2020 (3) TMI 1317 - HC - VAT and Sales Tax

Court rules Ayurvedic Baby Soap, Tooth Paste not eligible for concessional tax rates; remands others for reconsideration.

Himalaya Drug Company Versus State of Kerala

The court upheld the clarificatory order, determining that Ayurvedic Baby Soap and Tooth Paste are not eligible for concessional tax rates. However, for ... Interpretation of statute - Sub Entry 27 of Entry 36 of the IIIrd Schedule - Classification of goods - Ayurvedic Baby Soap - Ayurvedic Tooth Paste - Ayurvedic Mouth Wash - Baby gift pack and - Ayurvedic Baby Powder - eligibility for concessional rate of tax in terms of the newly introduced Clause 27 under Entry No. 36 of the IIIrd Schedule to the KVAT Act, 2003 - HELD THAT:- The 'Authority for Clarification' has found against the assessee on the ground that the products in question do not have therapeutic or prophylactic use and therefore they are not 'medicaments'. It is further stated that Soap, Tooth Paste and Mouth Wash are toilet articles and Baby Powder is more of a toilet article than a cosmetic. In the case of Gift Pack, it is found that the major items in the pack are taxable at 14.5% and that the pack therefore attracts tax at the same rate. Tooth paste and tooth powder - HELD THAT:- Apex Court in SARIN CHEMICAL LABORATORY VERSUS COMMISSIONER OF SALES TAX, UP. [1970 (8) TMI 64 - SUPREME COURT] held that Tooth Paste and Tooth Powder are toilet articles and will not be Cosmetics in common parlance. In the above view of the matter, contention raised by the petitioners with regard to Tooth Paste which is one of the products, for which clarification is sought for has to fail. Baby soap - HELD THAT:- Rule 23 of the Rules of Interpretation specifically excludes Soaps from the purview of Entry 36. In view of the fact that Soaps stand specifically excluded under Rule 23, we are not called upon to decide the question whether Baby Soap is a toilet article in common parlance or not. The clarification given in Annexure-IV order with regard to Soap also is therefore perfectly sustainable. Mouth Wash - Gift Packs - Ayurvedic Baby Powder - HELD THAT:- The issue with regard to the exigibility of tax at concessional rates under Sub Entry 27 of Entry 36 of the IIIrd Schedule with regard to Baby Powder, Baby Gift Pack and Mouth Wash are issues which require a reconsideration and a reasoned order at the hands of the clarificatory authority. The findings contained in Annexure A4 order of clarification with regard to Baby Soap and Tooth Paste as contained in the impugned order - With respect to other products the matter is remanded to the 'Authority for Clarification' for reconsideration and a reasoned order on the exigibility of tax to three other products, i.e., Baby Powder, Mouth Wash and Baby Gift Pack. Appeal allowed by way of remand. Issues Involved:1. Eligibility for concessional rate of tax under Sub Entry 27 of Entry 36 of the IIIrd Schedule to the Kerala Value Added Tax Act, 2003.2. Interpretation of the term 'cosmetics' under the fiscal statute versus the regulatory regime.3. Applicability of common parlance theory in classification of products.4. Validity of the penalty order and pre-assessment notice in light of the clarificatory order.Detailed Analysis:1. Eligibility for Concessional Rate of Tax:The appellant, a manufacturer of Ayurvedic products, sought clarification on whether their products (Ayurvedic Baby Soap, Tooth Paste, Mouth Wash, Baby Gift Pack, and Baby Powder) are eligible for a concessional rate of tax under Sub Entry 27 of Entry 36 of the IIIrd Schedule to the KVAT Act, 2003. The new sub-entry introduced by the Kerala Finance Act, 2012, included Ayurvedic cosmetics containing added medicaments manufactured under a drug license.2. Interpretation of 'Cosmetics':The appellant argued that all Ayurvedic products manufactured under a drug license containing added medicaments should be included under Sub Entry 27 and eligible for concessional tax rates. They contended that cosmetics are a genre of which toiletries are a species, and all toiletries and consumer articles produced under a valid license should be considered cosmetics. The appellant relied on the definition of 'cosmetics' in the Drugs and Cosmetics Act, which includes articles intended for cleansing, beautifying, promoting attractiveness, or altering appearance.3. Common Parlance Theory:The court noted that the Kerala VAT Act is aligned with the Customs Tariff and HSN codes. However, Sub Entry 27 did not have an HSN code. The court emphasized that fiscal statutes should be strictly construed, and the term 'cosmetics' should be understood in common parlance, not by importing definitions from regulatory statutes. The court referred to various precedents, including decisions of the Apex Court, which held that products should be classified based on their common parlance understanding.4. Validity of Penalty Order and Pre-Assessment Notice:The court upheld the clarificatory order with respect to Baby Soap and Tooth Paste, agreeing that these products are not eligible for concessional tax rates as they are considered toilet articles in common parlance. However, the court found the clarificatory authority's reasoning for Mouth Wash, Baby Gift Pack, and Baby Powder insufficient. The court remanded the matter for reconsideration and a reasoned order regarding these products.Judgment:The court upheld the findings in the clarificatory order concerning Baby Soap and Tooth Paste. For Mouth Wash, Baby Gift Pack, and Baby Powder, the court remanded the matter to the Authority for Clarification for reconsideration and a reasoned order. The court directed the authority to hear the appellant and pass appropriate orders within two months.Connected Writ Petitions:- W.P.(C) 6388 of 2018: The court quashed the penalty order under Section 47(6) of the KVAT Act, directing fresh orders after the new clarificatory order.- W.P.(C) 6390 of 2018: The court quashed the pre-assessment notice for the year 2014-15, directing fresh steps for assessment based on the new clarificatory order.The court emphasized the need for a reasoned order and proper consideration of the appellant's contentions in light of the new clarificatory order.