Merind Ltd. vs State Of Maharashtra
2004 Latest Caselaw 537 Bom

JUDGMENT

J.P. Devadhar, J.

1. At the instance of the applicant, larger Bench of the Maharashtra Sales Tax Tribunal, Mumbai, has referred the following questions for the decision of this Court under Section 61 of the Bombay Sales Tax Act, 1959 :

(i) Whether, on the facts and circumstances of the case and on true and correct interpretation of the Schedule, entry C-II-37, appended to the Bombay Sales Tax Act, 1959 as amended by Amendment Act No. XIX of 1996, the Tribunal was legally justified in holding that the diagnostic kits sold by the applicant by his invoice dated August 27, 1996 are not "drugs" covered by the said Schedule, entry C-II-37 ?

(ii) Whether, on the facts and in the circumstances of the case and on true and correct interpretation of the Schedule, entry C-II-37 appended to the Bombay Sales Tax Act, 1959, the Tribunal was justified in interpreting the word "externally" appearing therein to mean "used upon the body" and not "used upon as well as outside the body", and in holding the said product to be not a medicine under the said Schedule, entry on the basis of such interpretation ?

(iii) Whether, on the facts and in the circumstances of the case and on true and correct interpretation of Schedule, entry C-II-106 appended to the Bombay Sales Tax Act, the Tribunal was legally justified in holding that the diagnostic kit sold by the appellant by his invoice dated August 27, 1996 is a scientific and laboratory instrument/equipment covered by the said Schedule, entry C-II-106, merely because it is used exclusively in pathological laboratories for carrying diagnostic tests ?

2. The dispute in the present reference relates to the classification of diagnostic kits sold by the applicant (hereinafter referred to as "the assessee"), vide sale invoice dated August 27, 1996. The larger Bench of the Tribunal has held that the diagnostic kits sold by the assessee are not classifiable as "drugs" under Schedule, entry C-II-37, but the same are classifiable as scientific and laboratory instrument/equipment under Schedule, entry C-II-106, of the Bombay Sales Tax Act, 1959 ("the BST Act", for short).

3. The assessee is a public limited company engaged in the business of manufacture/import of medicines, diagnostic kits, etc. The assessee is duly registered under the provisions of the BST Act. The assessee holds a licence under the Drugs and Cosmetics Act, 1940 ("the Drugs Act") for manufacture/import of various products.

4. Diagnostic kits are used for the detection of "AIDS". These products are not manufactured in India but are imported under the licence granted to the assessee under the Drugs Act. The diagnostic kits consist of the following products :

  _______________________________________________________________________
Sr. No                    Description of the product
_______________________________________________________________________
 1.                        Accu Dot HIV 1/2 25
 2.                        Accu Dot HIV 1/2 50
 3.                        HIV I + 2 ELISA
 4.                        Texoplasma Gond II-I (Code No. 4945)
 5.                        Texoplasma Gond II-I (Code No. 4946)
 6.                        Rubella Virus Ig G -
 7.                        Rubella Virus Ig M
 8.                        T 4 Elisa
 9.                        TSH Elisa
10.                        Hepatitis B Surface
11.                        Cytomegalo Virus Ig
12.                        Herpes Simplex Virus
_______________________________________________________________________

 

5. On sale of the said products vide sale invoice dated August 27, 1996, the assessee made an application to the Commissioner of Sales Tax under Section 52 of the BST Act seeking determination of the classification and applicable rate of tax payable on the aforesaid products.
 

6. Before the Commissioner of Sales Tax, the assessee contended that the products which constitute diagnostic kits contained medicinal formulations made mainly of "human plasma" consisting of its major components, namely :
  

(i) Positive control : Human plasma containing either antibodies to HIV I + 2 or Hbs Ag Antigen.
 

(ii) Negative control : Human plasma
 

(iii) Coated plates
 

(iv) Enzyme conjugate,
 

(v) Enzyme substrate,
 

(vi) Wash buffer
 

6.1 It was contended by the assessee before the Commissioner that for every test it is essential to use positive and negative controls. The results of the tests are interpreted by comparing the colour developed by the blood samples at the end of the assay with the intensity of the colour developed by negative and positive controls. This interpretation is carried out on a special machine called "Elisa reader". It was contended that in the absence of these positive and negative controls, one cannot interpret whether a given blood unit is positive or negative for HIV and HBs Ag. If the unit is positive for either one of them, it becomes unsuitable for transfusion and a wrong interpretation can cost the life of the person who receives that blood unit. It was submitted that there is no treatment for AIDS and the only way to avoid contracting AIDS is by preventing the entry of virus, namely, HIV's which are responsible for AIDS. Therefore, detection of the said virus in the human beings play a major role in the human life. Thus, the diagnostic kits which are medicinal formulations are liable to be treated as "drugs" and accordingly it was contended that the diagnostic kits are squarely covered under Schedule, entry C-II-37, of the BST Act as amended on June 29, 1996 with retrospective effect from October 1, 1995.

