STATE OF GUJARAT versus CADILA HEALTHCARE LTD. on 11 July 2022

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 05.07.2016 passed by the High Court of Gujarat, atAhmedabad in STR No.4 of 2005 by which the High Court has answeredthe reference in favour of the respondent – assessee – dealer holdingthat the product “KADIPROL” sold by the respondent can becategorized as “Poultry Feed” falling under Entry 25 of Schedule I ofthe Gujarat Sales Tax Act (hereinafter referred to as “GST Act”) andnot as a “Drug and Medicine” under Entry 26(1) of Schedule II Part Aof the GST Act, the State of Gujarat has preferred the present Appeal.

2. At the outset it is required to be noted that the present proceedingarise out of the Determination Order passed by the Deputy Commissionerof Sales Tax under Section 62 of the GST Act by which the DeputyCommissioner held that the product in question – KADIPROL would becovered as “Drug and Medicine” under Entry 26(1) of Schedule II PartA of the GST Act.

2.1The respondent filed an application before the DeputyCommissioner of Sales Tax under Section 62 of the GSTAct to determine the rate of tax on “KADIPROL” soldunder their invoice dated 20.03.1989. The respondent alsopreferred an application before the Assistant Commissioner,Food and Drugs Control Administration regarding whetherthe respondent is required to obtain a license under the Drugsand Cosmetics Act, 1940 (hereinafter referred to as “Act,1940”) for manufacturing the product “KADIPROL”. That,the Authority under the Act, 1940 informed the respondentthat the license for manufacturing of product “KADIPROL”under the Act, 1940 was not required. However, the DeputyCommissioner of Sales Tax, by his order dated 16.04.1990held that the product in question contains some preventivemedicine and therefore, categorized as “Drug and Medicine”as per Entry 26(1) of Schedule II Part A of the GST Act.The Tribunal upheld the order of the Deputy Commissioner.The respondent preferred a Reference Application underSection 69 of the GST Act before the Tribunal for referringthe matter for decision of the High Court. The reference B

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Awas made to the High Court which was numbered as SalesTax Reference No.4 of 2005.

2.2By impugned judgment and order, the High Court hasanswered the reference in favour of the respondent –assessee and has held that the product “KADIPROL” wouldBbe covered as “Poultry Feed” under Entry 25 of Schedule Iof the GST Act.

2.3Feeling aggrieved and dissatisfied with the impugnedjudgment and order passed by the High Court holding thatthe product “KADIPROL” manufactured by the respondentCwould be covered by Entry 25 of Schedule I of the GSTAct as “Poultry Feed”, the State of Gujarat has preferredthe present Appeal.

3. Ms. Aastha Mehta, learned Counsel has appeared on behalf ofthe appellant – State of Gujarat and Ms. Kavita Jha, learned CounselDhas appeared on behalf of the respondent – assessee.

4. Ms. Aastha Mehta, learned Counsel appearing on behalf of theappellant – State of Gujarat has submitted that in the facts andcircumstances of the case, the High Court has committed grave error inoverturning the findings given by the Tribunal and the Deputy Sales TaxECommissioner holding that the product “KADIPROL” can becategorized as “Drug and Medicine”.

4.1It is submitted that the High Court has not given any reasonwhatsoever to overturn the findings given by the Tribunalas well as the Deputy Sales Tax Commissioner. It issubmitted that both the authorities below in fact consideredFthe expert literature on the subject which ought not to havebeen brushed aside by the High Court without giving anyindependent reasoning.

4.2It is submitted that the composition of “KADIPROL” forevery 100 gm was (a) Emporium (Amprolium)GHydrochloride – 25 gm and (b) Vitamin K3 – 250 gm.

