1998 (5) TMI 395 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of "Vicco Vajradanti" and "Vicco Turmeric" for tax purposes.
2. Constitutionality of certain entries in the Tamil Nadu General Sales Tax Act.

Detailed Analysis:

1. Classification of "Vicco Vajradanti" and "Vicco Turmeric" for Tax Purposes

The primary issue revolves around the classification of "Vicco Vajradanti" and "Vicco Turmeric." The petitioners argued for classification under serial No. 20, Part "C" as medicinal preparations, attracting a 5% tax rate. The department, however, classified these products under serial No. 7, Part "E" and serial No. 1, Part "F" as toothpaste and facial cream, respectively, with higher tax rates of 12% and 16%.

The court noted that "Vicco Vajradanti" and "Vicco Turmeric" are manufactured from ayurvedic ingredients and are licensed as ayurvedic drugs. However, the products are also used as toothpaste and facial cream, respectively. The court emphasized that the entries in the Tamil Nadu General Sales Tax Act were amended to exclude products capable of being used as cosmetics, toothpastes, etc., from the lower tax rate applicable to medicines.

The court rejected the petitioners' claim for classification under entry 20, Part "C," stating that the products clearly fall within the excluded categories of creams and toothpastes. The court upheld the department's classification under entry 7, Part "E" and entry 1, Part "F."

2. Constitutionality of Certain Entries in the Tamil Nadu General Sales Tax Act

The petitioners challenged the constitutionality of portions of the entries in Serial No. 1 of Part "F" and Serial No. 20(A) of Part "C" of the First Schedule to the Tamil Nadu General Sales Tax Act, arguing that they were ultra vires of Articles 14, 19(1)(g), and 300-A of the Constitution of India.

The court dismissed this argument, stating that it is within the Legislature's prerogative to levy different tax rates on different goods. The court emphasized that the Legislature can select particular items for specific tax rates based on economic conditions and trade practices within the state. The court found no arbitrariness or discrimination in the impugned entries, as they apply to all products within the specified categories and not exclusively to "Vicco Vajradanti" and "Vicco Turmeric."

The court cited the Supreme Court's decision in Arya Vaidya Pharmacy v. State of Tamil Nadu, which supports the Legislature's authority to classify goods and levy different tax rates based on rational economic policies.

Conclusion

The court upheld the impugned order of assessment dated August 16, 1996, and dismissed both original petitions. The classification of "Vicco Vajradanti" and "Vicco Turmeric" under higher tax rate categories was affirmed, and the constitutionality of the relevant entries in the Tamil Nadu General Sales Tax Act was upheld. The court concluded that the Legislature's classification and tax rate decisions were neither arbitrary nor discriminatory.