Sr. No.02 v. State of JK & Ors.

Judgment

1. All these writ petitions are taken up together in view of the commonality of the issues involved in these three petitions.

2. OWP No. 1176/2009, is filed by an association whose members are dealers in Diagnostic Kits of different kinds which are used for diagnosis for various diseases. 1 | P a g e

3. Similarly, petitioners in OWP No. 1177/2009 and OWP No. 1364/2009 are also dealers in Diagnostic Kits registered under the Drugs and Cosmetics Act, (hereinafter refer to the “Act”) possessing drug licenses under the aforesaid Act to sell Diagnostic Kits. Most of these Diagnostic Kits are imported, manufactured, and sold under Drug Licenses issued by the competent authority and they have been paying Value Added Tax (VAT). The grievance of the petitioners is that the Revenue authorities are seeking to impose VAT at the rate of

12.5% instead of at 4%, meant for “drugs”, by not treating the Diagnostic Kits as “drugs”.

4. In exercise of the powers conferred under Section 17 of the Jammu and Kashmir Value Added Tax Act, 2005, the Government of Jammu and Kashmir issued a Notification under SRO 167 dated 16th June 2005 containing the Schedules which prescribe the rates on which various commodities/articles are to be taxed. As per Schedule A, commodities falling under it are to be taxed at the rate of 0%, in respect of Schedule B commodities, at the rate of 1%, and for Schedule C commodities, at the rate of 4%, and for Schedule D commodities, at the rate of 12.5%.

5. According to learned counsel for the petitioners, Diagnostic Kits namely, (i) Hepatitis HBS AG Device Card, (ii) HIV Device Card, (iii) Pregnancy Device Card, and (iv) VDRL Device Card are chargeable at the rate of 4% of VAT, as these are “drugs” 2 | P a g e falling within Entry No. 48 of Schedule C to SRO 167. Entry No. 48 of Schedule C reads as follows: "Drugs and Medicines, including Vaccines, Syringes and Dressings, Medicated Ointment produced under Drug License, Light Liquid Paraffin of l.P. Grade"

6. According to the petitioners, the Diagnostic Kits are “drugs” within the meaning of Section 3 (b) (i) of Drugs and Cosmetics Act which reads as follows: - Section 3: In this Act, unless there is anything repugnant in the subject or context,- (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 purpose of repelling insects like mosquitoes; (ii)……………………………………………… (iii)…………………………………………….. (iv)…………………………………………….."

7. The petitioners contend that the Diagnostic Kits as mentioned above are also treated as drugs both in common parlance as well as technically. These are the Kits used by medical practitioners to undertake tests on patients who are suffering from certain ailments or pregnancy, for proper treatment and prescribing appropriate medication. The petitioners contend that in common parlance it is known as drug/medicine by the people dealing with it i.e., by the manufacturers, sellers, doctors, pathologists, and patients. 3 | P a g e

8. According to the petitioners, a Diagnostic Kit comprises of different types of reagents and solutions and all these reagents and solutions are drugs and medicines that are assembled and kept in a kit and sold in the market and used for diagnosis of certain diseases. These reagents and solutions which form part of the kit have no other purpose except for use in diagnosis, and as such, are plainly covered by the definition of “drugs” within the meaning of Section 3 (b) (i) of the Drugs and Cosmetics Act. Since “drugs” are covered under Entry 48 of Schedule C of SRO 167, these items which are defined as “drugs” are chargeable @ 4% of VAT as prescribed under SRO 167 of 16th June, 2005.

