster BPCC(Leukoplast), Surgical Wound Dressing (Handyplast), Belladona PlasterBPC, Capsicum Plaster BPC and Cotton Crape Bandages BPC(Leukocrapes) are ‘drugs’ or ‘medicine’ under the 1940 Act. A twojudge Bench of this Court laid down the test to determine whether aproduct is a medicine in the following terms:

D“15. In our view, whether the products manufactured by theassessee can be treated as “drugs or medicines” cannot beanswered straightaway. The medicinal content of the products, ifany, has to be ascertained. Its curative function has to be foundout. Can the product be called a medicament at all? Is it used toEcure or alleviate or to prevent disease or to restore health or topreserve health?...”

This Court held that the relevant enquiry is whether the product isunderstood to be a medicine and is used to cure, alleviate or preventdisease or to restore health or preserve health. The question in the presentcase does not concern all variants of oxygen and nitrogen, but onlyFMedical Oxygen IP and Nitrous Oxide IP.

20. Chapter IV of the 1940 Act is titled ‘Manufacture, Sale andDistribution of Drugs and Cosmetics’. Section 16 stipulates:

“16. Standards of quality.- (1) For the purposes of this Chapter,Gthe expression “standard quality” means –(a) In relation to a drug, that the drug complies with the standardset out in the Second Schedule, and (b) In relation to a cosmetic, that the cosmetic complies with suchstandards as may be prescribed.”

Section 16(1)(a) stipulates that drugs that comply with thestandards set out in the Second Schedule shall be certified to be of‘standard quality’ under the 1940 Act. The Second Schedule is titled‘Standards to be complied with by Imported Drugs and by Drugsmanufactured for Sale, Stocked, or Exhibited for Sale or Distributed.’Entry 5 of the Second Schedule reads:

“5. Other drugs –

Drugs included in the Indian Pharmacopeia.

Standards of identity, purity and strength specified in theedition of the India Pharmacopoeia for the first time being in forceand such other standards as may be prescribed.

In case the standards of identity, purity and strength of thedrugs are not specified in the edition of the Indian Pharmacopoeiafor the time being in force but are specified in the edition of theIndian Pharmacopoeia immediately preceding the standards ofidentity, purity and strength shall be those occurring in suchimmediately preceding edition of the Indian Pharmacopoeia andsuch other standards as may be prescribed.”

21. Drugs specified in the Second Schedule are required underthe 1940 Act to comply with specified standards. Entry 5 prescribes that‘other drugs’ means drugs included in the Indian Pharmacopeia, for whichstandards are specified therein. The Indian Pharmacopoeia Commission[22]is an autonomous institution of the Ministry of Health and Family Welfare,Government of India. The IPC, through its publication titled ‘IndianPharmacopoeia’ prescribes standards for the identity, purity and strengthof the drugs specified therein. Medical oxygen (at 99.9% purity) isincluded as a drug termed as ‘Oxygen IP’. Section 16, read with theSecond Schedule and the specification of Medical Oxygen in the IndianPharmacopoeia lends support to the contention urged by the respondentsthat Medical Oxygen IP is a drug as defined in Section 3(b)(i) of the1940 Act.

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A22. Furthermore, in exercise of the powers conferred by Section3 of the Essential Commodities Act 1955, the Central Government issuedthe Drug (Prices Control) Order 2013 which came into force on thedate of its publication in the Official Gazette (15 May 2013). Para 2(t)stipulates that the ‘National List of Essential Medicines’ means theNational List of Essential Medicines 2011 published by the Ministry ofBHealth and Family Welfare as updated and revised from time to time. Italso specifies that the National List of Essential Medicines 2011 is includedin the First Schedule to the order. Para 2(2) stipulates that all otherwords and expressions used therein and not defined, but defined in the1940 Act shall have meanings respectively assigned in the 1940 Act.

C23. The First Schedule contains the National List of EssentialMedicines 2011.

The relevant portion is extracted below:

“Schedule – I

(See paragraphs – 2(t), 2(zb))

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Symbols P, S and T appearing in NLEM 2011 denote essentiallyat Primary, Secondary and Tertiary levels respectively.

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Section 1.1 includes both Nitrous Oxide and Oxygen as medicineswithin the ambit of ‘Anesthesia’. In the exercise of the power conferredGunder the 2013 Order, the Government of India, by its order dated 20December 2013 prescribed the selling price for both “Nitrous OxideInhalation” and “Oxygen Inhalation”. This was evidently done keepingin mind the regulation of the selling prices of essential medicines in themarket. The inclusion of Oxygen and Nitrous Oxide as Anesthesia lendssupport to its use in the diagnosis and treatment of a disorder or diseaseHas specified in Section 3(b)(1) of the 1940 Act.