4.3It is submitted that the same product was used to provideprotection against coccidiosis due to anti-coccodial propertyof emporium. It is submitted that the presence of VitaminK in “KADIPROL” prevents loss of blood by ensuring H

adequate availability of prothrombin and thus supplementsthe anti-coccidial action for emporium. It is submitted thatproduct also eliminates subclinical coccidian infection andimproves the health of the blood. It is submitted thattherefore the predominant purpose for which the productin question was used by persons rearing poultry is toeliminate subclinical coccidian infection. It is submitted thatthe indirect effect of the said drug is only consequentialand may be to improve the health of the poultry or help ingrowth of poultry. It is submitted that however that doesnot dilute the main purpose of the ingredients, thecomposition as well as the purpose for which it wasadministered. It is submitted that therefore the product wouldfall under Entry 26(1) of Schedule II Part A of the GST Actas “Drug and Medicine”.

4.4It is further submitted on behalf of the State that a drug canbe administered either for prevention or treatment ofdisease. The Deputy Sales Tax Commissioner consideringthe expert literature specifically held that the drug is to ensurethat an infectious disease does not spread and wasadministered to the poultry feed as a “preventive measure”.It is submitted that if the nutrition is not for predominantpurpose, then the product cannot be ‘poultry feed’.

4.5It is submitted that the Tribunal considered the decision ofthe High Court in the case of State of Gujarat vs.M/s. Pfizer (India) Ltd. in Sales Tax Reference No.38 of1980 in which the High Court held that if main purpose ismedicinal and not nutrition, then even if there is some indirecthelp in increasing production of eggs, the product wouldnot be called “poultry feed”. It is submitted that in the presentcase the Tribunal specifically held that the product is a “non-nutritional additive” which as per the existing literature fallswithin the category of “Drug”. It is submitted that even inthe case of M/s. Pfizer (India) Ltd. (Supra), one of theproducts which had Terramycin and was used for thepurpose of preventing or treating diseases was held to be a“drug”. It is submitted that in the case of M/s. Pfizer Ltd.(Supra), it was specifically held that the product which does A

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not have any nutritional value as predominant use cannotbe a poultry feed. It is submitted that while deciding thereference in the case of M/s. Pfizer (India) Ltd. (Supra),the High Court also considered its earlier decision in thecase of Glaxo Laboratories (India) Ltd. vs. State ofGujarat [(1979) 43 STC 386 (Guj)]. It is submitted thatneither Pfizer judgment nor Glaxo judgment of the HighCourt have held that non-nutritional additives would beconsidered as “poultry feed”.

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4.6It is submitted that the view taken by the High Court relyingon the decision in case of M/s. Pfizer (India) Ltd. (Supra)has widened the ambit of “poultry feed” so as to restrictthe meaning of Entry “Drug and Medicine”. It is submittedthat no Entry under the Schedule can be interpreted sobroadly so as to include even products which have medicinalproperties. It is submitted that since the product is soughtto be exempted under Entry 25, the meaning given to“poultry feed” cannot be widened and has to be construedstrictly. It is submitted that such an interpretation gives undueand subjective power on dealers to use any product as“poultry feed” thereby getting exemption of tax.

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E4.7It is submitted that in the case of Eskayef Limited vs.Collector of Central Excise [(1990 4 SCC 680], it isheld by this Hon’ble Court that the products “Neftin-50 andNeftin-200” which are used for prevention and treatmentof ailments such as “coccidiosis” and “histomonoiasis” inpoultry cannot be considered as ‘poultry feed’ and ought toFbe categorized as a “drug”. It is submitted that in the saiddecision it is specifically held that merely because theseproducts can be used for improving egg production andincrease in growth rate of broilers would not in any waydetract from the fact that said products are medicine. It isGsubmitted that in the present case also, “KADIPROL” isused for the purpose of prevention and treatment, with anindirect positive consequence for the health of the poultry.

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4.8Making above submissions and relying upon above decisions,it is prayed to allow the present appeal and quash and setaside the impugned judgment and order passed by the High H

Court and restore the decisions of the Sales Tax Tribunalas well as the Deputy Sales Commissioner and to hold thatthe product “KADIPROL” can be categorized as “Drugand Medicine” under Entry 26(1) of Schedule II Part A ofthe GST Act and not as “poultry feed” falling under Entry25 of Schedule I of the GST Act.