7. The Commissioner of Sales Tax by his order dated January 7, 1998 held that any medicinal formulations or preparations for being qualified as "drugs and medicines" in the new Schedule, entry C-II-37, have not only to be useful for diagnosis, treatment, mitigation or prevention of disease or disorders, but it has also to be capable of internal or external application on the body. Since the diagnostic kits sold by the assessee were admittedly not applied on the human body either internally or externally, but were used in pathological laboratories for carrying out certain tests, the Commissioner held that in spite of the word "diagnosis" in the Schedule, entry C-II-37, with effect from October 1, 1995, the diagnostic kits would not fall under Schedule, entry C-II-37, but the same would be properly quantifiable under Schedule, entry C-II-106.

8. On appeal filed by the assessee, two member Bench of the Maharashtra Sales Tax Tribunal, Mumbai, found that there were two conflicting judgments delivered by the same Tribunal on the very same issue. The first judgment was given in the case of Bharat Laboratories (S.A. No. 488 of 1975 decided on November 21, 1975), wherein it was held that the words "internally or externally" appearing in the then existing entry pertaining to "medicines" should be interpreted liberally and not restrictively and, therefore, medicinal formulations which are neither consumed internally nor applied externally on human body but which are useful for diagnosis of disease would qualify as "medicines". The second judgment was given by the Tribunal in the case of Span Diagnostic Pvt. Ltd. (S.A. Nos. 1587 to 1589 of 1991 decided on March 18, 1994), wherein it was held that the words "internally or externally" appearing in entry C-II-37 will have to be interpreted to mean that any substance in order to qualify as drugs and medicines must be capable of being consumed internally or applied externally even for the purpose of diagnosis. In view of the conflicting views, the Bench consisting of two members, without expressing any opinion either way by its judgment dated December 19, 1998 referred the matter to a larger Bench.

9. The larger Bench of the Maharashtra Sales Tax Tribunal by its judgment dated December 15, 2001 held that the diagnostic kits are not classifiable as medicines in Schedule, entry C-II-37, and the most appropriate place where they can fit in, is the Schedule, entry C-II-106. On a reference application filed by the assessee, the larger Bench of the Sales Tax Tribunal has referred the aforesaid questions for the decision of this Court.

10. Before dealing with the merits of the case, it would be appropriate to set out the following relevant entries in the Schedule to the BST Act :

"C-II-37. Drugs (including Ayurvedic, Siddha, Unani, Spirituous Medical Drugs and Homeopathic Drugs), being formulations or preparations conforming to the following description, namely :--

'Any medicinal formulation or preparation ready for use internally or externally for diagnosis, treatment, mitigation or prevention of any diseases or disorder in human beings, animals and birds which is manufactured, imported into India, stocked, distributed or sold under licence granted under the Drugs and Cosmetics Act, 1940, but excluding mosquito repellants in any form'.

C-II-106 : Professional, scientific and laboratory instruments, implements, tools including syringes and needles of all kinds intended for the use of medical profession, other than those specified elsewhere and components, parts and accessories thereof."

11. Mr. Patkar, learned advocate appearing on behalf of the assessee, submitted that the Revenue had contended before the lower authorities that the diagnostic kits cannot be classified under entry C-II-37 mainly on two grounds, namely : (i) Diagnostic kits are not medicinal formulations and (ii) it is used neither inside nor upon the human body and hence cannot fall under entry C-II-37. He submitted that larger Bench of the Tribunal has rejected the first contention of the assessee and has held that the diagnostic kits are medicinal formulations. The revenue has accepted the decision of the Tribunal. Therefore, the only issue that requires to be considered in this Reference application is, whether the diagnostic kits which are medicinal formulations are covered under entry C-II-37 even if they are not used internally or upon the human body for diagnosing the ailment in human beings or the diagnostic kits would be properly classifiable under entry C-II-106.

