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of <h1>Supreme Court Upholds Kerala and Tamil Nadu Tax Classifications for Nycil Prickly Heat Powder as Cosmetic Product.</h1> <h3>HEINZ INDIA LIMITED Versus THE STATE OF KERALA</h3> HEINZ INDIA LIMITED Versus THE STATE OF KERALA - 2023 (385) E.L.T. 162 (SC), [2023] 114 G S.T.R. 22 (SC) Issues Involved:1. Classification of medicated talcum powder: Is it a medicine, drug, or cosmeticRs.2. Specific assessments and tax rates applied by State authorities in Kerala and Tamil Nadu.Summary:Issue 1: Classification of Medicated Talcum PowderThe primary issue before the court was whether medicated talcum powder, specifically 'Nycil Prickly Heat Powder,' should be classified as a medicine, drug, or cosmetic under the relevant statutes.Kerala High Court's Judgment:The Kerala High Court, in its judgment dated 29 September 2008, held that 'Nycil Prickly Heat Powder' should be classified under Entry 127 of the First Schedule to the Kerala General Sales Tax Act, 1963 (KGST Act) as 'medicated talcum powder' rather than under Entry 79 as 'medicine.' The court opined that the product was used for the specific purpose of treating prickly heat and had preventive and curative effects, making it effective for treating ailments. Despite its medicinal qualities, the inclusive definition under Entry 127 necessitated its classification as 'medicated talcum powder.'Madras High Court's Judgment:The Madras High Court, in its judgment dated 01.03.2012, held that 'Nycil Prickly Heat Powder' was a 'toilet powder' under Entry 1(iii) of Part F of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) and not a 'medicinal formulation' under Entry 20-(A) of Part C. The court noted that the explanation to Entry 1(iii) clarified that even medicated items or those defined under the Drugs and Cosmetics Act, 1940, would fall under this entry.Issue 2: Specific Assessments and Tax RatesKerala Case:For assessment years 1999-2000 and 2000-2001, Heinz filed its annual return, which was initially accepted with a tax rate of 8%. However, the revisional authority later deemed this prejudicial to revenue interests and reclassified the product under Entry 127, applying a 20% tax rate. The Kerala High Court upheld this reclassification.Tamil Nadu Case:For assessment years 1993-94 and 1994-95, the assessing officer levied a 16% tax rate under Entry 1(iii) of Part F, rejecting the claim for a 5% tax rate under Entry 20-A of Part C. The Appellate Tribunal initially sided with the assessee, but the Madras High Court reversed this, classifying the product as a cosmetic.Legal Reasoning:The Supreme Court emphasized the importance of the specific legislative entries and the use of terms like 'including' and 'medicated' in the statutes. The court noted that the legislative intent was clear in classifying 'medicated talcum powder' under cosmetics, as evidenced by the specific entries in both the KGST and TNGST Acts. The court also referenced several precedents, including CIENS Laboratories, Puma Ayurvedic Herbal, and others, to underline the principles of classification based on the product's primary function and consumer perception.Conclusion:The Supreme Court dismissed both sets of appeals, affirming the High Courts' classifications of 'Nycil Prickly Heat Powder' as 'medicated talcum powder' under cosmetics, and not as a medicinal formulation. The judgments were upheld based on the specific legislative entries and the clear intent of the statutes.
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