Holding

Arishtams and Asavas are medicinal preparations and must be taxed at the same rate as other medicines; the 30% levy is unconstitutional and must be replaced by the lower rate.

Summary

The appellants, manufacturers of Ayurvedic medicines including Arishtams and Asavas, challenged a Tamil Nadu notification dated 4 March 1974 and Tamil Nadu Act No. 23 of 1974 that imposed a 30% sales tax on these two preparations, while all other medicinal preparations were taxed at 7% (now 8%). They argued that the differential rate violated Articles 14, 19(1)(g) and 301 of the Constitution and that the higher levy was not justified by any rational economic policy. The Madras High Court dismissed the writ petitions, holding the tax was a revenue measure. The Supreme Court allowed the appeals, holding that Arishtams and Asavas are medicinal preparations and, despite their high alcohol content, must be taxed like other medicines; the State had no rational basis for the higher rate. Consequently, the Court set aside the High Court orders, directed reassessment of tax at the lower rate, and ordered a refund of the excess tax paid.

Issues considered

Whether the imposition of a 30% sales tax on Arishtams and Asavas, while other medicinal preparations are taxed at 7%, violates the constitutional guarantee of equality (Art. 14).
Whether the differential tax rate infringes the freedom of trade guaranteed under Art. 19(1)(g) of the Constitution.
Whether the tax measure contravenes the freedom of inter-state trade under Art. 301 of the Constitution.
Whether the State can justify a higher tax rate on the basis of the alcohol content of the preparations.

Legislation cited

Subjects

sales taxconstitutional equalityArticle 14Article 19(1)(g)Article 301Ayurvedic medicinesArishtamAsavatax discrimination

Judgment

A YURVEDA PHARMACY & ANR.
A
v.
STAIB OF TAMIL NADU

MARCH 15, 1989

[R.S. PATHAK, CJ AND RANGANATH MISRA, J.] B

~·· Tamil Nadu General Sales Tax Act, 1959-Validity of Notifica-
tion dated 4.3.1974 and Tamil Nadu Act No. 23 of 1974 imposing a
higher levy on two Ayurvedic medicinal preparations-Arishtams and
Asavas-While all other medicinal preparations under different systems
of medicines enjoyed a /myer levy.
c
i Arishtams and Asavas are Ayurvedic preparations which were
originally subject to a uniform levy applicable to all medicinal prepara-
tions belonging to the different systems of medicine under the Tamil
Nadu General Sales Tax Act, 1959. Firstly by a notification dated
4.3.1974, and later, by the Tamil Nadu Act, No. 23 of 1974, the State D
Government singled out Arishtams and Asavas for e higher rate of levy
of 30% while all other medicinal preparations were subjected to a levy
of 7%, with a view to curb the abuse of Arishtams and Asavas for their

+- alcoholic content hy drink addicts and to eliminate the mushroom
growth of Ayurvedic pharmacies preparing sub-standard Arishtams
and Asavas for purposes other than medicinal use. The appellants filed E
writ petitions contending that Arishtams and Asavas manufactured by
them are essentially Ayurvedic medicines, that the object of controlling
consumption of liquor is being served by several other existing statutes,
that there are over 130 Allopathic medicines containing alcohol which
~ are potable, and that therefore, the levy of tax at 30% on Arishtams and
·~ Asavas alone while other medicinal preparations are subjected to tax at
7% results in an invidious discrimination against the manufacturers of
F

those Ayurvedic preparations. The High Court dismissed the petitions.

Allowing the appeals,

HELD: The two preparations, Arishtams and Asavas, are medi· G
~- cinal preparations, and even though they contain a high alcohol con-
tent, so long as they continue to be identified as medicinal preparations
they must be treated, for the purposes of the Sales Tax Law, in like
manner as medicinal preparations generally, including those containing
a lower percentage of alcohol. The appellants are entitled to a refund of
the ei<cess paid as sales tax. [41H; 42A, CJ H

37
38 SUPREME <'OURT REPORTS [19891 2 S.C.R.

A There is no reason why Arisbtams and Asavas should be treated
differently from the general class of Ayurvedic medicines. It is open to
the 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 commodities belong to the same class or
category, there must be a rational basis for discriminating between one
B commodity and another for the purpose of imposing tax. It is commonly
known that considerations of economic policy constitute a basis for
levying different rates of sales tax. For instance, the object may be to
encourage a certain trade or industry in the context of the State policy
for economic growth, and a lower rate would be considered justified in
the case of such a commodity. There may be several such considerations
c bearing directly on the choice of the rate of sales tax, and so long as
there is good reason for making the distinction from other commodities
no complaint can be made. What the actual rate should be is not a
matter for the courts to determine generally, but where a distinction is
made between commodities falling in the same category a question
arises at once before a Court whether there is justification for the
D discrimination. In the present case, we are not satisfied that the reason
behind the rate of 30% on the turnover of Arishtams and Asavas consti-
tutes good ground for taking those two preparations out from the
general class of medicinal preparations to which a lower rate has been
applied. [40F-H; 41A-C] --!-
E Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd.
and others v. Union of India, [196313 SCR 957, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1868
of 1974.