9. According to the petitioners, the fact that aforesaid Diagnostic Kits are drugs and medicine is clear from the following attributes: (a) They are used for diagnosis of various human diseases. (b) These kits are manufactured under a drug license issued by the Drug Controller to manufacturers of drugs. (c) These drugs are imported on the License issued by the Drug Controller for import of Drugs under the Drugs and Cosmetics Act. (d) They fall within the definition of “drug” under the Drugs and Cosmetics Act. 4 | P a g e (e) They fall within the scope of “drugs” in Entry 48 of Schedule C of SRO 167 which has adopted the definition of “drug” as given under the Drugs and Cosmetics Act. (f) They are known and understood as drugs in common parlance by the manufacturers, sellers, doctors, pathologists, and patients. (g) Diagnostic tests are done using Diagnostic Kits by diagnostic laboratories on medical prescription which are meant for diagnosis of diseases. (h) Packing and labeling on it describe it as a Diagnostic Reagent/Diagnostic kit for diagnosis of a particular disease. It has the date of manufacturing and the date of expiry as in the case of any drug or medicine. (i) All medical literature describes it as a drug meant for diagnosis of certain diseases in human beings. (j) These are not sold in the market as chemicals or reagents. Rather, they are sold in the market only as Diagnostic Kits for the purpose of diagnosis of some specified human diseases on the prescription of doctors treating patients suspected of suffering from certain diseases. (k) There is no legal requirement for taking a Drug license for manufacturing or sale of chemicals or reagents. But for 5 | P a g e manufacturing or sale of diagnostic kits, a Drug license is a must. (l) Diagnostic Kits/diagnostic reagents are used only for the purpose of diagnosis of some suspected disease on the prescription of a doctor. It is not used and is not meant to be used for any other purpose. (m) These kits after the process of manufacture emerge as new and different goods having distinct names, uses, and characters as Diagnostic Kits. (n) They are commercially different commodities (from reagents/chemicals) with their own price structure, customs and other commercial incidents and specific purposes.

10. It has been submitted that since there were certain doubts about the rate of tax to be levied on them, the Office of the Commissioner, Commercial Taxes Offices issued two clarifications, under No. 9 of 2007 dated 18.06.2007 and No. 130/Clari/1176/CCT dated

25.09.2007.

The first clarification dated 18.06.2007 was issued by the Commissioner, Commercial Taxes, and the second by the P.A. (Technical) to the Commissioner, Commercial Taxes. In the said clarification dated 18.06.2007, it was clarified that the items (i) Hepatitis HBS Ag Device Card (ii) HIV Device Card (iii) Pregnancy Device Card (iv) VDLR Device Card are Laboratory 6 | P a g e Reagents with a plastic/paper packing and fall under Entry No. 87 of Schedule D to SRO 167. In the second clarification dated 25.09.2007 which was issued by the P.A (Technical) to the Commissioner, it has been stated that the rate of tax with regard to laboratory reagents has been clarified by Clarification No. 9 of 2007 dated 18.06.2007 and as regards the rate of VAT applicable to Diagnostic Kits, the same fall within the meaning of Entry 164 of Schedule D of SRO 167 2005 dated

16.06.2005 which prescribes 12.5% tax and, as such, the Diagnostic Kits attract tax @ 12.5%.

11. Thus, as per the aforesaid clarifications, the Department had made it clear that Diagnostic Kits are not covered under Entry 48 of Schedule C to SRO 167, but under Entry 164 of Schedule D to SRO

167. All the entries under Schedule C are chargeable @ 4% of VAT, whereas all the items falling under Schedule D are chargeable @

12.5%.

12. The petitioners have also questioned the competency of the PA (Technical) in issuing any clarification under Section 87 of the VAT Act, as it is only the Commissioner who is competent to issue such a clarification.

13. It is the case of the petitioners that it is not correct on the part of the Commissioner to clarify that the Diagnostic Kits are reagents/ chemicals and other substances and are packed in convenient 7 | P a g e combinations. Petitioners contend that while it is true that Diagnostic Kits are manufactured out of reagents/chemicals and other substances, yet Diagnostic Kits are manufactured by medical formulation/preparation distinct different reagents/chemicals out of which, these are manufactured. The Diagnostic Kits, the end product of a combination of the reagent/chemicals are a unique product having a distinct purpose, names, uses, and characters and these are sold in the market by the dealers with Drugs License for use in diagnosis for certain diseases on the prescription of doctors. They are not basic reagents/chemical or other substances simpliciter, but these are product of combined chemicals and reagents which has unique characteristics use for certain diagnostic purposes. Thus, Diagnostic Kits cannot considered to be mere regents/chemicals and since these chemicals in combination are used for the purpose of diagnosis, they certainly come within the definition of “drug” under Section 3 (b) (i) and hence, covered by Entry 48 of Schedule C to SRO 167.

