Holding

The classification based on alcohol content (>12%) is a valid, intelligible differentia and does not violate Article 14.

Summary

The State of Assam assessed sales tax on the medicinal preparation "Mritasanjibani" under Item 67 of the Assam Finance (Sales Tax) Act, 1956, which taxes spirituous medicinal preparations containing more than 12% alcohol. The respondent challenged the assessment, and the Gauhati High Court held that Item 67 violated Article 14 and directed exemption. The State appealed, arguing that the legislature may validly classify taxable items and that the classification based on alcohol content is intelligible. The Supreme Court examined Items 28 and 67 of the Schedule, noting that Item 67 creates a separate class for preparations with >12% alcohol, a distinction that is not arbitrary. Relying on the principle of wide legislative discretion and distinguishing the facts from the earlier Ayurveda Pharmacy case, the Court held the classification valid and set aside the High Court’s decision. Consequently, the appeals were allowed and the writ petitions dismissed.

Issues considered

Whether the classification of spirituous medicinal preparations containing more than 12% alcohol as a separate taxable class under Item 67 of the Assam Finance (Sales Tax) Act, 1956 violates Article 14 of the Constitution.
Whether the High Court's declaration that Item 67 is unconstitutional is correct.
Whether the precedent set in Ayurveda Pharmacy & Anr. v. State of Tamil Nadu applies to the present facts.

Subjects

Sales taxClassificationArticle 14Medicinal preparationAlcohol contentConstitutional validityAssam Finance (Sales Tax) ActSpirituous medicinal preparation

Judgment

A STATE OF ASSAM AND ORS.
v.
SH. NARESH CHANDRA GHOSE (D) BY LRS.

DECEMBER I, 2000

B [Y.N. KHARE AND N. SANTOSH HEGDE, JJ.]

Sales Tax:

Assam Finance (Sales Tax) Act, 1956, Item 67 of the Schedule-
C Medicinal preparations-Classification based on strength of alcohol
contents-Validity of-Spirituous medicinal preparation containing more
than l 2% by volume of alcohol separately classified for levy of tax under Item
67-Whether this type of classification which differentiates medicinal
preparations based on content of alcohol in such preparations is a valid
D classification - Held, Yes--Classification being based on intelligible differntia
is a valid classification.

The assessing authorities assessed the medicinal preparation
'Mritasanjibani' manufactured by the respondent, to sales tax under the
Assam Finance (Sales Tax) Act, 1956, under Item 67 of the Schedule to the
E Act. The respondent filed writ petition challenging the assessment order. The
High Court declared Item 67 of the Schedule as violative of Article 14 of the
Constitution. Hence this appeal filed by the State challenging the judgment
of the High Court.

Allowing the appeals, the Court,
F HELD : The Legislature has a wide discretion in selecting the persons
or objects it wants to tax. Such a classification cannot be construed as an
arbitrary classification. Definitely, a medicinal preparation containing over
12% of alcohol stands as a separate class of medicinal preparation as
compared to other medicinal preparations which either do not contain alcohol
G or contains less than 12%. This classification based on the alcohol contents
of the medicinal preparation is not confined to Ayurvedic, Homeopathic or
Unani medicines alone but it encompasses all spirituous medidnal
preparations which are prepared under any Pharmacopoeia and containing
more than 12% by volume of alcohol. Therefore, the Legislature or its
H delegates have not made any arbitrary classification for the purpose of levy
296
S'f\TF v. !';.C. GHOSE [HEGDE, .T] 297

impugned. The said classification being based on intelligible differentia is, A
therefore, valid classification. (299-F, G, H; 300-AI

Ayurveda Pharmacy and Am: v. State of Tamil Nadu. (1989( 2 SCC 285,
distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 690-92 of B
1991.

From the Judgment and Order dated 11.4.90 of the Gauhati High Court
in C.R. Nos. 368, 369178 and 310 of 1982.

Vijay Hansaria, S. Borthakur and Amitesh Lal for M/s. Jain Hansarias &
Co. for the AppeUants. C
Bhaskar Prasad Gupta, Swapan Kumar Dutta, Deepak Kumar Jena, Ms.
Mridula Ray Bhardwaj for the Respondents.