12. Mr. Patkar submitted that any product for being qualified as medicines/drugs under entry C-II-37 has to satisfy each one of the following ingredients, namely :--

(i) It should be a medicinal formulations of preparation.

(ii) It should be ready for use, meaning thereby that it should not be required to be further processed upon before being used as a medicine.

(iii) It should be capable of being used internally or externally.

(iv) It should be capable of being used for diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings, animals and birds.

(v) It should have been manufactured, imported, stocked, distributed or sold under a drug licence.

(vi) It should not have been specifically excluded from the said Schedule, entry (like mosquito-repellants).

In the present case, the diagnostic kits sold by the assessee fulfil all the aforesaid contentions and, therefore, the same are liable to be classified under entry C-II-37.

13. Mr. Patkar further submitted that a diagnostic kit comprises of different types of reagents and solutions. All these reagents and solutions are drugs assembled and kept in a kit. Diagnostic kits fall under Schedule C of the Drugs and Cosmetics Act, 1940 and the assessee has been granted requisite licence under the Drugs Act. As the entry C-II-37 relates to drugs, the diagnostic kits being drugs would be squarely falling under that entry.

14. Mr. Patkar further submitted that the words "ready for use internally or externally for diagnosis" in entry C-II-37 cannot be construed narrowly so as to include only those medicinal formulations which are used for diagnosis either inside the body or upon the body of human beings, He submitted that there is not a single medicinal formulations which is used inside or on the human body for diagnosing the ailments in the human beings. He submitted that if the contention of the Revenue is accepted then there will not be a single medicinal formulations used for diagnosis which would be covered under entry C-II-37. In this connection, Mr. Patkar submitted as follows :

(a) The words "internally or externally" are not defined under the BST Act. In the medical science the words "internally/externally" are referred by the words "in vivo" and "in vitro". As per the Websters Encyclopaedic Unabridged Dictionary of the English Language, the words "in vitro" and "in vivo" means :

"In vitro : (in vetro), Biol. within an artificial environment, as a test tube : the cultivation of tissues in vitro Cf. in vivo [< L : lit., in glass.]."

"In vivo : (in vevo), Biol. within a living organism : the cultivation of tissues in vivo Cf. in vitro [< L : in something alive]."

(b) As per Stedman's Medical Dictionary the term "in vitro" and "in vivo" means :

"in vitro--in the test tube : referring to chemi reactions fermentations, etc., occurring therein, usually in cell-f extracts."

"invivo--in the living body : referring vital chemical processes, etc., as distinguished from those occurring in the test tube (in vitro)."

(c) If the entry C-II-37 was intended to cover only those drugs which are applied inside or on the human body then it would have been specifically so stated in the entry C-II-37. He referred to the definition of the "drug" under the Drugs and Cosmetics Act which reads as under : -.

(b) "drug" includes--

(i) all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes ;

(ii) such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of [vermin] or insects which cause diseases in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette ;

(iii) all substances intended for use as components of a drug including empty gelatin capsules ; and

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

Accordingly, it was submitted that when the definition of "drug" under the Drugs Act includes all medicines for internal or external use of human beings, all substances intended to be used for or in the diagnosis and also preparations applied on the human body, there is no reason to give restrictive meaning to the word "drugs" in entry C-II-37.

(d) It is not in dispute that diagnostic kits are drugs covered under Schedule C of the Drugs Act and the assessee has the requisite licence to import the diagnostic kits as drug and sell the same in the market. Since the entry C-II-37 deals with "drugs" and the term "drug" has not been defined under the BST Act, it is just and proper to refer to the definition of "drug" under the Drugs Act. The fact that the term "drug" under the Drugs Act has wider meaning and the fact that the entry relating to "medicines" in the BST Act has been widened by using the words "drugs", wider meaning has to be given to entry C-II-37 and not a narrow meaning. Reliance was placed on the decision of the Gujarat High Court in the case of State of Gujarat v. C.K. Gauze Bandage Manufacturing Company [1992] 84 STC 571, wherein it was held that it is permissible, for the purposes of the Gujarat Sales Tax Act, 1969, to refer to the definition of "drug" under the Drugs and Cosmetics Act, 1940.