14. It is also the case of the petitioners that the position adopted by the Commissioner that these Kits cannot be termed as “drugs” or “medicines” as these are not meant for internal or external use is misconceived in view of the definition of “drug” given under Section 3 (b) (i) of the Drugs and Cosmetics Act which is a very broad definition which takes within its fold all substances used for or in the 8 | P a g e diagnosis of any disease and as such, it cannot be restricted to medicine or drug as it is ordinarily known and used internally or externally for treatment.

15. Further, the petitioners also have pointed out certain discrepancies in the description of the Entry under which aforesaid items are chargeable. While the Commissioner stated that these items are to be taxed under Entry 87 of Schedule B to SRO 167, it is to be noted that this Entry refers to laboratory reagents and disinfectants. On the other hand, the PA (Technical) to the Commissioner had mentioned that these items are covered by Entry 65 of Schedule D.

16. As mentioned above the Diagnostic Kit is not mere laboratory reagents, but a product of combination of several reagents and chemicals out of which, a certain end product emerges which is used for diagnosis and, as such, it cannot be treated as merely a laboratory reagents which can be charged under Entry 87 of Schedule C. Laboratory reagents/disinfectants as mentioned under Entry 87 are primary/basic substances out of which other materials or medicines can be produced. Further, the Commissioner in another paragraph of his clarification mentions that the aforesaid four items are liable to tax under Entry 165 of Schedule B. Thus, the Commissioner himself is also not clear as to whether the items are chargeable under Entry 87 of Schedule B or Entry 165 of Schedule D which clearly indicates 9 | P a g e inconsistency and non-application of mind on the part of the authority.

17. Further, it has also been contended on behalf of the petitioners that while issuing the clarification no reason has been assigned. Thus, the clarification is a non-speaking order without proper reasons as to why the aforesaid items cannot be treated under Entry 48 of Schedule C.

18. It has been also submitted that these Diagnostic Kits have been treated by manufacturers, importers, exporters, and sellers as “drugs” by obtaining the necessary license under the Drugs and Cosmetics Rules, in the support of which the licenses issued to the petitioners by the Drug Controller have been annexed.

19. The petitioners have also stated that the Directorate General of Health Services Drug Control Section, Nirmal Bhawan New Delhi in the reply to a query had categorically stated that In Vitro Diagnostic Kits are drugs under the Drugs and Cosmetics Act.

20. It has been also stated by the petitioners that in other States all these items are treated as drugs and charged accordingly. The petitioners, accordingly, have sought for quashing the aforesaid clarifications and for a declaration that Diagnostic Kits as mentioned above are “drugs” which are liable to be taxed @ 4% under the VAT Act as being covered by Entry 48 of Schedule C to SRO 167 dated 16th June, 2005. 10 | P a g e

21. Learned counsel for the respondents have contested the petitions and have contended that the impugned clarifications are in order by taking the plea that all these Diagnostic Kits are not “drugs” and not covered under Entry 48 to Schedule C of SRO 167, but these are within the ambit of Entry 165 of Schedule D to SRO 167 of 2005.

22. Entry 165 of Schedule C is for all those items not covered in any other Schedule (excluding those covered by the Jammu and Kashmir General Sales Tax, 1962). According to the respondents, the Entries in Schedule D were renumbered, and Entry 164 existing earlier came to be re-numbered as Entry 165, and hence there is no contradiction.

23. Respondents have also taken the plea that the Diagnostic Kits are in fact laboratory reagents and covered under Entry 87 of Schedule B to SRO 167 of 2005 and thus liable to pay VAT @ 12.5%.

24. From the above rival contentions, this Court has to determine whether the Diagnostic Kits are to be considered as “drugs” which are covered by Entry 48 of Schedule C to SRO 167 or under Entry 87 of Schedule D or Entry 165 of Schedule D.

25. As per the Jammu and Kashmir Value Added Tax Act, 2005, as provided under Section 17 thereof, the Government prepared the Schedules in which the commodities that are taxable under VAT have been listed. For all those items covered by Schedule A, the VAT chargeable is 0%, and all those items falling under Schedule B are 11 | P a g e chargeable @ 1%, and all those items under Schedule C are chargeable @ 4%, and those under Schedule D @ 12.5%. While the petitioners claim that the aforesaid Diagnostic Kits namely, Hepatitis HBS AG Device Card, HIV Device Card, Pregnancy Device Card, and VDRL Device Card are covered by Entry 48 of Schedule C, thus chargeable @ 4%, the stand of the respondent authorities is that these fall under Entry 87 and/or Entry 165 of Schedule D, in which event, these are chargeable @ 12.5%.

