PETITIONER:
AYURVEDA PHARMACY & ANR.
Vs.
RESPONDENT:
STATE OF TAMIL NADU
DATE OF JUDGMENT15/03/1989
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
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 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-
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
39
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.
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
40
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 68
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 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
41
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."
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
42
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. 95
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.
43