(e) Medicinal formulations intended to be used, whether internally or externally for diagnosis of the diseases in human beings have been on the statute book since 1964 and the same have been interpreted by the Tribunal in the case of Bharat Laboratories v. State of Maharashtra (S.A. No. 488 of 1975 decided on November 21, 1975} as early as 24 years back and there are no compelling reasons to take a contrary view. In this connection, reliance was placed on the decision of the apex Court in the case of State of Tamil Nadu v. Srinivasa Timber Depot [1991] 80 STC 393.

(f) Use of the words "human beings" in entry C-II-37 cannot be read as "human body". There is a distinction between the word "human being" and "human body". Referring to the decisions of the apex Court in the case of the Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Mfg. Co, Ltd. [1981] 48 STC 239 and State of Bombay v. Automobile and Agricultural Industries Corporation [1961] 12 STC 122, it was submitted that when the Legislature has designedly abstained from using an expression which has restrictive meaning, that expression cannot be imported while interpreting the entry. Therefore, the entry C-II-37 cannot be restricted to only those medicinal formulation which are used on human body.

(g) As per the Marathi version of the Gazette notified by the State Government, the entry C-II-37 applies to medicinal formulations which are used for "Bahya Vaparakarita"

That means for "external use" and not "for use on the human body". It was submitted that reading the Marathi version as well as English version of the entry C-II-37 clearly shows that medicinal formulations included therein are of a wider nature and are not restricted only to the medicinal formulations which are used on the human body. In this connection reliance was placed on the decision of the apex Court in the case of Park Leather Industries (P.) Ltd. v. State of U.P. [2001] 122 STC 82.

(h) the State Government has published a Dictionary in Marathi known as "Shaasan-Vyavahar Kosh". As per the said Dictionary the words "external" means "Bahayata Baahren". Accordingly, it was submitted that the words "externally" appearing in entry C-II-37 cannot be restricted to medicinal formulations which are applied on the external surface of the body.

15. It was further submitted that the diagnostic kits which are medicinal preparations could not be classified under entry C-II-106. It was submitted that entry C-II-106 deals with instruments, implements, etc. Those are all hardware goods which are reusable and by no stretch of imagination, it can be stated that the reagents fall under that category. The wells or plates which are used for diagnostic purpose are coated wells and coated plates and those are to be destroyed immediately after use. One well is used for diagnosis of one person and similarly one plate is used for one person only. This can be easily demonstrated from the price catalogues of different manufacturers and traders of instruments, tools, etc. It was submitted that in the present case, the evidence of trade understanding has been totally ignored by the respondents.

16. The words "instruments, implements, etc." are used under different entries under the BST Act as can be seen from the English version as well as the Marathi version of different entries. It was submitted that by no stretch of imagination it can be said that the Legislature had any intention to include drugs or formulations in the entry No. 106 which is applicable only for instruments, implements, etc.

17. From the entry in the Schedule to the Sales Tax Act, it can be seen that some articles are listed separately and some articles together. When they are grouped together, each word in the entry draws colour from the other words therein. The word "instrument" mentioned in entry C-II-106 draws colour from the words "implements" and "tools". Even the words "syringes and needles" mentioned in that entry are syringes and needles simpliciter and the entire entry has nothing to do with "drugs". In this connection, reliance was placed on the decision of the apex Court in Pardeep Aggarbatti v. State of Punjab [1997] 107 STC 561.

18. It was further submitted that the Revenue has not offered any reasons except stating that the entry C-II-37 should be given a restricted meaning. The onus or the burden to show that the product falls within a particular entry is always on the Revenue. Since the Revenue has failed to discharge the onus, the classification suggested by the Revenue cannot be accepted. In this connection, reliance was placed on the decision of the apex Court in the case of Hindustan Ferodo Ltd. v. Collector of Central Excise, Bombay [1997] 106 STC 214; (1997) 89 ELT 16 and also the decision in the case of Collector of Central Excise, Calcutta v. Sharma Chemical Works . Accordingly, it was submitted that diagnostic kits are properly classifiable under entry C-II-37 and not under entry C-II-106.