24. Learned counsel for the respondents relied on the judgmentsof various High Courts which have emphasized the medicinal propertiesof Medical Oxygen IP and Nitrous Oxide IP. In Southern Gas Ltd. vState of Kerala,[23] the question before the High Court of Kerala waswhether Medical Oxygen and Nitrous Oxide were ‘medicines’ for thepurpose of tax assessment under the Kerala General Sales Tax Act1963. Answering this in the affirmative, the Kerala High Court held:

“In the instant case, as already noted, the assessee, who is themanufacturer of “medical oxygen” and “nitrous oxide”, has clearlystated that these two items are manufactured only for use inhospitals and that the dominant use of these two items are only asmedicines…There is no dispute that “medical oxygen” is used foradministering it on patients. Similarly, the function of “nitrous oxide”is to act as an anesthetic agent. Thus, going by the user test andthe functional test, it is evident that “medical oxygen” and “nitrousoxide” are served as medicines.”

Applying the user test and functional test, the Kerala High Courtnoted that Medical Oxygen is administered to patients and Nitrous Oxideis used as an anesthetic agent and concluded that both are medicines.

25. In Indian Oxygen Ltd v State of Karnataka,[24] the questionbefore the High Court of Karnataka concerned whether Medical Oxygenfell within the ambit of Entry 121 of the Karnataka Sales Tax Act 1957which stipulated a tax rate for industrial gases. The High Court answeredthis in the negative and drew a distinction between industrial oxygen andmedical oxygen in the followingterms:

“The object of Entry 121 is clearly to attract an “industrial gas”,which cannot, on the face of it include, a gas which is notconsidered as an “industrial gas” by those who deal in it. It isclear that a person requiring “medical oxygen” will not be satisfiedif he is supplied with the “industrial oxygen” and similarly an honesttrader would not sell “medical oxygen” as “industrial oxygen”.

26. In State of Tamil Nadu v Ram Oxygen (Pvt.) Ltd[25], theHigh Court of Madras held that medical oxygen is a ‘drug’ within theambit of the 1940 Act:

23 (2005) 3 KLT 7824 1989 SCC Online Kar 459

25 (2010) 35 VST 478

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A“…It is also not in dispute that medical oxygen has 99.9% purityof purified oxygen and that its use is only for treatment of patientsand to mitigate contrary intensity of any disease or disorders inhuman beings. It is common knowledge at times of emergency,the application of ‘medical oxygen’ is resorted to in order to preventany sudden collapse of a patient, which process is nothing butBpart of a treatment meted out to a patient to recoup thedeterioration of health conditions…”

The Madras High Court noted that at times of emergency, theadministration of medical oxygen is resorted to prevent the suddencollapse of patients, which forms a part of the treatment meted out toCthem.

27. In Panki Oxygen v State of Uttar Pradesh,[26] the questionbefore the High Court of Allahabad was whether tax on Oxygen IPunder the Uttar Pradesh Trade Tax Act was to be levied under the Entry“Medicine and Pharmaceutical Preparation” or under the Entry “OxygenDand other gases”. Justice Ashok Bhushan (sitting as a judge of that HighCourt) relied on the above decisions of various High Courts and heldthus:

“In view of the above, we are of the view that oxygen (IP) is fullycovered by Entry 26 of the notification dated 15.1.2000Ei.e. “medicines and pharmaceutical preparation” and shall not becovered by Entry 47 of the notification dated 29.1.2001 whichrelates to “oxygen and other gases”. The oxygen (IP) i.e. medicinaloxygen being a drug fully covered by Entry 26 of the notificationdated 15.1.2000 cannot be included in the general entry i.e. EntryF47 of the notification dated 29.1.2001.”

28. In Inox Air, the question before the High Court of AndhraPradesh was whether Liquid Medical Oxygen IP, Medical Grade Oxygenand Nitrous Oxide IP are liable to be taxed under Entry 88 of the 2005Act. The High Court held:G

“As medical oxygen LP and nitrous oxide LP are used in thetreatment and mitigation of disorders in human beings, and asthey are generally understood in the trade to be surgical aids, boththese substances would fall under the definition of drug under 26 2014 SCC Online All 2144H

Section 3(b)(1) of the Drugs Act, and consequently, fall underEntry 88 of Schedule IV of the Act. Viewed from any angle, bothmedical oxygen IP and Nitrous Oxide IP fall under Entry 88 ofSchedule IV and are liable to tax only at 4%/5% and not at12.5%or 14.5%.”

