Medical Oxygen IP’ & ‘Nitrous Oxide IP’ Taxable as ‘Drug under VAT: SC

Medical Oxygen IP’ & ‘Nitrous Oxide IP’ Taxable as ‘Drug under Andhra Pradesh VAT: SC

The Supreme Court has held that ‘Medical Oxygen IP’ and ‘Nitrous Oxide IP’ should be taxed as drugs under Entry 88 of the AP Value Added Tax Act, 2005, upholding the decision of the Andhra Pradesh High Court. 

Andhra Pradesh High Court observed

“Both “nitrous oxide” and “medical oxygen” are clearly identifiable and are used as surgical aids (Indian Oxygen Ltd. State of Karnataka; Southern Gas Ltd). Going by the user test and the functional test, it is evident that “medical oxygen” and “nitrous oxide” serve as medicines. As „medical oxygen IP‟ and „Nitrous Oxide IP‟ are used in the treatment and mitigation of disorders in human beings, and as they are generally understood in the trade to be surgical aids, both these substances would fall under the definition of drug ‟ under Section 3(b)(i) of the Drugs Act, and consequently, fall under Entry 88 of Schedule IV of the Act liable to tax only at 4%/5%,”.

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The legal question before the APEX court was whether ‘Medical Oxygen IP’ and ‘Nitrous Oxide IP’ are taxable under Entry 88 of Schedule IV of the Andhra Pradesh Value Added Tax Act 2005 or as ‘unclassified goods’ under Schedule V.

The Respondents Linde India Pvt Ltd, had earlier assailed the imposition of outstanding tax liability of ₹5,11,062 by the Commercial Tax Officer, before the Appellate Duty Commissioner, latter appeal was led before the Sales Tax Appellate Tribunal which was ruled in the favour of the Respondent company. 

The State of Andhra Pradesh moved an appeal before the High Court of Andhra
Pradesh which got dismissed. Therefore, the state moved the present appeal before the Supreme Court.

The division bench consisting of Justice D.Y. Chandrachud and Justice Ajay Rastogi while upholding the decision of the AP High Court said, 

 “There is no doubt that Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act. We hold that Medical Oxygen IP and Nitrous Oxide IP fall within the ambit of Section 3(b)(i) of the 1940 Act and are consequently covered in Entry 88 of the 2005 Act.”