19. Mrs. M. Kejle, learned A.G.P. appearing on behalf of the respondents, while supporting the order passed by the larger Bench of the Maharashtra Sales Tax Tribunal submitted that if the words "external" is given the extended meaning as "beyond the body", the terra "internally or externally" becomes superfluous because it means anywhere in the universe within or outside anywhere. The Legislature uses the words with a purpose. To save the group of words "internally or externally" from being superfluous it becomes necessary to interpret and assign such meaning to the words "externally" that means "on the external side of human body". It was submitted that the above meaning also matches with the dictionary meaning. It was submitted that by assigning such dictionary meaning the word "externally" does not become superfluous. If the word is present then the products which are for use "internally or externally" are covered. The products of the applicant may not find place in the same entry. The products that find place therein are medicines in the normal sense for use internally as well as externally and the diagnostic reagents for use internally (if no diagnostic reagents are available for use externally in the ascribed sales). If the word is not present a different result follows. In that case, the products such as medicines in the normal sense for use externally stand excluded and only the medicines and diagnostic reagents for use internally remain included in the entry. Thus, the result of the presence or absence of the word "externally" makes a difference if the sense ascribed to it is "on the external side of the body" in consonance with the dictionary meaning. Accordingly, it was submitted that the Tribunal was justified in holding that the diagnostic kits which are not used for diagnosis on the body would not be covered under entry C-II-37.

20. It was submitted (oral and written) that while interpreting the entry due regard must be given to the words used by the Legislature. The scope of the entry is not to be determined on the basis of the goods but are to be determined on the basis of language used by the Legislature. Referring to the Oxford Advanced Learner's Dictionary of Current English by A.S. Hornby, Sixth Edition, it was submitted that the word "externally" has been used in disjunction with the word "internally". It is not necessary for the goods to be useful internally as well as externally for satisfying the requirement to get covered under the said entry. The diagnostic reagents (genus) (during the period when the word for diagnosis is present), which are useful "externally" or "internally" are intended to be covered under the said entry. Even if there exists no diagnostic reagents for external use, it only means that the diagnostic reagents which are used internally (species) are intended to be covered by the said entry. By assigning such meaning to the word "externally" it has the effect in narrowing down the scope of the entry, which is the exclusive prerogative of the Legislature. The wisdom of the Legislature cannot be called in question. If by assigning some meaning to the words, all the diagnostic reagents are out of the entry despite the inclusion of the word "for diagnosis", it would have the effect in rendering the word "for diagnosis" as superfluous or for that matter ignoring the words "for diagnosis". Such meaning to the words is unwarranted. Therefore, every word must be given the meaning, which helps in sustaining/retaining every other word in a statute.

21. It was submitted by way of oral and written submission that medicinal formulations for diagnosis were excluded from the purview for some period. However, the words "internally or externally" have been appearing throughout the period when the word "diagnosis" was present and absent. If the period during which the word "for diagnosis" was absent is considered for a while, by no stretch of imagination one cannot give extended meaning to the word externally meaning thereby beyond the body in relation to the goods (medicines) used for treatment, mitigation or prevention of a disease. It was submitted that for treatment, mitigation or prevention of disease, the medicine is necessarily to be applied to the body of human being, animal or birds or consumed internally. Any goods which are kept beyond the body would not either prevent or mitigate or treat any disease. Accordingly, it was submitted that the word "externally" has to be construed to mean to apply "on the outside of the body".

22. It was submitted by way of written submission that the conspicuous non-use of the word "externally" in case of the laboratory diagnostic reagents indicates that the word "externally" is different than the word "in vitro"--in the artificial atmosphere of the laboratory in a test tube. The diagnostic reagent which are used in vivo--(taking place in a living body) finds place in the scope of the entry C-II-37 in view of the language used by the Legislature therein. The people in the trade themselves avoid using the word "external" to refer to the laboratory diagnostic reagents goes a long way to indicate that in their parlance word "external" is alien to such products. Instead they prefer to use the word "in vitro" for such products. They restrict the use of the word "externally" for the medicines which are applied on the external side of the body. Thus in trade parlance the word "externally" has a specific scope as given in the dictionary. This is abundantly evidenced from the use thereof on the packs dealt in by the traders. When the people in the trade themselves avoid using the word "external" in relation to the products of the appellant, there is no reason to presume that in trade parlance the appellant's products are for external use. As against the use of the words "for external use" used in relation to the goods traded by them, the words "in vitro" are used in relation to the products of the applicant. Admittedly the in vitro products are not "medicinal", meaning thereby capable of being used on the human body. Only in vivo diagnostic reagents can be used on the human body. Thus in common parlance the word "externally" means "upon the body and not beyond the body".

