2016 (1) TMI 1230 - HC - VAT and Sales Tax

Classification of manufactured products - Shower to Shower - Listerine Mouthwash - Savlon - whether the products could be classified as drugs or not? Held that - Insofar as Shower to Shower and Listerine Mouth Wash are concerned, these two products can be used by any person irrespective of prescribing by a medical doctor for one to feel fresh and to avoid/remove body odour or to remove bad smell in body/mouth, and in my view these are products which are freely available in the market and merely because there may be some percentage of acid or ethanol or similar ingredients, it cannot be said that they can be said to be like a medicine or even can be said to be a medicine or a drug - even if the licensing authorities may grant permission to the producers / manufacturers as drug but they cannot be treated as a drug or medicine when specific entries under the Sales Tax laws are required to be looked into and considered - petition dismissed and claim of petitioner rejected in relation to these two products. Savlon - Held that - The Apex court in the case of IPCA Health Products & Pvt. Ltd. v. CCE 2014 (6) TMI 861 - BOMBAY HIGH COURT was considering a case of Hexiperp, Hexiscrub (Surgiscrub) and Hexiaque, which also contain Chloral Hex dine Gluconate Solution BP, which is also available in Savlon and held it to be a medicine. Imposition of penalty - Held that - The Apex court as well as this court have in identical cases held that when there is an issue of classification and issue being debatable, the penalty is not leviable/imposable/sustainable - The judgment in the case of Sree Krishna Electricals v. State of Tamil Nadu & Another 2009 (4) TMI 428 - SUPREME COURT OF INDIA so also judgment of this court in the case of CTO v. Bambino Agro Industries Ltd. 2015 (9) TMI 1504 - RAJASTHAN HIGH COURT are sufficient to refer for non imposition of penalty. Petition dismissed - decided partly in favor of assessee and partly in favor of revenue.

Summary

Issues Involved:
1. Taxability of "Shower to Shower" and "Listerine Mouthwash" under the RVAT Act.
2. Classification of "Savlon" as a drug/medicine.
3. Imposition of penalty under Section 61 of the Act.

Detailed Analysis:

1. Taxability of "Shower to Shower" and "Listerine Mouthwash":
The primary issue was whether "Shower to Shower" and "Listerine Mouthwash" should be classified under Entry 43 of "Drugs and Medicines" in Schedule-IV of the RVAT Act or under the residuary entry in Schedule-V, attracting a higher tax rate of 12.5%. The Assessing Officer (AO) and the Deputy Commissioner (Appeals) concluded that these products did not qualify as drugs or medicines, applying the common parlance test. They determined these products were general goods, thus taxable at the higher rate. The Tax Board upheld this view, noting that despite containing some medicinal ingredients, these products were primarily used for general purposes like feeling fresh or removing body odor, and were freely available in the market without a prescription. The court agreed with these findings, emphasizing that minor medicinal properties do not automatically classify a product as a drug or medicine under the RVAT Act.

2. Classification of "Savlon" as a Drug/Medicine:
The Tax Board held that "Savlon" should be classified as a drug due to its antiseptic properties and its use in treating cuts, abrasions, and other skin conditions, similar to "Dettol." The court supported this classification, referencing the Supreme Court's decision in Commissioner of Central Excise v. Sharma Chemical Works, which emphasized the primary use of a product by consumers as a key factor in classification. The court noted that "Savlon" contains curative ingredients and is used for treating ailments, thus fitting the definition of a medicament.

3. Imposition of Penalty under Section 61:
The AO imposed a penalty under Section 61, asserting that the assessee had concealed particulars by paying a lower tax rate. However, the Tax Board deleted the penalty, reasoning that the issue was one of classification and thus debatable. The court upheld the Tax Board's decision, referencing precedents like Sree Krishna Electricals v. State of Tamil Nadu and CTO v. Bambino Agro Industries Ltd., which established that penalties are not justified in cases involving debatable classification issues. The court noted that all relevant sales were recorded in the books of account, and there was no concealment of particulars.

Conclusion:
The court dismissed the petitions by the assessee, affirming the higher tax rate for "Shower to Shower" and "Listerine Mouthwash." It also dismissed the Revenue's petition, upholding the Tax Board's classification of "Savlon" as a drug and the deletion of the penalty under Section 61. The court emphasized the importance of the common parlance test and the primary use of products in determining their classification under tax laws.