High Court · 2025

Counsel for the Petitioner: The Special Stanciir-rg Counsel. Counsel for the Respondent: Sri S.K. Jeelar-ri Basha. The Court made the following: COMMON ORDER - THE HON'BLE SRI JUSTICE T. VINOD KUMAR AND THE HON'BLE SRI JUSTICE PULLA KARTHIK T.R.C.Nos.31 and 39 of 2003 COMMON ORDER: (per Honble Sri Justice T.Vinod Kumar) Since both these Tax Revision Cases arise out of the common order of the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad (for short, 'the Tribunal'), and also the issue involved therein being one and the same, these Revision Cases are being disposed of by this common order.

2. T.R.C.No.31 of 2003 is filed by the Revenue under Section 22(l) of the Andhra Pradesh General Sales Tax Act, 1956 (for short, 'the Act'), aggrieved by the order of the Tribunal in Tax Appeal, videT.A.No.465 of 1997 dt.26.12.2001. The Assessment Year involved is 1992-93.

3. T.R.C.No.39 of 2003 is filed by the Revenue under Section 22(L) of the Act, aggrieved by the order of the Tribunal in Tax Appeal, vide T.A.No.1506 of 1999 dt.26.12.2001. The Assessment Year involved is t992-93. I I I I 2

4. Heard learned Special Standing Counsel appearing on behalf of the revision petitioner - Revenue and Sri S.K.leelani Basha, learned counsel appearing for the respondent - assessee in both the cases and perused the record.

5. The short point that arises for consideration in these revision cases is as to whether 'surgical cotton' sold by the respondent - assessee is Iiable to tax under Entry 37 of I Schedule to the Act or liable to tax under Entry 8 of III Schedule to the Act or is to be classified as general goods falling under VII Schedule to the Act.

6. On behalf of the petitioner - Revenue, it is contended that the surgical cotton sold by the respondent - assessee herein has been rightly classified as falling under Entry 8 of UI Schedule to the Act by the Assessing Authority as affirmed by the Appellate Authority; and that the Tribunal without properly appreciating and by erroneously placing reliance on the decisions of the High Court oF Bombay and the Madras High Court had held that the'surgical cotton' is liable to tax as falling under Entry 37 of I Schedule to the Act.

7. On behalf of the petitioner - Revenue, it is contended that Entry 37 of the Act deals with'drugs and medicines', and as such, the'surgical cotton' cannot be equated to drug or medicine, and is thus, liable to be )r ../ 3 classified as falling under Entry B of III Schedule to the act, which deals with 'cotton'; and that if the 'surgical cotton' is not liable to be taxed under Entry B of III Schedule to the Act, such goods are to be classifiable under VII Schedule to the Act. B. On behalf of the respondent - assessee, it is contended that the term'Drug'is not defined under the Act and Entry 37 of I Schedule to the Act makes reference to Section 3 of the Drugs and Cosmetics Act, 1940 (for short, 'the Act 1940), and as per the definition in the said Act, 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, are considered as drug.

9. On behalf of the respondent - assessee, it is further contended that the Tribunal by considering the definition of'drug' as defined under the Act 1940 and also relying on the decisions of the Bombay High Court and the Madras High Court, dealing with a similar product had held the 'surgical cotton'to be classifiable undei'Entry 37 of I Schedule.to the Act and thus, the said order cannot be said to be erroneous giving rise to question of law.

10. We have noted the respective contentions urged. 4

11. As noted hereinabove, the question that arises for consideration in these revisions is as to whether the 'surgical. cotton' is to be considered as 'cotton' as per Entry B of III Schedule to the Act or is it liable to be classified under'drugs and medicine' or'general goods'?

1.2. In order to consider the aforesaid question, it is useful to reFer to the relevant Entries under the Act: Entry B of III Schedule to the ACt Cotton, that is to say, all kinds of cotton(indigenous or I imported) rn all rts unmanufactured State, whcther ginned or unqinned, baled, pressed or otherwrse but not rncludrnq cotton waste. ] Entry 37 of I Schedule to the Act Drugs and medicines, whether patent or proprietary, as defined in Section 3 of the Drugs & Cosmetics Act, 1940 (Central Act 23 of 1940), but not including - (a) goods covered, described or specified in any other entry in this Schedule; (b) medicated qoods; (c) products capable of being used as cosmetics and toilet preparations induding tooth-paste, tooth'powders, cosmetics, toilet articles and soaps; (d) Mosquito repellants in any form (1037) Goods other than those specifled in First to Sixth Schedules VII Schedule to the Act