The Judgment of the Court was delivered by

SANTOSH HEGDE, J. The medicinal preparation 'Mritasanjibani' D
manufactured by the respondent was assessed to sales-tax under the Assam
Finance (Sales Tax) Act, 1956 (hereinafter referred to as 'the Act') under Item
67 of the Schedule to the Act by the assessing authorities. The challenge to
the said assessment order being dismissed by the appellate authority, the
respondents filed 3 writ petitions before a Division Bench of the Gauhati High
Court which, while allowing the said writ petitions, declared the said Item 67 E
of the Schedule to the Act as violative of Article 14 of the Constitution. The
State of Assam is in appeal before us, challenging the said judgment of the
Division Bench of the High Court made in Civil Rule Nos.368, 369of1978 and
310 of 1982 dated 11.4.1990.

The High Court while entertaining the abovesaid writ petitions, considered F
the following 3 arguments of the respondents and held the same against them:

I. That no spirit being used in the preparation of Mritasanj ibani, it
cannot be termed as "spirituous medicinal preparation";

---r) 2. That there being no Ayurvedic Pharmacopoeia in existence, in the G
absence of any machinery to determine the alcoholic contents of
J
a medicinal preparation, Item 67 cannot be given effect to;

3. That there is no finding in the instant case that Mritasanj ibani
contains more than 12% alcohol.
However, it proceeded to consid~r the constitutional vatidity of Item 67 of the H
298 Sl:PRFVIE COCRT REPORTS [2000) SLIPP. 5 S.C.R.

A Schedule to the Act, as stated above, and following the judgment of this
Court in Ayurveda Pharmacy & An~ v. State of Tamil 11/adu, [ 1989] 2 SCC 285,
it declared Item 67 of the Schedule to the Act as being violative of Article
14 of the Constitution of India and directed the assessing authorities to re-
assess the turnowr cif tile respondent by treating 'Mritasanjibani' as all other
B Ayurvedic medicines which are exempt from sales-tax under the Act.

The State in these appeals has contended that the finding of the High
Court that the said Item of the Schedule is violative of Article I 4 is erroneous.
It was also contended that the judgment of this Court in Ayurveda Pharmacy
(supra) does not apply to the facts of the case in hand, hence the High Court
C has erred in placing reliance on the said judgment. Per contra, on behalf of
the respondents, 1t is contended that the judgment of this Court in Ayurveda
Pharmacy (supra) applies on all fours to the facts of this case.

There is no dispute that the Legislature has a wide discretion in selecting
the persons or objects it wants to tax and that a Statute cannot be challenged
D on the ground it kvies tax on one class of articles and not on others. Bearing
this well- settled principle in mind, we will now examine the provisions of the
Assam Act as also the applicability of the judgment of this Court in Ayurveda
Pharmacy (supra). For the said purpose, it is necessary for us to notice the
two relevant Items in the Schedule to the Act. Item 28 which deals with the
medicines and drugs for the purpose of levy of salesctax under the Act reads
E thus :-

"No. Nam.: of taxable goods Rate of tax

28. Medicines and drugs other than the following :-

(a) xx x
F (b) xxx

(c) xx x

(d) Ayurvedic, Homeopathic and Unani 7 paise in the rupee.
Medicines except those covered by
G Item No.67 of this schedule." ~
I
As per this Item, the various drugs enumerated in sub-clauses (a) to (c) '
are exempted from the levy of tax, subject to the exceptions found therein.
Under sub-clause ( d) above, it is seen that all Ayurvedic, Homeopathic and
Unani medicines are generally exempt from the levy of tax with an exception
H in regard to those medicinal preparations; be it Ayurvedic, Homeopathic or
STA TE v. 1'<.C. GHOSE IHEGOE. J. J 299

Unani, if it comes within the reatm of Item 67 of the same Schedule. Therefore, A
it is to be noted here that the exemption granted is not an absoiute exemption.
It is subject to the Entry in Item 67 which Entry reads thus :-

