True nature test for VAT classification: medicinal preparations were not treated as cosmetics merely because they were sold as hair oil or soap.

Classification under the Gujarat VAT Act depended on the true nature of the goods, not merely their outward form. Ayurvedic and homeopathic preparations manufactured with medicinal substances, used for specific ailments and supported by licences under the Drugs and Cosmetics Act, 1940, were treated as drugs and medicines rather than cosmetics or toilet preparations. The exclusion in entry 28A(i) of Schedule II applied only to goods that were in substance cosmetics or toilet preparations; toothpaste, tooth powder, hair oil, lotions, creams or soaps were only illustrative forms and did not by themselves exclude medicinal preparations. The Tribunal's view was sustained, the State's contention failed, and the appeals were dismissed.

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Issues: (i) Whether the products in question were drugs and medicines or cosmetics and toilet preparations; (ii) Whether the exclusion in entry 28A(i) of Schedule II to the Gujarat Value Added Tax Act, 2003 applied merely because the products were toothpaste, tooth powder, hair oil, face and body lotion, cream or soaps.

Issue (i): Whether the products in question were drugs and medicines or cosmetics and toilet preparations.

Analysis: The products were shown to be Ayurvedic or homeopathic preparations manufactured with medicinal substances and scientific methodology, used for specific ailments and under medical advice. They were also treated as drugs under the Drugs and Cosmetics Act, 1940, and the manufacturers held the requisite licences. The statutory scheme under the Drugs and Cosmetics Act, 1940 draws a clear distinction between drugs and cosmetics, and the evidence supported classification of the products as medicinal preparations rather than articles meant for beautification or general cosmetic use.

Conclusion: The products were drugs and medicines, not cosmetics or toilet preparations.

Issue (ii): Whether the exclusion in entry 28A(i) of Schedule II to the Gujarat Value Added Tax Act, 2003 applied merely because the products were toothpaste, tooth powder, hair oil, face and body lotion, cream or soaps.

Analysis: The amended entry excluded cosmetics and toilet preparations, and the list of items such as toothpaste, tooth powder, hair oil, lotions, creams and soaps operated only as illustrations of that class. The decisive question remained whether the goods were in substance cosmetics or toilet preparations. Since the products were found to be medicinal preparations, the mere fact that they were sold in the form of hair oil, toothpaste, cream or soap did not bring them within the exclusion clause. The amendment was intended to exclude cosmetics and toilet preparations from the drugs-and-medicines entry, not to exclude every product merely because it bore one of those forms.

Conclusion: The exclusion clause did not apply, and the products continued to fall within entry 28A(i).

Final Conclusion: The Tribunal's view was sustained, the tax question was answered against the State, and the appeals were dismissed.

Ratio Decidendi: For classification under the VAT entry, the true nature of the product governs; a medicinal preparation does not become a cosmetic or toilet preparation merely because it is sold in a form ordinarily associated with cosmetic use.

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