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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:             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

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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-

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       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

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       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

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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

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       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

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       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

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       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

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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