High Court overturns Kerala VAT order on pharmaceutical products, stresses reevaluation

The High Court set aside the order of the clarificatory authority under the Kerala Value Added Tax Act regarding the classification and tax rate of pharmaceutical products Clohex, Clohex Plus, and Senquel-AD Mouthwash. The Court remitted the matter for fresh consideration, emphasizing the need to evaluate all aspects and relevant principles. The authority was directed to reconsider the classification of Senquel-AD in light of the Court's observations within a specified time frame. The interim order staying further proceedings was continued, and the appeal was allowed.

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Issues involved:
The judgment deals with the challenge to an order passed under Section 94 of the Kerala Value Added Tax Act regarding the classification and tax rate of pharmaceutical products Clohex, Clohex Plus, and Senquel-AD Mouthwash.

Details of the judgment:

Issue 1: Classification of pharmaceutical products under the KVAT Act
The appellant, engaged in manufacturing pharmaceutical products, contended that the products should be treated as medicaments based on their HSN code and therapeutic effects. The authority had classified Clohex and Clohex Plus as medicaments attracting 5% tax but classified Senquel-AD as non-medicament attracting 14.5% tax. The appellant argued that Senquel-AD should also be considered a medicament due to its therapeutic properties and prophylactic uses, supported by literature and drug license. The appellant cited relevant case laws to support the classification of the products as medicaments under Chapter 30.

Issue 2: Interpretation of the term 'medicament'
The Special Government Pleader argued that Senquel-AD is marketed as a mouthwash and does not qualify as a medicament under Chapter 30 due to the exclusion under the note to Chapter 30. Referring to case laws, it was contended that the curative or prophylactic value of a product is crucial in determining its classification as a medicament. The primary function of the product, as perceived by users, is considered in determining whether it qualifies as a medicament. The onus was placed on the revenue to demonstrate that the product is not a medicament if it has curative or prophylactic value.

Conclusion:
The High Court set aside the order of the clarificatory authority and remitted the matter for fresh consideration, emphasizing the need to evaluate all aspects and principles laid down in relevant judgments. The authority was directed to consider the classification of Senquel-AD in light of the observations made by the Court and within a specified time frame. The interim order staying further proceedings was continued until the authority's decision. The appeal was allowed accordingly.

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