F From the Judgment and order dated 2.9.1974 of the Madras High
Court in Writ Petition No. 2729/1974.

F.S. Nariman, C.S. Vaidyanathan and K.R. Nambiar for the
Appellants.

G T.S. Krishnamoorthy Iyer, A.V. Rangam and T.V. Ratnam for
the Respondent.

S. Balakrishnan (not present) for the Intervener.

The Judgment of the Court was delivered by
H
AYURVEDAPHARMACYv.STATEOFTAMILNADU[PATHAK, CJ.[. 39
"I
PATHAK, CJ. The appellants in these two appeals are manu-
A
facturers of Ayurvedic drugs and medicines, including Arishtams and
Asavas. Arishtams and Asavas contain alcohol, and it is said that the
presence of alcohol is essential for the effective and easy absorption of
the medicine by the human system and also because it acts as a pre-
servative. All the Ayurveaic preparations as well as Allopathic,
Siddha and Unani medicines were originally subject to a multi-point 8
1)
j'
levy of 3'12 % under the Tamil Nadu General Sales Tax Act, 1959. By a
notification dated 4 March, 1974, the State of Tamil Nadu included a
large number of items in the First Schedule to the aforesaid Act in
. order to make them subject to a single-point levy. While all other
patent or proprietary medicinal preparations belonging to the c;liffe-
rent systems of medicines were taxed at the rate of 7% only, Arishtams
prepared under the Ayurvedic system were made subject to a levy of c
i 30%. It seems that representations were made to the State Govern-
ment against the high rate of tax on Arishtams, and therefore a sepa-
rate entry was introduced by Tamil Nadu Act No. 23 of 1974 in the
First Schedule as item 135 dealing specifically with Arishtams and
Asavas. They were shown as attracting a rate of 30% while all other D
medicinal preparations were shown under item No. 95 and subjected
to tax at7%.

-t· The appellants filed writ petitions in the High Court of Madras
challenging the levy of 30% on Arishtams and Asavas, but on 2
September, 1974 the High Court dismissed the writ petitions. E
..;,
From the counter affidavit filed by the Government of Tamil
N adu in the writ petition, out of which one of the present appeals
arises, it appears that the higher levy of sales ta~ on Arishtams and
Asavas was introduced by tire State Legislature to curb the abus~ of
·~ medicinal preparations for their alcoholic content by drink addicts F
and to eliminate the mushroom growth of Ayurvedic Pharmacies pre-
paring sub-standard Arishtams and Asavas for purposes other than
medicinal use. The appellants contend that Arishtams and Asavas
manufactured by them are essentially Ayurvedic medicines, and that
in any event the object of controlling the consumption of liquor is
"f·, amply served by several other existing statutes. including the Medici- G
nal and Toilet Preparations (Excise Duty) Act, 1955, Drugs and
' Cosmetic Act, 1940, as amended in the year 1964, and Spirituous
Preparations (Inter State Trade and Commerce) Control Act, 1955. It
is said that there are over 130 Allopathic medicines containing alcohol
which are potable as against only three Ayurvedic medicines, and that
therefore the levy of tax at 30% of Arishtams and Asavas alone while H
40 SUPREME COURT REPORTS I1989) 2 S.C.R.
other medicinal preparations are subjected to tax at 7% (now in-
A
creased to 8%) results in an invidious discrimination against the
manufacturers of those Ayurvedic preparations thus violating Art. 14
of the Constitutionc It is contended that the impugned rate of tax also
offend Article 19(1)(g) of the Constitution. The appellants in Civil
Appeal No. 1868 of 1974 have also taken the point that the high rate of
B tax 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 Art. 301 as well.
,.
While dismissing the writ petitions the High Court observed that
the imposition of the rate of 30% on the sale of Arishtams and Asavas
c must be regarded principally as a measure for raising revenue, and it
repelled the argument that the rate of tax was discriminatory or that
x
Art. 19(1)(g) was infringed. It rejected the plea of the appellants that
Art. 301 was contravened and refused to accept that there was any
ulterior object in imposing a high rate of tax on those two commo-
D dities.

Now there is no doubt that Arishtams and Asavas are Ayurvedic
medicinal preparations. The question is whether these two medicines
attract different considerations from those applied to other medicinal
preparations. Reference is made by the State to their high content of
-+--
E alcohol, and that, it is said, attracts a class of customers who purchase
them for their alcoholic content rather than their medicinal value. On
;.
that basis, it is urged, there is justification for a higher rate of tax.