23. It was submitted that the Tribunal held that the diagnostic kits are medicinal formulations and further held that these medicinal formulations do not qualify under entry C-II-37 because they are not applied on the human body and, therefore, would qualify under entry C-II-106. It was submitted that the Tribunal on the one hand held that the diagnostic kits are medicinal formulations and on the other hand has held that these medicinal formulations are instruments falling under entry C-II-106. Such a finding is mutually contradictory because medicinal formulations cannot be said to be instruments. Therefore, the proper course is to hold that the diagnostic kits are not medicinal formulations and are properly classifiable under entry C-II-106. It was submitted that the assessee itself had applied for determination of the disputed questions (DDQ) on December 28, 1995 stating therein that the diagnostic kits are instruments covered under entry C-II-106. Accordingly, it was submitted that the assessee has been seeking interpretation to suit its convenience. It was submitted that the finding of fact given by the Tribunal (which is also erroneous) that the diagnostic kits are medicinal formulations or preparations itself is not sufficient to qualify to be covered under entry C-II-37. It was submitted that the medicinal formulations and preparations which are applied inside or upon the human body alone find place in entry C-II-37. Accordingly, it was submitted that the diagnostic kits are properly classifiable under entry C-II-106 and not under entry C-II-37.

24. We have carefully considered the rival submissions. The issues required to be decided in this reference are in a narrow compass. The Tribunal in its judgment has held that the diagnostic kits are medicinal formulation preparation. That finding has attained finality as the Revenue has not sought reference on that issue. In the assessee's reference the Revenue cannot agitate that the diagnostic kits are not medicinal formulations or preparations. This Court in the case of Commissioner of Sales Tax, Maharashtra State v. Sunderdas Harjiwan [1987] 65 STC 450 and in the case of Commissioner of Income-tax, Bombay City-III v. Public Utilities Investment Trust Ltd. [1983] 143 ITR 257 (Bom) has held although an order of the Tribunal is entirely in favour of one party but on some points it had held against that party, then that party is not precluded from applying for a reference and if no reference is sought by that party, then it will not be open to that party to raise the issue in the reference filed by the other party. In the present case, the reference is at the instance of the assessee and the findings of the Tribunal which are in favour of the assessee are not agitated by the assessee. Therefore, the questions raised in the reference will have to be decided on the premises that the diagnostic kits are medicinal formulations/preparations.

25. The words "internally or externally for or in the diagnosis" have been used by the Legislature in the entry relating to drugs/ medicines, since 1965. In the case of Bharat Laboratories v. State of Maharashtra (Second Appeal No. 488 of 1975 decided on November 21, 1975), the issue before the Tribunal was that whether the "blood sera" used to determine the blood group before transfusing the blood into human being could be classified as "medicines". The Tribunal in that case held that the "blood sera" used for testing the blood to find out the blood group would be "for or in the diagnosis" and fall within the scope of the then entry relating to "medicines". Although, the scope of the words "externally" was not specifically considered by the Tribunal, the issue therein specifically pertained to the classification of the diagnostic reagents used outside the body for diagnosing the ailment in human beings.

26. Following the decision of the Tribunal in the case of Bharat Laboratories (Second Appeal No. 488 of 1975 decided on November 21, 1975) the Commissioner of Sales Tax in the case of Associated Laboratories Pvt. Ltd. (Order No. DDQ-1175/261/B-1, Bombay, dated January 1, 1977) determined the disputed question under Section 52 of the BST Act holding that blood sugar kit, V.D.R.L. kit and other items mentioned therein though not used upon the body for diagnosis, would merit classification as medicines. The Commissioner of Sales Tax, in that case, inter alia, held as follows :

"If the term 'externally' is given the restricted meaning to the effect that it implies only external application to the human body, then there would hardly be any such medicinal formulation or preparation which can be said to have been used for diagnosis of disease since the diagnosis of most of the diseases is done by taking out blood, urine, stools, etc., from the human body and testing the same in the laboratory. The ratio of the decision of the Maharashtra Sales Tax Tribunal in the case of Messrs. Bharat Laboratories (cited supra) supports the applicants' contention. The view expressed by the Joint Commissioner, Food and Drug Administration, Maharashtra State, Bombay, also favours the applicants' contention. As regards the opinion given by the Director of Health Services, one thing is clear that the products in question are said to be used for diagnosis of diseases in laboratory. The question as to how the words 'internally or externally' appearing in entry C-71 are to be legally interpreted is the matter to be decided by me. As stated earlier, the word 'externally' is required to be construed liberally to cover not only the application on the external surface of the human body but even the use of the medicinal formulations or preparations in the laboratory for diagnosis of any diseases. In my opinion, therefore, all such medicinal formulations or preparations can be considered as medicines within the meaning of entry C-71. In this view of the matter, I accept the applicants' contention that the items at Serial Nos. (i) to (vi) would be medicines within the meaning of entry C-71."