26. Since the petitioners are claiming that these items are covered by Entry 48 of Schedule C, i.e., drugs and medicines and others, we will examine whether the claim of the petitioners can be sustained or not.

27. The main thrust of the petitioners' claim is that these Kits are used for diagnosis, and hence have to be treated as “drugs” within the meaning of Section 3 (b) (i) of the Drugs and Cosmetics Act, 1940. If that is so, there cannot be any doubt that these items will be covered under Entry 48 of SRO 167 and liable to be taxed @ 4%. Since the argument of the petitioners hinges on the definition of “drug” as provided under the Drugs and Cosmetics Act, 1940, we will analyze and examine the aforementioned definition clause. Section 3(b) of the Drugs and Cosmetics Act of 1940 defines “Drug” as follows: Section 3: In this Act, unless there is anything repugnant in the subject or context,- 12 | P a g e (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 disease 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 gelatine 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.”

28. Perusal of the aforesaid inclusive definition clearly indicates that any “medicine” used internally or externally by human beings in diagnosis, treatment, and mitigation or prevention of the disease can be considered to be a “drug” within the broad definition of “drug” under Section 3(b)(i) of the Act. As contended by the petitioners, Diagnostic Kits are certainly used for diagnosis of diseases or disorders in human beings. To that extent, we agree that a component of the definition of drugs is present as far as the contention of the petitioners is concerned, that is, the diagnostic purpose of the substance. However, it is not that every substance or material that is used for diagnosis can be treated as a “drug” within the meaning of Section 3(b) of the aforesaid Act.

29. Section 3 (b) of the Drugs and Cosmetics Act consists of four sub-sections, i.e., sub-sections (i), (ii), (iii) and (iv). Sub-section (i) 13 | P a g e of Section 3(b) and sub-section (iv) of Section 3(b) have a common feature, that is the diagnostic purposes of both the substances, i.e., “medicine” [under Section 3(b)(i)] and “devices” [under Section 3(b)(iv)], both of which are used for diagnostic purposes. While the purpose is the same, the material substances, however, are different. While all “medicines” which are used for diagnosis purposes is to be treated as “drugs”, under Section 3 (b) (i), all “devices” which are used for diagnostic purposes are not “drugs”, till these devices are notified as drugs by the Central Government in the Gazette notification after consultation with the Drugs Technical Advisory Board as provided under Section 3(b)(iv).

30. As to what is a “medicine” is fairly known to everyone and easily understood in common parlance. It is commonly understood to mean certain substance or preparation for the treatment or cure of illness or prevention of disease. Thus, to consider “medicines” as “drugs” does not pose any difficulty. But this simplistic definition of drug is stretched a bit when any substance/medicine is also considered “drug” even when it is used for diagnostic purpose. It is still comprehensible if such “medicine”, as commonly understood, is treated as drug, if it is used for diagnostic purposes. However, the real difficulty emerges when “Diagnostic Kit” which is not commonly understood as “medicine” is claimed to be “medicine” to bring within the meaning of “drug”. 14 | P a g e

31. What is a “Diagnostic Kit”? “Diagnostic Kit” means “a product containing reagents and other items necessary to conduct a test to detect the presence of or to measure a given Biomarker in a given Patient Sample”, and it means an In Vitro Diagnostic product. [See: https://www.lawinsider.com/dictionary/diagnostic-kit]. In Vitro means a process taking place outside a living body, in a scientific apparatus as opposed to In Vivo, a process taking place inside the body [Oxford Advanced Learners Dictionary,10thEdn., 2020].