5. Present appeal is vehemently opposed by Ms. Kavita Jha,learned Counsel appearing for the respondent.

5.1Ms. Jha, learned Counsel appearing for the respondent –dealer – assessee has submitted that as such as on datethere is no existing demand on the respondent pertaining tothe issue and even all the assessments under the GST Actare also closed with respect to the respondent. It is submittedthat therefore as such the issue involved in the presentappeal would be academic.

5.2Making submissions on merits, learned Counsel appearingfor the respondent has vehemently submitted that in thefacts and circumstances of the case, the High Court hasnot committed any error in categorizing the product“KADIPROL” as “poultry feed” under Entry 25 of ScheduleI of the GST Act. It is submitted that while holding so theHigh Court has taken into consideration the fact that over aperiod of time concept of “poultry feed” has changedconsiderably.

5.3It is submitted that the words “poultry feed” has acquireddefinite connotation in livestock farming and so also hasthe concentrates and whereas the feed simpliciter isessential for the maintenance of poultry, the concentratesi.e. vitamins in the food stuff enable the poultry to maintainenergy; to perform the vital process of life and provide thematerial to replace the essential tissues; breakdown of whichoccurs in the body continuously. It is submitted that theration of poultry may be divided for convenience into twoparts: (1) maintenance ration, viz. the portion of the diedwhich just enables the poultry at rest to carry on the essentialprocesses of life, such as breathing and circulation of blood,without either gain or loss of weight; and (2) feed supplied A

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826SUPREME COURT REPORTS

over and above the maintenance requirement for augmentingthe production for growth or fattening; or for augmentingegg laying capacity.

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5.4It is submitted that in the present days when the maintenanceof the poultry has become so costly, the poultry is not keptBin a farm in a state of non-production. It is submitted that tomake the poultry financially viable, it is but necessary tosupply a balanced poultry feed to increase the productionof eggs or fat and growth if the poultry is kept forconsumption of its meat. It is submitted that over a periodof time, when the concept of poultry feed has changedCconsiderably, it does not mean food for poultry inconventional sense. It consists not only of concentrates buteven additives, like vitamins, minerals and antibodies whichare essential for better development of poultry etc. whichis purpose of having a good yield from such activities. InDsupport of above submissions, reliance is placed on thefollowing decisions.

(1) Glaxo Laboratories (India) Limited vs. State of Gujarat(1979) 43 STC 386 (Guj)

(2) Glindia Ltd. vs. Union of IndiaE1989 (22) ECC 311

(3) State of Gujarat vs. Pfizer Ltd.(1991) 82 STC 374 (Guj)

(4) Sun Export Corporation vs. Collector of Customs,FBombay (1997) 6 SCC 564

(5) M/s. Golden Streak Drug & Pharmaceuticals Ltd.,Lucknow vs. Commissioner Trade Tax Lucknow2017-TIOL-2502-HC-ALL-CT

5.5It is submitted that the product “KADIPROL” is added to“poultry feed” so as to make good deficiency of VitaminK. The product “KADIPROL” is aimed at preventing lossof blood in the intestine by enhancing clotting time of bloodin birds. It is submitted that the said product is an essentialpoultry feed supplement and is liable to be classified as G

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“poultry feed” under Entry 25 of Schedule I of the GSTAct.

5.6It is further submitted by Ms. Jha, learned Counsel appearingfor the respondent that this Court has consistently takenthe view that in determining the meaning of an article in atariff schedule, one principle which is fairly well-settled isthat those words and expressions should be construed inthe sense in which they are understood in the trade by thedealer and the consumer. It is submitted that therefore whileconsidering a particular product / article, a common parlancetest is to be applied. In support of above submissions,reliance is placed on the decisions of this Court in the caseof Collector of Central Excise, Kanpur vs. KrishnaCarbon Paper Co. [(1989) 1 SCC 150] and PlasmacMachine Manufacturing Company Private Limited vs.Collector of Central Excise, Bombay [(1992) 84 STC107 (SC) : [1990] Supp 3 SCR 384].