27. The aforesaid decisions have been accepted and followed by the revenue in all subsequent cases and latest being the decision of the Maharashtra Sales Tax Tribunal at Mumbai in the case of TTK Pharma Ltd. v. State of Maharashtra (Appeal No. 146 of 1998, decided on October 9, 2001). In that case, Accutest HOG Cassette and Accutest HOG Strip (for detecting the pregnancy by testing the urine) has been held to be classifiable under entry C-II-37. Thus for more than two decades it is judicially interpreted and accepted by the revenue that the medicinal formulations/preparations which are used outside the body for diagnosing the ailment in human beings are covered under the entry relating to medicines/drugs.

28. It is pertinent to note that during the period from July 1, 1981 to June 28, 1996, the medicinal formulations/preparations used for diagnosis were excluded from the entry relating to medicines/ drugs. However, on 29th June, 1996 the medicinal formulations/ preparation were once again brought within the purview of the entry relating to drugs. Thus, except for the period from July 1, 1981 to June 28, 1996, the entry relating to medicines/drugs had always covered the medicinal formulations used internally or externally for or in the diagnosis of disease in human beings. The judicial interpretation given by the highest authority in the State, namely, the Maharashtra Sales Tax Tribunal, which has been accepted and prevailing for more than two decades is that the words "internally or externally for diagnosis" in the entry relating to medicines/drugs cannot be restricted only to diagnosis reagents or formulation which are used on the body, but would apply to all diagnostic reagents used whether inside or outside the body for the purposes of diagnosing the disease in the human beings. At this juncture, it would be appropriate to refer to the observation of the Supreme Court in para 33 of the judgment in the case of Darshan Singh v. Ram Pal Singh , which reads as under :

"33. The view taken by this Court in Ujaggar Singh and Udham Singh's cases have to be viewed in this context. Stare decisis et non quieta movere. To adhere to precedent, and not to unsettle things which are established. In Raj Narain Pandey v. Sant Prasad Tewari , it was observed in paragraph 10 that in the matter of a local statute, the view taken by the High Court over a number of years should normally be adhered to and not disturbed. A different view would not only introduce an element of uncertainty and confusion, it would also have the effect of unsettling transactions which might have been entered into on the faith of those decisions. As observed by Lord Evershed M.R. in the case of Brownsea Haven Properties v. Poole Corporation [1958] Ch 574 ; (1958) 1 All ER 205 (CA), there is well-established authority for the view that a decision of long-standing on the basis of which many persons will in the course of time have arranged their affairs should not lightly be disturbed by a Superior Court not strictly bound itself by the decision. We respectively agree................."

If the judicial interpretation given by a competent authority in respect of the words used in the entry has been prevailing for more than two decades in the State, then, in the absence of any compelling reasons it will not be proper to take a contrary judicial view. While reintroducing the medicinal formulation/preparation for diagnosis, within the meaning of the drugs under entry C-II-37 the Legislature was aware of the above judicial pronouncements holding the field for more than two decades, and yet no deviation was made in the entry so as to hold that the entry C-II-37 was restricted to medicinal formulation/preparation used upon the body.

29. It is true that in the case of Span Diagnostic Pvt. Ltd. S.A. Nos. 1587 to 1589 of 1991 the Tribunal by its decision dated March 18, 1994 had taken the contrary view. It is pertinent to note that the said decision was rendered in the context of the entry prevailing during the period 1983-84 to 1987-88. During that period the entry relating to medicines did not include medicinal formulations used for diagnosis. Moreover, the said decision was rendered ignoring the decision of the Tribunal in the case of Bharat Laboratories (Second Appeal No. 488 of 1975 decided on November 21, 1975).

