1994 PLP 1144 (CLC)

SPED HAIDER ALI PIRZADA, J: ‑‑The petitioners through this petition have claimed the following reliefs:‑‑ "(a) to set aside the order‑in‑original No.39 of 1988 dated 28‑7‑1988 of the Deputy Collector and declare that the said `strepsils' is a `drug'; (b) to declare that no amount of sales tax is liable to be paid by the petitioners; (c) to declare that the direction of the CBR contained in their Circular No.8/81 dated 28‑9‑1981 and their letter dated 24‑1‑1988 is issued without lawful authority, in excess of powers, and void ab initio, and of no legal effect; (d), pending hearing of this petition temporary injunction be granted, restraining the respondents each one of them or their subordinates from recovering the said amount or any part thereof or take any other measures including any coercive measures for recovery of the said amount; (e) costs of the petition; and (f) any additional further relief/reliefs, writ/writs, declaration/declarations as may be proper and necessary in the circumstances of the case." The facts leading to the filing of . the above petition are that the petitioners are a public limited company, registered under the Companies Ordinance, 1984. This multinational company is internationally known to be a pharmaceutical company and carries on business of manufacturing and marketing of pharmaceutical products in Pakistan. The petitioners are manufacturing Brufen tablets, Burnol ointment, Dijex suspension, Entamizole tablets, Glucopage tablets and Strepsils anti‑spectic throat lozenges. The aforesaid drugs manufactured by the petitioners are duly registered with the Ministry of Health under the DrugsAct, 1976 (hereinafter referred to as the Act). It is the case of the Petitioners that this registration is made after a thorough investigation whether the products fall within the purview and capable of being designated as a drug. Upon registration with the Ministry of Health, the respondent No.4, becomes a governing body in respect thereof and controls prices, issues directives, determines registrations and advertisements etc. It is the further case of the petitioners that they have been manufacturing "Strepsils' which is anti‑septic throat lozenges also known as by its generic name `Dybenal'. The said Strepsils is a ;drug' which is manufactured by the petitioners in three various flavours namely (a) Regular, (b) Honey and Lemon and (c) Vitamin `C'. The said products are duly registered with the Ministry of Health, Government of Pakistan under the provisions of the said Act under Registration No.001546‑Strepsil Regular Honey and Lemon and No.008579 Strepsils Vitamin `C'. Upon having been registered and being sold in the open market since over a decade, it is to the common knowledge of all including the respondents Nos.l to

3. The said `Strepsils' prior to manufacture was being imported and was assessed under PCT heading No.30.03B which is evident from the Bill of Entry, Index No.390 dated 15‑3‑

75. Despite the aforesaid, no action was initiated and the petitioners continued to manufacture this drug and sell the same without it being charged to sales tax. It is the further case of the petitioners that not only were the petitioners manufacturing the said drug but also manufactured and sold by their competitors without the levy of sales tax. The registration under the said Act is renewed from time to time. The last renewal was on 30‑3‑1986 vide the renewal No.2‑1186‑Reg.IJ. It is the case of the petitioners that the drug `strepsils' has two basic active ingredients which are 2:4 Dishloropenzyl Alcohol and Amyl Meta Cresol. The lozenges containing the two active ingredients in a base are packed in aluminium foil. The active ingredients are imported in Pakistan as drugs and are exempt from payment of customs duty and sales tax vide SRO 349(1 /85 and SRO 350(1)/85. Government of Pakistan by its certificate at the time of import of these products namely, Dichlorobenzyl Alcohol and Amyl‑Meta Cresol are used for the finished product (drugs and medicines) namely the Strepsil lozenges. It is also the case of the petitioners that the Central Board of Revenue by its Circular Letter 16(17)ST/76 dated 28th September, 1981 decided that menthol (sweet drops/lozenges) are not `drugs' in terms of heading 30.03 of the First Schedule to the Customs Act, 1969 and are therefore liable to sales tax. The petitioners received a letter No. 6‑INT/ENO/82/88 dated 9‑2‑1982 advising the petitioners that (Strepsils' lozenges were liable to sales tax and asking them to furnish details giving quantity produced and cleared with effect from 25‑4‑1981. The said letter was based on Circular No.8/81 dated 28‑9‑1981. The petitioners by their reply dated 14‑2‑1982 clarified that the `Strepsils' is the medicinel