1995 (12) TMI 370 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of Vicco products for tax purposes.
2. Interpretation of relevant entries in the Karnataka Sales Tax Act.
3. Applicability of the Drugs and Cosmetics Act, 1940.
4. The role of the Indian Standards Institution (ISI) and other authorities.

Summary:

1. Classification of Vicco Products for Tax Purposes:
The appellants contested the tax classification of Vicco products (tooth-paste, tooth-powder, and cream) for the assessment years 1990-91 and 1991-92. The Deputy Commissioner of Commercial Taxes initially taxed these products at 10% u/s 12A of the Karnataka Sales Tax Act, considering them medicinal preparations. However, the Additional Commissioner revised the assessment, taxing them at 15% under entry 10 of Part T of the Second Schedule, classifying them as toilet articles.

2. Interpretation of Relevant Entries in the Karnataka Sales Tax Act:
The revisional authority interpreted entry 10 of Part T, which includes "toilet articles (whether medicated or not)" and concluded that Vicco products fall under this category. The authority relied on previous clarifications and judicial decisions, including the Karnataka High Court's ruling in L.M. Rajappachetty & Bros. v. Commissioner of Commercial Taxes, which stated that herbs, roots, and barks are not medicinal preparations.

3. Applicability of the Drugs and Cosmetics Act, 1940:
The appellant argued that Vicco products are ayurvedic drugs regulated under the Drugs and Cosmetics Act, 1940. They highlighted that these products are manufactured under a drug licence, treated as medicines for excise duty, and recognized as drugs by the Indian Standards Institution. The revisional authority, however, maintained that the primary use of these products is dental cleanliness, classifying them as toilet articles.

4. The Role of the Indian Standards Institution (ISI) and Other Authorities:
The appellant presented evidence from the ISI and other authorities to support their claim that Vicco products are medicinal preparations. The revisional authority dismissed this evidence, emphasizing the common parlance understanding of the products as toilet articles. The Supreme Court's decision in BPL Pharmaceuticals Ltd. v. Collector of Central Excise was cited, where the classification of a product as a drug was upheld based on its therapeutic properties and regulatory treatment.

Judgment:
The High Court concluded that Vicco products should be classified as medicinal preparations based on their therapeutic use, regulatory treatment under the Drugs Act, and expert opinions. The court emphasized that the true nature of the products, rather than their incidental use, should determine their classification. Consequently, the court set aside the revisional authority's order and restored the appellate authority's decision, classifying Vicco products under entry 5 of Part M of the Second Schedule to the Karnataka Sales Tax Act. Appeals were allowed with no order as to costs.