2023 (5) TMI 290 - SC - VAT and Sales Tax

Supreme Court Upholds Kerala and Tamil Nadu Tax Classifications for Nycil Prickly Heat Powder as Cosmetic Product.

HEINZ INDIA LIMITED Versus THE STATE OF KERALA

The SC dismissed the appeals, affirming the Kerala HC's classification of 'Nycil Prickly Heat Powder' as 'medicated talcum powder' under Entry 127 of the ... Classification of goods - medicated talcum powder - classifiable under Entry 79 of the First Schedule to Kerala General Sales Tax Act, 1963 or not - whether medicated talcum powder is medicine or drug, or a cosmetic, or in terms of the statutes in question, medicated talcum powder? - HELD THAT:- In the present case, the clear legislative intent, of inserting a carefully worded entry, which was a “hybrid” one, i.e. describing an article that contained medicinal ingredients, as well as those used for cosmetics, and yet placing such a creature (“neither beast nor fowl” so to say) in the category of cosmetics, ruled out altogether any interpretive scope of classifying it as a medicinal preparation, or drug or medicine. Therefore, this court cannot fault the High Court for drawing the conclusion that it did. Tamil Nadu case [[2014 (5) TMI 413 - MADRAS HIGH COURT]] - HELD THAT:- The legislative history of the entry is telling. Talcum powder, lipsticks, lip salve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders, talcum powders, powder pads, etc. clearly showed that all manner of talcum powder fell within Entry, i.e. Item 1. After the amendment, with effect from 01.04.1994, the explanation was added. The explanation specifically stated that items “listed above” “even if medicated or as defined in Section 3” (of the Drugs Act) “or manufactured on the license issued under the said Act will fall under this item”. The explanation included, in Item 1, Part F medicated talcum powder, regardless that the license to manufacture it, was under the Drugs Act. The pointed reference to toilet powders, baby powders, talcum powders, powder pads, along with the additional words “even if medicated” again, like in the Kerala case, is decisive. In the present case, the TNGST was consciously amended to include talcum powder, whether or not medicated in the specific entry or class of entries, enumerating cosmetics. Hence, like in the Kerala case [[2008 (9) TMI 845 - KERALA HIGH COURT]], the plain meaning of that taxation head or entry had to be given, as there was no ambiguity. Consequently, the findings recorded by the High Courts are justified. This court is of the view that both sets of appeals have to fail - Appeal dismissed. 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.