32. The contention of the petitioners is that “Diagnostic Kit” consists of a combination of reagents and other chemicals and substances which is used for diagnostic purposes. While there cannot be any doubt about the existence and use of chemicals and other substances in a combined or compound form in the Diagnostic Kit, yet, Diagnostic Kit is not merely the products of a combination of reagent or chemicals and such substances. In other words, the Diagnostic Kit is not a simpliciter combination of reagents/chemicals as the petitioners would contend. Diagnostic Kit consists of the combination of reagents or chemicals stored in an apparatus, which cannot be used without the apparatus or device which holds the chemical formulation. The reagents and/or chemicals which are part of the Kit cannot be used independently of the apparatus which holds the reagents and chemicals. These two components i.e., the apparatus 15 | P a g e and the reagents and chemicals are inseparably interlinked so as to constitute the device in the form of the Diagnostic Kit. The Diagnostic Kit may also contain some other non-chemical materials like plastics, multi-layer laminated Polymeric film, depending on the nature of the Kit. Thus, a Diagnostic Kit may consist of many components, certain apparatus, non-chemical materials, chemical and reagents, which compositely form the Diagnostic Kit.

33. It may be also noticed that in the definition of “drug” under Section 3(b) of the Act, as quoted above, it is clearly mentioned under Section 3 (b) (iv) that “drug” includes such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human being or animals. While sub-section (i) of Section 3 (b) brings within the ambit of “drug”, “medicines” used for diagnosis, sub-section (iv) of Section 3 (b) brings “devices” used for diagnosis within the ambit of “drug”. However, every such “device” cannot be deemed to be a “drug” within the meaning of Section 3 (b) (iv) unless such device is specified as drug by the Central Government by notification in the Official Gazette. Thus, if such “device” used for diagnostic purpose is not specified by the Central Government in the Official Gazette, such device cannot be treated to be a “drug” within the meaning of Section 3 (b) (iv) of the Act. 16 | P a g e

34. This naturally leads to the next question. Can a “Diagnostic Kit” be treated as “medicine” to fall within the definition of “drug” under sub-section (i) of Section 3(b) as contended by the petitioners or can it considered to be a “device” to bring within the meaning of “drug” under sub-section (iv) of Section 3(b) of the Act?

35. Definitely, “medicines” which are drugs as per sub-section (i) of Section 3 (b) of the Act are different from “devices” which are also treated as drugs as per sub-section (iv) of Section 3 (b) of the Act (provided these are specified as such by the Central Government), though both the “medicines” and “devices” may be used for diagnostic purpose. The existence of these two sub-sections under the same section of the statute clearly indicates that “medicines” are different from “devices”, though both are “drugs” within the meaning of Section 3(b). If we try to comprehend “Diagnostic Kits” vis-à-vis “medicines” and “devices”, there cannot be any doubt that “Diagnostic Kits” would be more akin to “devices” rather than “medicines”. When any particular item is compared with two competing substances for the purpose of classification, the item can be clubbed with the substance with which the item bears more resemblance.

36. In the present context, “Diagnostic Kits” bears more resemblance with “devices” rather than “medicines”. Thus, seen from this perspective, “Diagnostic Kits” cannot be considered to be 17 | P a g e “medicine” and can be considered to be “device”. In such an event, the “Diagnostic Kit” will not come under the definition clause of sub- section (i) of Section 3(b) but would come under sub-section (iv) of Section 3(b) of the Drugs and Cosmetics Act, 1940.

37. From the discussions as above, we can certainly say that “Diagnostic kit” which is a composite device, is a medicinal device, but it cannot be considered or understood to be a “medicine”. Consequently, if “Diagnostic kit” which is undoubtedly a medicinal device is to qualify to be a “drug” within the meaning of sub-section (iv) of Section (3)(b) of the Act, the same will be required to be notified as such by the Central Government in the Official Gazette.

38. It may be also noted that the Central Government has issued notification from time to time declaring certain items or commodities to be drugs within the meaning of Section 3 (b) of the Act. The Central Sponsored Control Organization under the Directorate of General of Health Service, Ministry of Health and Family Welfare, Government of India has issued notifications from time to time in which the following items have been declared to be “drugs”. (i) (ii) (iii) Invitro diagnosis device for HIV, Invitro diagnosis device for HBsAg, Invitro diagnosis device for HCV.

39. The fact that the aforesaid Diagnosis Kits have been treated as “drugs” is for the reason that these have been notified to be so by the 18 | P a g e Central Government. Therefore, we are of the view that Diagnostic Kits in issue in the present case cannot be considered to be “drugs” within the meaning of Section 3 (b) (iv) of the Drugs and Cosmetics Act till these are so specified by the Central Government by notification.