The High Court held that medical oxygen is used in the treatmentand mitigation of disorders in human beings, and are generally understoodin trade to be surgical aids.

29. The above judgments highlight the curative and instrumentaluse of Medical Oxygen IP and Nitrous Oxide IP in the mitigation andprevention of disease or disorder. Nitrous Oxide is used as anestheticagent. Medical oxygen with 99.9% purity is predominantly used inhospitals. Medical Oxygen is also used for the treatment of patients andto mitigate the intensity of disease or disorder in human beings. It isutilised to prevent a sudden collapse of patients and to aid in the recoveryof health. As stated in the Counter Affidavit filed by the respondents, inorder to carry out critical surgical procedures, supplemental oxygen isadministered to patients. Medical Oxygen is also administered inresuscitation, major trauma, anaphylaxis, major hemorrhage, shock andactive convulsions, amongst other conditions.

30. Nitrous Oxide is used in surgery and dentistry for its anestheticand analgesic effects. An article published in the British Medical Bulletintitled ‘Past, Present and Future of Nitrous Oxide’[27] highlights the medicaluse of Nitrous Oxide in thefollowing terms:

“As an anaesthetic gas, N2O has many unique properties thathave historically been used to great benefit in the operating room.These include a high FA/FI ratio allowing for rapid onset andoffset, 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 areasoutside of the OR including paediatric procedural sedation, theemergency room, obstetrics, and potentially psychiatry, forattenuation of treatment-resistant depression.”

27 V Lew, E McKay, M Maze, Past, present, and future of nitrous oxide, BritishMedical Bulletin, Volume 125, Issue 1, March 2018, Pages 103–119.

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AThe World Health Organisation in its publication titled ‘ModelPrescribing Information: Drugs Used in Anesthesia’[28] states that NitrousOxide has the following uses:

“Maintenance of surgical anaesthesia in combination with otheranaesthetic agents (halothane, ether, thiopental or ketamine) andBmuscle relaxants.

In sub anaesthetic doses, to provide analgesia for obstetric practice,for emergency management of injuries, during postoperativephysiotherapy and for refractory pain in terminal illness.”

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K D Tripathi in Essentials of Medical Pharmacology[29 ]states:

“INHALATIONAL ANAESTHETICS 1. Nitrous oxide (N2O)It is a colourless, odourless, heavier than air, non inflammable gassupplied under pressure in steel cylinders. It is non irritating, butDlow potency anaesthetic; unconsciousness cannot be produced inall individuals without concomitant hypoxia; MAC is 105% implyingthat even pure N2O cannot produce adequate anaesthesia at 1atmosphere pressure. Patients maintained on 70% N2O + 30%O2 along with muscle relaxants often recall the events duringanaesthesia, but some lose awareness completely. Nitrous oxideEis a good analgesic; even 20% produces analgesia equivalent tothat produced by conventional doses of morphine.

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3. Nitrous oxide The patient is made to breathe 100% oxygenthrough a nose piece or hood and N2O is added in 10% increments(to a maximum of 50%, rarely 70%) till the desired level of sedationassessed by constant verbal contact is obtained. This is maintainedGtill the procedure is performed. Thereafter, N2O is switched off,but 100% O2 is continued for next 5 min. The patient is generallyroadworthy in 30–60 min.”

28 WHO Model Prescribing Information: Drugs Used in Anaesthesia (1989).

H29 KD Tripathi, Essentials of Medical Pharmacology, VIIth Ed., at p. 378.

The above extracts demonstrate the medical use of Nitrous Oxideas a general anesthetic as well as in operation rooms for its analgesicand anxiolytic properties.

31. In the proceedings before this Court, it was not seriouslydisputed that Medical Oxygen IP and Nitrous Oxide IP sub-serve amedicinal purpose. There is no doubt that Medical Oxygen IP and NitrousOxide IP are medicines used for or in the diagnosis, treatment, mitigationor prevention of any disease or disorder in human beings falling withinthe ambit of Section 3(b)(i) of the 1940 Act. We hold that Medical OxygenIP and Nitrous Oxide IP fall within the ambit of Section 3(b)(i) of the1940 Act and are consequently covered in Entry 88 of the 2005 Act.

32. The impugned judgment of the High Court, to the extent itheld that Medical Oxygen IP and Nitrous Oxide IP fall within Entry 88of the 2005 Act is upheld.

33. The appeals are dismissed, although for the reasons highlightedabove. There shall be no order as to costs.

34. Pending application(s), if any, shall stand disposed of.

Divya Pandey

Appeals dismissed.

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