product with its main ingredients as 2:4 Dichlorobenzyl Alcohol and Amyl‑Meta‑Cresol. After about two years i.e. on 11‑12‑83 a Deputy Superintendent, Central Excise and Land Customs (Hq. Intelligence),, Guru Mandir, Karachi, visited the factory and asked the petitioners to submit stock figures of Strespsils. The petitioners did so and informed the said Deputy Superintendent vide letter of the same date that `Strepsils' is a `drug' duly registered as one, and exempt from the payment of sales tax. It is the case of the petitioners that the said Deputy Superintendent again accepted the fact that `Strepsils' was a `drug' and did not proceed in the matter any further. However, again after lapse of about two years, another Deputy Superintendent Intelligence and Audit (Sales Tax), Karachi visited the factory on 22‑12‑1985 and raised the same issue in respect of the payment of sales tax on the drug `Strepsils'. The said officer asked for details for the sales of the `Strepsils' from 25‑4‑1984 till 23‑12‑1985. The petitioners again informed the said officer that `Strepsils' is classified as a `drug' and medicine and is so registered, thus not liable to sales tax. The petitioners again received a letter dated 2‑1‑1986 from the Assistant Collector, Central Excise and Land Customs (Hq. Intelligence and Audit of Sales Tax), Karachi, which was duly replied on the same premise. The petitioners, however, gave the details of the stock lying in the warehouse. Again after a lapse, of 18 months of the last communication, the petitioners received a letter dated 27‑6‑1987 from the Superintendent, Director‑General of Intelligence and Investigation (C & E), Government of Pakistan asking for five years figures of Strepsils quantities produced and cleared and value per unit. The said letter was also replied on 2‑7‑1987 clarifying the position in the same manner. The Assistant Director (CE and LC) by a further letter dated 12‑8‑1987 again asked for details of strepsils within seven days. The petitioners did gave the figures of stock in hand and gave all relevant details on the matter. It was again clarified that `Strepsils' was drug and was duly registered and was specifically distinguishable from simple menthol lozenges. The said Assistant Director disregarded the contention that product was a drug duly declared as such by the Ministry of Health, Government of Pakistan though the declaration and certificates were duly shown to him. The respondent No3 or his nominees or his officials visited and contacted the petitioners on various occasions as aforesaid and were shown sufficient documentary evidence/proof that `Strepsils' is in fact a medicinal product containing active anti‑septic agents and controlled and regulated by the Ministry of Health under the provisions of the said Act. The said Ministry after having registered the said drug had total control in hand in respect of sales, advertisements as well as price fixing etc. Despite the aforesaid clarification on numerous occasions, the petitioners received a show‑cause notice bearing No. 16/137‑CE‑LN‑Cont/87 dated 16‑2‑1987 signed by the Deputy Collector‑I. In the said show‑cause notice it was alleged that the petitioners were manufacturing and clearing drugs `Strepsils' lozenges, which items are not covered by PCT heading 30‑03, as medicament and does not enjoy exemption under the consolidated SRO‑666 (I)/81 dated 25‑6r‑1981. The respondent No. 3 in his show‑cause notice stated that the petitioners have cleared a quantity of 1,80,10,19 strepsils lozenges valuing to Rs.10,31,48,050 involving sales tax in the sum of Rs.2,38,94,506 without obtaining Central Excise Manufacturing Licence and payment of sales tax leviable thereon. Action was contemplated under the show‑cause notice. The petitioners filed a detailed reply to the show‑cause notice on 29‑12‑1987 stating therein the entire facts, history and law on the point. It was emphasized that `Strepsils' was in fact a medicament and that it being a drug was exempted from payment of sales tax under SRO 666(1)/81 dated 25‑6‑1981. The petitioners filed a Constitutional petition being No.CP‑1750 of 1987 in this Court, praying that the direction for the payment of sales tax is without lawful authority. The petitioners also sought a declaration that the respondent No. 1 acted with material irregularity and that no sales tax is due and payable. The said petition was, however, disposed of by a consent order of this Court on 27‑12‑1987 without touching the merits, on the undertaking of the respondents 1 to 3 that they shall take no coercive action pursuant to the show‑cause notice till the petitioners submit the reply by 30‑12‑1987, which date was also fixed by the show‑cause notice and adjudication of the dispute by the respondent No.