''No. Name of taxable goods Rate of tax

67. Spirituous medical preparation under 20 paise in the rupee. B
any pharmacopoeia containing mon: than
12 percent by voiurne of alcohol (but other
than those which are declared by the State
Government by notification in the official
Gazette to be not capable of causing
intoxication."
c
As could be seen, this Item carves out an exception from Item 28 in
regard to those medicinal preparations prepared under any pharmacopaeia; be
it Allopathic. Ayurvedic, Homeopathic or Unani medicines if it contains more
than 12% by volume. of alcohol.
D
An analysis of these two Items of the Schedule to the Act clearly
shows that generally all Ayurvedic, Homeopathic and Unani medicines are
exempt from the levy of tax. However, this exemption is not available to a
specific class of medicinal preparation including Allopathic, Ayurvedic,
Homeopathic and Unani medicines if it contains 12% by volume of alcohol. E
This class of spirituous medicinal preparation is to be taxed @ 20 paise
in a rupee. The question, therefore, for our consideration is whether this type
of classification which differentiates medicinal preparations based on the
content of alcohol in such preparations is a valid classification or not. If the
accepted principle in law that the Legislature has a wide discretion in selecting F
the persons or objects it wants to tax is correct then in our opinion such a
classification cannot be construed as an arbitrary classification. Definitely, a
medicinal preparation containing over 12% of alcohol stands as a separate
class of medicinal preparation as compared to other medicinal preparations
which either do not contain any alcoholic or contains less than 12%. It is to G
] be ·1oted that this classification based on the alcohol contents of the medicinal
preparation is not confined to Ayurvedic, Homeopathic or Unani medicines
alone but it encompasses all spirituous medicinal preparations which are
prepared under any Phannacopoeia and containing more than 12% by volume
of alcohol. Therefore, the Legislature or its delegates have not made any
arbitrary classification for the purpose of levy impugned. The said classification H
300 SUPREME COURT REPORTS (2000] SUPP. 5 S.C.R.

A being based on intelligible differentia is, therefore, in our opinion, a valid
classification.

It is true that in the case of Ayurveda Pharmacy (supra), this Court
declared that the two Ayurvedic preparations termed as Arishtams and Asavas
are medicinal preparations, and even though they contain a high alcohol
B content, so long as they continue to be identified as medicinal preparations
(emphasis supplied) 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. In that case, it is to be noted that
while all other patent or proprietory medicinal preparations belonging to
C different systems of medicines were taxed @ 7% only without any classification,
Arishtams and Asavas prepared under the Ayurvedic system alone were
made subject to 30% levy. The Court also noticed the fact that there were at
relevant point of time over 130 Allopathic medicines containing alcohol which
were potable as against only 3 Ayurvedic medicines out of which Arishtams
and Asavas were alone subject to 30% tax. While other medicinal preparations
D which also contained alcohol were subjected to a tax @ 7% alone. Therefore,
this Court came to the conclusion that while Arishtams and Asavas continued
to be identified as medicinal preparations, they must be treated alike for the
purpose of sales-tax. The law in this case is different from the law that was
considered by this Court in Ayurveda Pharmacy's case (supra). It is already
E noticed that for the purpose of Item 28, Ayurvedic, Homeopathic and Unani
medicines either not containing alcohol or containing less than 12% alcohol
have been exempted from the levy of sales-tax but the Legislature thought
that in regard to the medicinal preparations irrespective of the fact whether
they are Allopathic, Ayurvedic, Homeopathic or Unani have to be separately
classified as "spirituous medicinal prepa;·ations" if it contained more than 12%
F by volume of alcohol (See Item 67). Therefore, so far as the Assam Act is
concerned, unlike the Tamil Nadu General Sales Tax Act, 1959, it identified the
medicinal preparations containing more than 12% alcohol as a separate class
vis-a-vis such preparations either not containing alcohol or containing less
than 12% alcohol. "'.'his difference distinguishes the basis of the judgment of
G this Court in Ayurveda Pharmacy's case (supra) inasmuch as the Assam Act
does not identify the medicinal preparations containing more than 12% alcohol
as being the same as other medicinal preparations not containing alcohol. On
the contrary, as could be seen these types of spirituous medicinal preparations
which contained 12% alcohol have been separately classified for the levy of
tax under Item 67 of the Schedule to the Act. We are of the considered view ·
H that the classification founded in the impugned Act in regard to the medicinal
STA TE v. N.C. GHOSE [HEGDE, J.] 301
preparations based on the strength of alcohol contents in the same, cannot A
be said to be arbitrary and violative of Article 14 as held by the High Court
in its impugned judgment. For the reasons stated above, these appeals succeed,
the impugned judgments of the High Court are set aside and the writ petitions
filed by the respondents before the High Court stand dismissed.

R.A. Appeals allowed. B