40. There is one aspect which may be kept in mind. It may be contended by the petitioners that a bottle of cough syrup will not cease to be “medicine” merely because the cough syrup is stored in an apparatus or a bottle or a device. Similarly, a Diagnostic Kit will not cease to be a “drug” merely because certain medicines are kept in an apparatus/device. However, it is to be observed that if any particular medicine is stored in a container, the container need not be considered to be a medicinal device for the reason that the container is not an integral part of the medicine, but the container is used only for the purpose of safe and uncontaminated storage of the medicine which is to be used independently of the container. The use of a medicine, say, cough syrup has no co-relation with the container or apparatus or bottle, which is used only for storing the cough syrup. On the other hand, Diagnostic Kit is a wholesome and composite product consisting not only of the chemical reagents and other non- chemical substances which are used in the kit, but the apparatus which holds the reagents and chemicals and other non-chemical substances, like polythene materials. The chemical reagents found in 19 | P a g e the Diagnostic Kit cannot be used independently and without the existence of the apparatus or the device. Thus, there should not be any confusion about the apparatus or the device which is an integral part of the chemical reagent used along it to form the Diagnostic Kit, with the mere container containing a medicine as in the case of a cough syrup or tablets. Devoid of the physical device or apparatus and other non- chemical components of the Kit, the reagents/chemicals contained in the Diagnostic Kit cannot be used independently or separately unlike in the case of the medicine like cough syrup or tablet stored in a container. The apparatus of the Diagnostic Kit has no independent existence without the reagents/chemicals it holds. For example, cough syrup is sold in bottle/container, but the cough syrup is to be used independent of the bottle/container. The bottle/container is a physical protective apparatus and is used merely for the purpose of storing cough syrup. The bottle has no medicinal nexus with the attributes or use of the cough syrup. On the other hand, in case of a Diagnostic Kit, the chemicals/reagents or solutions used are inseparable from the device in which the same are stored and, as such, the Diagnostic Kit cannot be equated with other drugs or medicines as understood in the common parlance. Therefore, to that extent we are not able to agree with the view taken by the Commissioner in the impugned clarification dated 18.06.2007 that Diagnostic Kits are 20 | P a g e actually reagents/chemicals and other substances which are packed convenient combinations performance blood/urine/stool/pathological/serological and other tests in the clinical laboratory and these kits are not meant for internal external or use as drugs or medicines in common parlance.

41. It may be also noted that if any such device like Diagnostic Kit used for diagnostic purpose is to be treated as a “drug” within the meaning of Section 3 (b) (i) of the Drugs and Cosmetics Act, as contended by the petitioners, then there was no need for the Legislature to insert Section 3(b)(iv). By virtue of Section 3(b)(iv), even non-medicinal devices which are used for diagnostic purposes are also treated as “drugs”, provided such devices are declared to be drugs by the Central Government by issuing notifications in the Official Gazette. Section 3(b)(iv) has been inserted to give a fictional meaning to such devices which are not otherwise commonly understood as medicines or drugs, as but are treated as drugs for the purpose of the Act by notifying to that effect by the Central Government in the Official Gazette.

42. It is now well settled that in construing a relevant item or entry in a taxation statute, if it is one of everyday use, the authority concerned must normally consider as to how it is understood in common parlance or in the commercial world or trade circles. Certainly, Diagnostic Kits even if understood in the trade circles as 21 | P a g e medicines or drugs as claimed by the petitioners, Diagnostic Kits are not understood as medicines or drugs amongst the medical practitioners, medical literature and certainly by the patients but understood as devices or tools.

43. It may also be noticed that in the Entry 48 of Schedule C, the rule making authorities have consciously included syringes and dressings also within the meaning of drugs and medicines. Nobody in his normal senses would treat syringes or dressings to be “drugs” or “medicines”. Everybody would treat a syringe to be a medical tool to inject medicines in the body and dressing to be materials to protect wounds. By any stretch of imagination, they are treated as drugs or medicines in common parlance, yet the rule making authorities deemed it fit to categorize these as drugs or medicines for the purpose of levy of tax under the VAT under Entry 48 of Schedule ‘C’. There could be certain reasons for doing so. We may only speculate that as these articles are so commonly used with treatment of patients and used along with medicines and drugs that these are treated as “drugs” or “medicines” for the purpose of VAT. However, we are not concerned with such classification as it is within the wisdom of rule making authority.

