C. N. Ramachandran Nair, J.
1. The question raised in these connected revision cases filed by the same company is whether the Tribunal was justified in confirming disallowance of sales returns claimed. We have heard counsel appearing for the petitioner and Government Pleader for the State.
2. Petitioner is a leading manufacturer of medicines distributed in Kerala. The trade practice followed by all medicine manufacturers including the petitioner is to take back the stock from the dealers on expiry of the shelf - life. Manufacturing companies market medicines by appointing distributors / agencies and selling it to them who in turn sell to retail dealers from whom customers purchase medicines. During the assessment years 2001-02 and 2002-03 the company claimed exemption from sales tax on the value of goods recalled or returned by retailers on expiry of shelf - life before sale. Return of such life expired medicines by the retailers is to the distributors who in turn returns the same to the company. These goods taken back are destroyed by the petitioner. The case of the petitioner is that the goods so collected back on expiry of shelf - life and destroyed have suffered tax on first sales made by them to the distributors and so much so, the petitioner is entitled to get refund of the tax paid by them. In fact, along with monthly returns the company has been claiming sales returns for the value of the medicines collected and destroyed every month. In the regular assessment, the assessing officer disallowed sales return pertaining to return of shelf - life expired medicines for the reason that in order to be eligible for deduction under R.9(b)(i) of the Kerala General Sales Tax Rules, return should be within three months from the date of sale. Disallowance was confirmed in first appeal and in second appeal by the Tribunal and it is against the orders of the Tribunal, these revisions re filed. Before us, counsel for the petitioner explained the scheme of marketing of medicine to customers through distributors and retail dealers and the return of the life expired medicines by the retail dealers. Petitioner’s case is that the transactions are genuine sales returns eligible for deduction. Government Pleader referred to judgment of the Supreme Court in Mico’s case reported in 33 STC 48 and contended that unless sales return is made within the statutory period prescribed under R.9(b)(i) dealer is not entitled to deduction.
3. After hearing both sides, what we find is that petitioner’s claim of sales return was not allowed because the Rule does not permit it. What was sold was medicines with potency and what is returned much after sale and second round of sale is medicines, the life period of which are over. Having gone through the scheme of marketing that is, selling medicines which have a pre - fixed period of potency, it is unlikely that sales return of life expired medicines will be within three months. Manufacture of medicines itself is geared to patient demand and soon after manufacture marketing is done. Therefore, when first sales are made, the medicines sold will have beyond three months shelf - life. Therefore, sales returns do not happen within three months of sales. So much so, under the existing rules which permit deduction of sales return only within three months of sale, petitioner or other medical companies cannot get deduction of sales returns. Kerala General Sales Tax Act or the Rules do not specifically provide any provision for refund or adjustment of tax paid in respect of sale of medicines which have lost potency at the hands of the dealer and which have been collected and destroyed by the company. The only provision for granting deduction is R.9(b)(1) which provides for sales return within three months of sale which does not happen because no medicine sold will have such short period of three months of shelf - life. The petitioner also has no case that the sales return claimed of shelf - life expired medicines were within three months of the sale by petitioner and so much so, the claim was rightly rejected in assessment and confirmed by the Tribunal. We do not find any error with the finding of the lower authorities.
4. Counsel for the petitioner raised an alternate contention that transaction should be treated as unfructified sales and so much so, since there is no time limit for claiming deduction the petitioner is entitled to refund of tax paid. This is opposed by the Government Pleader on several grounds. In the first place, the sale of the item has really taken place from the petitioner to the distributor and from the distributor in turn to the dealer. The fact that the last retail dealer could not sell the medicine within the shelf - life period does not mean that the sale by petitioner to Distributor and in turn to dealer had not taken place. On the other hand, goods reach retail dealers only on second sales and admittedly petitioner has not directly sold medicines to the retail dealers who return the goods through distributors. Therefore, petitioner’s claim that sale has not taken effect and on return of the medicines after expiry of the shelf - life, the original sale gets cancelled or frustrated is unacceptable. The practice followed is that shelf - life expired medicines are collected by the company from distributors and destroyed as part of the condition of the marketing to save dealers from loss. In fact such loss is essentially borne by the manufacturing company, and the dealers or distributors obviously and rightly are not called upon to meet the loss. Further, as a matter of practice, the medicines returned on expiry of shelf - life are not replaced by the petitioner as such. But its value is reimbursed to the distributors through credit notes who in turn issue credit notes to retail dealers. Therefore, it is not a case of return of medicine on expiry of shelf - life and cannot be treated as frustrated sales or unfrustrated sales. So much so, the petitioner’s contention in this regard is also not acceptable. However, we feel this is a genuine problem faced by the medicine distributors in the State which probably the State has to address. Government Pleader submitted that even though so many manufacturers are engaged in drug marketing in the State nobody has approached the Government with this problem and this is a unique claim only for the petitioner. Probably, return of life expired drugs may be of insignificant quantity and considering the huge margin of profit manufacturers may not feel it worthwhile to be taken up with the Government. In any case, the petitioner / manufacturer is free to take up the matter with the Government for providing sufficient safeguard under the VAT Scheme which has replaced Sales Tax Act and Rules.