13. The Assessing Authority as well as the Appellate Authority had considered the 'surgical cotton' as 'cotton', falling under Entry B of III Schedule to the Act. However, the Tribunal, noting that the scope of Entry B of III Schedule deals with cotton in unmanufactured state, whether ginned or unginned, baled, pressed or othenvise, had held that 5 the'surgical cotton' is not classifiable under the said Entry. Fufther, the Tribunal, by referring to the decision of the Bombay High Court in the case of Commissioner of Sales Tax v/s. Ruby Surgical and Allied Products Private Limitedr relating to raw cotton, wherein the issue under consideration is similar to the Entry B of III Schedule to the Act and also that of the Madras High Court in the case of Sri Ram Products v/s. State of Tamil Nadu2 and taking note of the definition of 'drug' under Section 3 of the Act 1940 had held that the'surgical cotton'as classifiable under Entry 37 of i Schedule to the Act and accordingly, set aside the order of the Assessing Authority as affirmed by the Appellate Authority.

14. The term 'cotton' as used in Entry B of IU Schedule to the Act clearly indicates the form of cotton i.e. cotton in unmanufactured state. While the 'surgical cotton' cannot be considered as 'cotton' in unmanufactured state, as in order to convert a cotton which is in raw form or unmanufactured state, is subjected to various processes of cleaning, sterilization before the same packed to be used as absorbent wool. The cotton which has been subjected the process of cleaning, ' [1997] 106 src 26 ' Irse:] sz src taz 6 bleaching and sterilization is different from raw cotton which is covered by Entry B of III Schedule to the Act.

15. As 'surgical cotton' cannot be considered as cotton in unmanufactured form, it is to be seen whether such sterilized cotton can be considered as 'drug and medicine'so as to fall under Entry 37 of I Schedule to the Act. The term'drug and medicine' has also not been defined under the Act. However, in Berry v/s. Henderson3, it is has been observed as under: "The word 'medicine' is comprehensive enough to include everything which is to be applied for the purpose of healing whether externally or internally-"

16. The word 'drug' is also not defined under the Act 1940, but the Entry makes reference to Section 3 thereof, wherein the word'drug'has been defined as under: ""drug" includes - (bXi) 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. 3 1s7o {s) eB 296 7

17. If one takes notice of the Entry 37 i.e. drugs and medicines subject to exclusions provided thereunder, it is not necessary that it is only those drugs and medicines which are administered to the person into a body or used externally are to be considered as drugs and medicines.

18. On the other hand, the definition of'drug' under the Act 1940 would cover within its ambit substances intended to be used for or in the mitigation or prevention of any disease or disorder in human beings. If the scope of the word 'drug' as defined in the Act 1940 is taken into consideration, the surgical cotton which is used in treatment would also come within the definition of 'drug and medicine'.

19. Various High Courts in India have taken a consistent view that surgical cotton would fall within the meaning of drug as defined under Section 3 of the Act 1940. Since, the surgical cotton is defined under Section 3 of the Act 1940 as a'drug', Entry 37 of I Schedule to the Act, which deals with 'drugs and medicines' would cover within its ambit the 'surgical cotton'and thus, would be classifiable as falling under the said Entry.

20. We may also take note of the decision of the Apex Court in the case of \,lamta Surgical Cotton Industraes, Rajasthan v/s, ) 8 .- ,{- Assistant Commissioner (Anti-Evasion), Bhilwara, Rajasthana, wherein the Hon'ble Supreme Court had held that surgical cotton obtained by processing raw cotton changes into a new commercially identifiable commodity which has a drFferent name, different character and different use, whereby cotton loses its original form and is marketed as a commercially distinct commercial commodity i.e. surgical cotton.

21. Therefore, the view of the Tribunal that the 'surgical cotton' is liable to be taxed classifiable under Entry 37 of I Schedule to the Act and not Entry B of III Schedule to the Act, in our considered view cannot be held either erroneous or perverse giving rise to a question of law to be answered by this Court.

22. In view of the above, this Court is of the view that the Tribunal is justified in classifying the'surgical cotton' as falling under Entry 37 of I Schedule to the Act.

23. Hence, these Tax Revision Cases are devoid of any merit and they are accordingly dismissed. o (zorq) + scc az I I I Miscellaneous petitions, if any, pending shall stand closed. No order as to costs DE I Sd/. N. SRIHARI TY REGISTRAR .,..----1 SECTION OFFICER //TRUECOPY/ / To,

1. The Sales Tax Appellate Tribunal, Andhra Pradesh, Hydera[',ad. 2. One CC to the Special Standing Counsel (Spl. Govt. Pleader for Taxes), Hyderabad.[OPUC]

3. One CC to Sri S.K. Jeelani Basha, Advocate [OPUC] 4. T*o CD Copies. JCK/psl '% I I I HICH COUIIf DATED0|/07 /2025 COMMON ORDER TRC.Nos.31 & 39 of 20t13 Dismissing the T.R.Cs o { t ,2. dE S rAr€ ( 2B o[I M L)i'i, t I ',1, DE.coarc'