5.7It is submitted that in the present case, poultry rearingindustry, poultry feed concentrates like “KADIPROL” arenot bought as “Drug and Medicine”, but infact the same isbought as “poultry feed”. It is submitted that even therespondent is marketing its product “KADIPROL” as “notfor medicinal use”. It is submitted that therefore applyingcommon parlance test also, the product “KADIPROL” isto be considered as “poultry feed”.

5.8It is submitted that the subsequent decision of this Court inthe case of Commissioner of Customs (Import)Mumbai vs. Dilip Kumar and Company and Ors.[(2018) 9 SCC 1] by which this Court overruled the decisionof this Court in the case of Sun Export Corporation vs.Collector of Customs, Bombay [(1997) 6 SCC 564] tothe extent wherein Sun Export Case held that in case ofambiguity, benefit of exemption notification should go tothe assessee, shall not be applicable to the facts of the caseon hand. It is submitted that in the present case, it is not thecase of respondent that the product “KADIPROL” wascovered within the ambit of any exemption notification andtherefore, in case of ambiguity, the benefit should go to the A

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respondent. It is submitted that present case pertains to theclassification of the product “KADIPROL” which is poultryfeed supplement as to whether the same is classifiable as“poultry feed” or as “Drug and Medicine”.

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5.9It is further submitted by Ms. Jha, learned Counsel appearingfor the respondent that even under the Gujarat Value AddedTax Act, 2003 (hereinafter referred to as “Gujarat VATAct”), sale and purchase of “poultry feed” are exempt fromtax under Entry 48 Schedule I of the Gujarat VAT Act. It issubmitted that even under the Gujarat VAT Act, food anddietary supplements are specifically excluded within theambit of Drug and Medicine. It is submitted that thus, thesame reflects intention of the legislature that entry “Drugand Medicine” will not imbibe food and dietary supplementswithin its ambit. It is submitted that by drawing an analogyin the present case as well, it can be argued that even“poultry feed” supplements like “KADIPROL” will not becovered within the ambit of “Drug and Medicine” underEntry 26(1) of Schedule II of the GST Act.

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Making above submissions, it is prayed to dismiss thepresent appeal.

E6. Heard learned Counsel appearing for the respective parties atlength.

7. Having heard the learned counsel appearing on behalf of therespective parties and having perused the order passed by the learnedTribunal as well as the impugned judgment and order passed by the HighCourt, it is noticed that the product in question was sold in a sachet/packet of 100 gm. It was not meant to be given as a food to the poultry.It was required to be mixed with the feed given to the poultry/birds. Itcannot be directly fed and/or given to the birds. Therefore, there is somemerit in the contention of the Revenue that the impugned judgment andorder does not deal with the reasoning given by the Tribunal. It merelyquotes and relies upon the two decisions in the case of GlaxoLaboratories (India) Ltd. (supra) and M/s. Pfizer (India) Ltd.(Supra) without a detailed and an in-depth examination of the facts asfound. Therefore, usually in the aforesaid background, we would haveremitted the matter to the High Court for a fresh decision. However, we F

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are not inclined to pass an order of this nature as it is accepted that theissue in question is of academic interest and even if we decide the appealin favour of the Revenue, it would not have any revenue implication asthere are no tax dues.

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8. In view of the above facts and as the issue in question is in theacademic interest and as there is no revenue implication as there are noBtax dues and therefore there is zero tax effect, we close the presentproceedings keeping the larger question on the Common Parlance Testopen, to be considered in an appropriate case in a like matter.

With this, the present appeal stands disposed of.

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Nidhi Jain

Appeal disposed of.

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