2007 (11) TMI 555 - HC - VAT and Sales Tax

Whether the Trade Tax Tribunal had properly and correctly applied the test of the user and common parlance as prevalent in the commercial world while deciding the taxability of the goods in question? Whether the Trade Tax Tribunal was legally justified in placing the reliance upon only literature furnished by the dealer in respect of the goods in question? Whether the Trade Tax Tribunal was legally justified in holding the taxability of Emami Naturally Fair Cream/Lotion as a medicine? Held that - In this case, the second appellate authority has given no reason in coming to the conclusion it has reached that certain items may be classified either as medicines or cosmetics and this too must be done after giving due consideration to the evidences, which have been produced before it. The evidence has been furnished by the assessee by giving specific findings and reason. Therefore remand the matter to the Tribunal to apply twin test in the case of the assessee also. The Tribunal on remand may decide the issue in accordance with law, expeditiously.

Issues Involved:
1. Classification of Himani Naturally Fair Cream and Himani Naturally Fair Lotion as either "ayurvedic medicines" or "cosmetics."
2. Application of the "user and common parlance" test for taxability.
3. Evaluation and sufficiency of evidence presented by the assessee.
4. Legal justification of the Trade Tax Tribunal's reliance on the literature furnished by the dealer.
5. Proper application of the "twin test" for determining the nature of the products.

Detailed Analysis:

1. Classification of Products:
The primary issue revolves around whether Himani Naturally Fair Cream and Himani Naturally Fair Lotion should be classified as "ayurvedic medicines" or "cosmetics." The Tribunal initially classified these products as medicines, which the State contested, arguing they should be considered cosmetics. The State's contention was based on the general use and common parlance understanding of the products as cosmetics intended for skin care rather than treating any skin disease.

2. Application of the "User and Common Parlance" Test:
The State argued that the classification should rely on the common parlance test, which considers how the products are generally understood and used by the public. The learned Standing Counsel emphasized that medicines are typically sold under prescription and used for curing ailments, whereas cosmetics are used for enhancing appearance. The Tribunal's decision was challenged for not correctly applying this test.

3. Evaluation and Sufficiency of Evidence:
The assessee provided extensive evidence, including drug licenses, certificates from medical professionals, clinical test reports, and previous judgments classifying similar products as medicines. The first appellate authority, however, dismissed this evidence without detailed discussion, relying solely on a previous judgment (Balaji Agency, Gorakhpur v. Commissioner of Sales Tax) that classified similar products as cosmetics. The Tribunal's order was also criticized for lacking detailed reasoning and failing to explicitly discuss the evidence presented.

4. Legal Justification of Tribunal's Reliance on Literature:
The State questioned whether the Tribunal was justified in relying solely on the literature and documents provided by the assessee without independent verification or detailed analysis. The Tribunal's decision was seen as insufficiently reasoned, as it broadly accepted the evidence without specific discussion or rebuttal of the State's arguments.

5. Proper Application of the "Twin Test":
The judgment emphasized the necessity of applying the "twin test" to determine whether the products are medicaments. The twin test involves:
- Common Parlance Test: Whether the product is commonly understood as a medicament, used specifically for treating ailments and not as a regular cosmetic.
- Ingredient Test: Whether the ingredients are listed in authoritative ayurvedic texts.

The Supreme Court's guidance in Puma Ayurvedic Herbal (P.) Ltd. v. Commissioner, Central Excise was cited, which underscores the importance of both these tests in classification matters. The Tribunal was directed to reassess the classification of the products using the twin test, considering the evidence and providing detailed reasoning for its conclusions.

Conclusion:
The High Court remanded the matter to the Tribunal for a fresh decision, instructing it to apply the twin test methodically and provide specific findings and reasons based on the evidence presented. The Tribunal must consider the common parlance understanding of the products and verify if their ingredients are recognized in authoritative ayurvedic texts. The revision was disposed of with these directions for expeditious resolution.

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