30. In the present case, the larger Bench of the Tribunal had held that in the case of Bharat Laboratories (Second Appeal No. 488 of 1975 decided on November 21, 1975) the Tribunal had really no occasion to specifically examine the question as to whether the word "externally" in the entry relating to medicines would imply only the application on the external surface of the body or not. The larger Bench of the Tribunal held that the Marathi version of entry was not flawless. The Tribunal noticed that for the words "internally" the words used in Marathi are uPottal Ghanyakareeta" which means that only such medicines which are to be consumed orally. If the Marathi version is accepted then it would imply that the medicines which are to be put in ears, eyes or nose which are certainly for internal use, would not get so covered by virtue of the Marathi version. It is held that there are formulations which are administered on human body for diagnosis purposes (for example, injecting a dye or a solution in the body to locate interaction of blood circulation in the heart or to administer orally barium compound for locating construction in or damage to the inner wall of digestive system such as ulcer with the help of X-ray machine. Accordingly, the Tribunal has held that by the restricted meaning given to entry C-II-37 it cannot be said that none of the formulations used for diagnosis would be covered under entry C-II-37. The Tribunal has accordingly held that the restricted meaning should be given to entry C-II-37 so as to include only those medicinal formulations which are used inside or upon the body for diagnosing the ailment in the human beings.

31. In our opinion, the interpretation of the Tribunal that the restricted meaning should be given to entry C-II-37 is unwarranted, because, firstly since 1965 the entry relating to medicines included medicinal formulations/preparations used internally or externally for diagnosis of the diseases in human beings. Admittedly, since 1965 the diagnostic reagents have been classified as medicines irrespective of the fact that the said diagnostic/reagents are not used upon the body. Secondly, in the case of Bharat Laboratories [Second Appeal No. 488 of 1975 decided on November 21, 1975) though the interpretation of the words "externally" was not specifically considered, the issue therein directly pertained to classification of diagnostic reagents used in laboratory as medicines. Thirdly, following the said decision of the Tribunal in the case of Bharat Laboratories [Second Appeal No. 488 of 1975 decided on November 21, 1975) the Commissioner of Sales Tax in the case of Associated Laboratories (Order No. DDQ-1175/261/ B-1, Bombay, dated January 1, 1977) has had held in the year 1977 that the diagnostic reagents though not used upon the human body would merit classification under the entry relating to medicines. That decision of the Commissioner of Sales Tax rendered under Section 52 of the BST Act has held the field for nearly two decades. In these circumstances, we hold that although the view taken by the Tribunal is a possible view, in view of the fact that the contrary view in favour of the assessee given by a competent authority has been holding the field for more than two decades, it will not be proper to reverse that view, unless it is shown that the earlier view is patently erroneous or there are compelling reasons for taking a contrary view. In the present case, the revenue has not adduced any material to show as to why it is necessary to take a contrary view in the matter. It is well-established in law that the interpretation holding the field for a considerable period of time cannot be disturbed unless there are compelling reasons to do so. In the present case, the Tribunal, has not found that the earlier decision taken in the matter was patently erroneous and contrary to law. Such an interpretation which seeks to unsettle the long-standing interpretation is unwarranted [See Hindustan Ferodo Ltd. v. Collector of Central Excise, Bombay [1997] 106 STC 214 (SC); [1997] 89 ELT 16 (SC)].

32. In this view of the matter, we are of the opinion that the Tribunal was not justified in holding that the entry C-II-37 has to be interpreted restrictively so as to include only those medicinal formulations which are used inside or upon the human body. In view of the long-standing judicial interpretation which has been prevailing for more than two decades and in the absence of any case made out for taking a contrary view, there is no reason to differ from that view taken by the competent authority two decades ago that the medicinal formulation/preparation used for diagnosis of the disease in human beings outside the body would be covered under the entry relating to medicines/drugs.

33. Once it is held that the diagnostic kits are medicinal formulations, the Tribunal could not have classified the same under entry C-II-106 which pertains to instruments, The counsel for the revenue has fairly stated that if the diagnostic kits are held to be the medicinal preparations/formulations then the same would not be covered under entry C-II-106. Medicinal formulations cannot be equated with instruments. Once it is held that the diagnostic kits are medicinal formulations used for diagnosis of the diseases in human beings, then the same would be squarely covered under entry C-II-37 and the same cannot be said to be covered under entry C-II-106. The fact that during the period when the entry relating to medicines/ drugs did not include medicinal formulation/preparation used for diagnosis, the assessee had sought classification of the goods under entry C-II-106 will not affect the interpretation which has been holding the field for more than two decades.

34. For all the aforesaid reasons, we hold that the diagnostic kits which are held to be medicinal formulations/preparations would be classifiable under entry C-II-37 and not classifiable under entry C-II-106.

35. Accordingly, we answer all the three questions referred to us in the negative, i.e., in favour of assessee and against the Revenue.

36. The sales tax reference is disposed of in the above terms, with no order as to costs.