We think that the appeals are entitled to succeed. Item 95 men-
lions the rate of 7% (now 8%) as the tax to be levied at the point of 'r
F first sale in the State. Item 135 provides a rate of 30% in respect of ~-
Arishtams and Asavas at the point of first sale. We see no reason why
Arishtams and Asavas should be treated differently from the general
class of Ayurvedic medicines covered by Item 95. It is open to the
Legislature, or the State Government if it is authorised in that behalf
by the Legislature, to select different rates of tax for different com-
G modities. But where the commodities belong to the same class or -~
category, there must be a rational basis for discriminating between one
commodity and another for the purpose of imposing tax. It is com-
monly known that considerations of economic policy constitute a basis
for levying different rates of sales tax. For instance, the object may be
to encourage a certain trade or industry in the context of the State
H policy for economic growth, and a lower rate would be considered
AYURVEDAPHARMACYv.STATEOFTAMILNADUIPATHAK, CJ.I 41

)\ . justified in the case of such a commodity. There may be several such
A
considerations bearing directly on the choice of the rate of sales tax,
and so long as there· is· good reason for inaking the distinction from
other commodities no, complaint can be made. What the actual rate
should be is not a matter for the courts to determine generally, but
where a distinction is made between commodities falling in the same
category a question arises at once before a Court whether there is B
--1 justification for the discrimination. In the present case, we are. not
t satisfied tha,t the reason behind the rate of 30% on .the turnover of
Arishtams and Asavas constitutes good ground -for taking those two
.. '
preparations out from the general class of medicinal preparations to
which a lower rate has been applied. In Adhyaksha Mathur Babu's
Sakti Oushadhalaya Dacca (P) Ltd. and others v. Union of India,
[ 1963 I 3 SCR 957 this Court considered whether the Ayurvedic medici- c
i nal preparations known as Mirtasanjibani, Mritasanjibani Sudha and
Mritasanjiban j Sura, prepared in accordance with an acknowledged
Ayurvedic formula, could be brought to tax under the relevant State
Excise Act when medicinal preparations were liable to excise duty
under the Medicinal and Toilet Preparations (Excise Duty) Act, which D
was a Central Act. The Court held that the three preparations were
medicinal preparations, and observed that the mere circumstance that
they contained a high percentage of alcohol and could be used as
ordinary alcoholic beverages could not justify their being treated diffe-
-+-· rently from other medicinal preparations. The Court said:
E
"So if these preparations are medicinal preparations but
are also capable of being used as ordinary alcoholic bever-
ages, they will fall under the (Central) Act and will be
liable to duty under item No. 1 of the Schedule at the rate
of Rs.17.50nP per gallon of the strength of London Proof
""-~' spirit. On a consideration of the material that has been F
placed before us, therefore, the only conclusion to which
we can come is that these preparations are medicinal pre-
parations according to the standard Ayurvedic text books
referred to already, though they are r. 'so .capable of being
used as ordinary alcoholic beverages. They cannot however
be taxed under the various Excise Acts in force in the con- G
cerned States in view of their being medicinal preparations
which are governed by the Act."

We are of opinion that similar considerations should apply to the
appeals before us. The two preparations, Arishtams and Asavas, are
medicinal preparations, and even though they contain a high alcohol H
42 SUPREME COURT REPORTS [1989] 2 S.C.R.

content, so long as they continue to be identified as medicinal prepara-.
A
tions they must be treated, for the purposes of the Sales Tax Law, in
.like manner as medicinal .preparations generally, including those
containing a· lower percentage of alcohol. On this ground alone the
appellants were entitled to succeed.

B In the circumstances, we do not consider it necessary to enter
upon the question whether there is substance in the complaint of the r
appellants that there is a violation of Art. 301 of the Constitution. -~

In the result, the appeals must be allowed and the appellants
held entitled to a refund of the excess paid as sales tax on account of
.
the turnover being treated under Item 135 rather than under Item 95.
c Learned counsel for the appellants states that the appellants will in-
form all their customers, from whom the higher rate has been charged,
that the customers are entitled to a refund of the excess paid by them
and that an application will be invited for such refund and that if any
part of the excess remains unrefunded to the customers the appellants
D undertake that such balance will be paid over to the Arya Vaidya
Rania Varier Educational Foundation of Ayurveda.

The appeals are allowed, the judgment and order of the High
Court on each writ petition are set aside and the Sales Tax Authorities
are directed to reassess the turnover of the Arishtams and Asavas at
E the rate mentioned in Item No. 95 and to refund to the appellants the
amount of tax paid in excess. The appellants, in their tum, on obtain-
ing such refund will within one month thereof, serve notice on the
customers from whom such excess has been recovered to obtain a
refund from the appellants of such corresponding excess. In the event
of any balance of the excess remaining unrefunded by the appellant to
F the customers upon the expiry of three months from such notice, the
balance will be paid over by the appellants to the Arya Vaidya Rama
Varier Educational Foundation of Ayurveda. There is no order as to
costs.

H.L.C. Appeals allowed.