3. The petitioners filed their reply and were heard. The Deputy Collector‑II, Central Excise and Land Customs, Karachi, by his order No. 39/88 dated 28‑7‑1988 held that the said Strepsils is a sweet under PCT Heading 17.04. The respondent No. 3 ordered recovery of Rs.1,28,93,506 as sales tax under Rule 10 of the Central Excise Rules. The petitioners being aggrieved by the aforesaid order filed the above petition. The petitioners' case is that the products are duly registered with the Ministry of Health, Government of Pakistan, under the provisions of the said Act under registration No.001546‑Strepsils Regular, Honey and Lemon and No. 008579‑Strepsils Vitamin `C' whereas the respondents' case is that menthol (sweet drops, a lozenges) are not drugs in terms of PCT Heading 30.03 of the First Schedule to the Customs Act, 1969 but are covered under PCT Heading 17.04. We have heard Mr. Anwar Mansoor learned counsel appearing for the petitioners and Mr. M. Zahiruddin Khan, learned counsel appearing for the respondents. The petitioners are engaged in the manufacture and sale of pharmaceuticals in Pakistan. One medicine or drug which the petitioners have been specially mentioned before us is `Strepsils' which is anti‑septic throat lozenges also known by its generic name `Dybenal'. Strepisls is a medicinal product with its main ingredient 2:4 Dichlorobeozyl Alcohol and Amyl‑Meta Cresol. This drug is manufactured in three flavours namely (a) Regular, (b) Honey and Lemon and (c) Vitamin `C'. According to the petitioners, out of flavours of the Strepsils a component of Dichlorobenzyl Alcohol and Amyl Meta‑Cresol, merely to give cooling effect to the mouth and throat, two. flavours i.e. Regular and Vitamin `C' contain small quantity of menthol and have not a menthol lozenges. Menthol is added in the formulation in order to make the drug more platable to the patients. According to the petitioners the product so obtained .is a medicinal preparation as defined in subsection (g) of section 3 of the said Act. Subsection (g) of section 3 of the said Act defines `drug' as under:‑‑ "(g) "drug" includes‑‑ (i) any substance or mixture ‑of substances that is manufactured, sold, stored, offered for sale or represented for internal or external use in the treatment, mitigation, prevention or diagnosis of disease, an abnormal physical state, or the symptoms thereof in human beings or animals, or the restoration, correction, or modification of organic functions in human beings or animals, not being a substance exclusively used or prepared for use in accordance with the ayurvedic, Unani, homoeopathic or biochemic system of treatment except those substances and in accordance with such conditions as may be prescribed; (ii) abortive, and contraceptive, substances, agents and devices, surgical ligatures, sutures, bandages, absorbent cotton, disinfectants, bacteriophages, adhesive plasters, gelatine capsules and anti‑septic solutions; (iii) such substance intended to be used for the destruction or repulsion of such vermin, insect, rodents and other organisms as cause, carry or transmit disease in human beings or animals or for disinfection in residential areas or in premises in which food is manufactured, prepared or kept or stored; (iv) such pesticides as may cause health hazard to the public; (v) any substance mentioned as monopraph or as a preparation in the Pakistan Pharmacopeia or the Pakistan National Pormulary or the International Pharmacopeia or the British Pharmacopocia or the British Pharmaceutical Codex or the United States Pharmacopoeia or the National Formulary of the United States, whether alone or in combination with any substance exclusively used in the Unani, ayurvedic, homoeopathic or biochemic system of treatment, and intended to be used for any of the purposes mentioned in sub‑clauses (i), (ii) and (iii) and (vi) any other substance which the Federal Government may, by notification in the official Gazette, declare to be a "drug" for the purposes of this Act;" The definition of drug is comprehensive enough to take not only medicines but also substances intended to be used for or in the treatment of diseases of human beings or animals. This artificial definition introduces of distinction between medicines and substances which are not medicines strictly so‑called. The expression `substance' or `mixture of substances", therefore, be something other than medicines but which are used for the treatment of diseases of human beings or animals. The term `drug' includes medicines for internal or external uses. The petitioners invited our attention to the renewal of registration dated 30‑3‑1986 (Annexure A/2 to the petition), letter of Ministry of Health dated 3‑7‑86 fixing prices of Strepsils lozenges (Annexure A/3 to the petition), letter of Ministry of Health dated 19‑2‑1986 by which they have fixed price of Strepsils (Vitamin `C') (Annexure A/4 to the petition) and Notification SRO 3491)/85 dated 15‑4‑1985 (Annexure B/1). We have consulted Matrintale Extra Pharmacopoeia, 28th, Edition 1982. The two ingredients of `Strepsils' i.e. Amylmetacresol and Dichlorobenzyl alcohol are appearing at pages 549 and 561 with particular reference to `Strepsils' under Part‑I that "MANUFACTURE OF DRUGS AND ANCILLARY SUBSTANCES". Mr. Anwar Mansoor has also drawn our attention to the Notification (SRO 682(1)/80 dated 12‑6‑1980) published the modified Formulary consisting of the Drugs. Strepsils lozenges are appearing at Serial No. 001546 on page 751 of Gazette of Pakistan, Extraordinary. Part II, dated 12‑6‑1980. . Nothing has been brought to our notice contrary to this. It clearly appears that `Strepsils' lozenges is a medicinal preparation within the meaning of the said Act, and that being so, we are entirely unable to understand how it could be termed as sugar confectionary not containing coca and could be charged for the purposes of sales tax. From what we have stated above, it is clear that Marktintale is a recognized authority and the Ministry of Health have uniformly pointed out that `Strepsils' lozenges is used as a remedy for treatment of infections of the mouth and throat and a valuable adjunct to the systematic treatment tonsils and other deep throat infections. We are, therefore, unable to accept the respondents' contention that this is a not a drug but these are menthol sweet drops/lozenges. The imposition or levy of sales tax on these products do not appear to be justified and the contention of the petitioners in this regard is accepted. We, therefore, allow the petition and declare that the Circular No.8/81 dated 28‑4‑1981 and letter dated 24‑1‑1981 are issued without lawful authority and are of, no legal effect. As such they are quashed. Since the Circular No. 8/81, and letter dated 24‑1‑1981 which have been quashed the order dated 28‑7‑1988 also cannot be sustained. As a consequential measure it too is quashed. In the circumstances there will be no order as to costs. M.B.A./B‑253/K Petition allowed.