44. What is notable is that the petitioners have not brought to the notice of this Court any material to show that Diagnostic Kits are 22 | P a g e considered to be “medicines” or “drug” by the medical practitioners, pathologists, patients and in medical literature.

45. That these Diagnostic Kits are manufactured under the Drug License issued by the Drug Controller, does not necessarily make the Diagnostic Kits to be drugs within the ambit of VAT Act, unless these are notified by the Central Government to that effect under Section 3(b)(iv) of the Act.

46. We are also of the view that the reagents/chemicals contained in the Diagnostic Kits, used for the diagnosis cannot be treated to be chemicals/reagents which are covered by Entry 87 of Schedule D as understood by the Revenue authorities, as the chemicals or reagents used in the diagnostic kits are in a combination or compound form and not as mere chemical or reagents simplicitor. These chemicals or reagents are used along with certain other apparatus or devices and substances to form an inseparable product, and these chemicals or reagents contained in the Diagnostic Kits cannot be separately charged under Entry 87 of Schedule D dehors the apparatus. Thus, Diagnostic Kits which are a product of the combination of the reagents/chemicals with the physical apparatus are not covered under any of the Entries under Schedule A, B or C. Consequently, these will be covered under the residuary Entry 165 of Schedule D under which these articles will be liable to be taxed @ 12.5%. 23 | P a g e

47. However, as discussed above, if these Diagnostic Kits are notified as “drugs” within the meaning of Section 3(b)(iv) of the Drugs and Cosmetics Act, 1940 by the Central Government by issuing notifications in the Official Gazette in consultation with the Drugs Technical Advisory Board, these Diagnostic Kits would be liable to be charged only @ 4% as these would then be covered within Entry 48 of Schedule C of SRO 167 of 16th June, 2005.

48. Accordingly, we clarify that the aforesaid Diagnostic Kits, namely, (i) Hepatitis HBS AG Device Card, (ii) HIV Device Card, (iii) Pregnancy Device Card, and (iv) VDRL Device Card cannot be treated as “drugs” within the meaning of Section 3 (b) (i) of the Drugs and Cosmetics Act, 1940 as these are not “medicines” but these are essentially medical “devices” wherein reagents/chemicals are used. These Diagnostic Kits which are medicinal devices can be considered to be “drugs” within the meaning of Section 3 (b) (iv) of the Drugs and Cosmetics Act, 1940 only if these are specified so by the Central Government by issuing notifications in the Official Gazette.

49. Under the circumstances and for the reasons discussed above, we dispose of this writ petition with the direction to the respondents authorities to examine if the aforesaid devices namely, (i) Hepatitis HBS Ag Device Card, (ii) HIV Device Card, (iii) Pregnancy Device Card and (iv) VDLR Device Card have been notified by the Central 24 | P a g e Government in the Official Gazette after consultation with the Drugs Technical Advisory Board as “drugs” within the meaning of Section 3(b)(iv) of the Drugs and Cosmetics Act, 1940. If it is found to be so, the above mentioned four Diagnostic Kits have to be treated as “drugs” falling within Entry 48 of Schedule C of SRO 167 dated 16th June, 2005 and charged VAT accordingly @ 4% with prospective effect from the date such notification is issued. Otherwise, being not “drugs”, the aforesaid “Diagnostic Kits” would fall under the residuary Entry 165 of Schedule D of SRO 167 of 16th June 2005 and attract VAT at the rate of 12.5%.

50. Having arrived at this conclusion, it may not be necessary for us to dwell upon other contentions urged before us.

51. The impugned clarifications No. 09 of 2007 dated 18.06.2007 and No. 130/Clari/1176/CCT dated 25.09.2007 are to be read and understood as per our observations and conclusions arrived at as above.

52. Petitions are accordingly disposed of with the aforesaid clarifications and directions. (WASIM SADIQ NARGAL) (N. KOTISWAR SINGH) JUDGE CHIEF JUSTICE SRINAGER 29.11.2023 Aadil Whether the order is reportable? Yes 25 | P a g e