2017 (1) TMI 1465 - HC - VAT and Sales Tax

Classification of goods - Shower to Shower - Listerine Mouthwash - Listerine Cool Mint Mouthwash - Savlon - whether falls within the ambit of drug and medicine or not? - penalty u/s 61 - Held that - Insofar as Shower to Shower and Listerine Mouth Wash are concerned, in my view 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 - A minor percentage of acid/ethanol which may be available in almost all cosmetics as well, cannot justify the claim as raised by assessee that they have to be classified as drugs/medicine - the claim of the petitioner is required to be rejected and accordingly the petitions insofar as the assessee is concerned, is required to be dismissed. Savlon - Held that - The Apex Court in the case of ICPA Health Products Pvt. Ltd. v. CCE 2004 (4) TMI 77 - SUPREME COURT OF INDIA 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 - the finding reached by the Tax Board, in my view, is just and proper and is not required to be interfered with. Penalty u/s 61 - Held that - Admittedly, it is a case where an issue of classification of entries is there and the issue becomes debatable once the assessee claims that it is a drug/medicine and Revenue may dispute to be falling in the general category or as a cosmetic but at least penalty cannot be levied in such a case. Though it is a case of survey and some material was gathered by the AO during the course of survey but that by itself does not mean that the assessee has concealed the particulars so as to be visited with penalty u/s 61 - 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. Appeal allowed - decided partly in favor of appellant and partly in favor of Revenue.

Summary

Issues Involved:
1. Taxability of "Shower to Shower" and "Listerine Mouthwash" under RVAT Act.
2. Classification of "Savlon" as a drug or medicine.
3. Imposition of penalty under Section 61 of the RVAT 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 Dy. Commissioner (Appeals) concluded that these products do not qualify as drugs or medicines, applying the test of common parlance. The Tax Board upheld this view, noting that these products are freely available in the market, are used for general purposes like feeling fresh or removing body odor, and contain only minor percentages of medicinal ingredients. The court agreed with this assessment, stating that these products are essentially cosmetics and do not meet the criteria to be classified as drugs or medicines under the RVAT Act. The court emphasized that even if these products have some medicinal properties, they are primarily used as cosmetics and are not prescribed by doctors or sold exclusively by licensed traders.

2. Classification of "Savlon" as a Drug or Medicine:

The Revenue challenged the Tax Board's classification of "Savlon" as a drug, arguing it should be taxed at a higher rate. The Tax Board had previously held that "Savlon" has medicinal value, similar to "Dettol," and should be taxed at a lower rate applicable to drugs and medicines. The court upheld the Tax Board's decision, noting that "Savlon" is used as an antiseptic for cuts, abrasions, and minor burns, serving a curative purpose. The court referenced the Supreme Court's decision in Commissioner of Central Excise v. Sharma Chemical Works, which held that products used for treating ailments and containing curative ingredients should be classified as medicaments. The court also cited the Kerala High Court's decision in Reckitt Benckiser (India) Ltd. v. State of Kerala, which classified "Dettol" as a disinfectant with antiseptic properties, supporting the view that "Savlon" falls within the ambit of drugs and medicines.

3. Imposition of Penalty under Section 61 of the RVAT Act:

The Revenue appealed against the Tax Board's deletion of the penalty imposed under Section 61 of the RVAT Act. The AO had levied the penalty, claiming the assessee concealed particulars and furnished inaccurate details by paying a lower tax rate. The court, however, agreed with the Tax Board's decision to delete the penalty, noting that the issue was one of classification, making it debatable. The court emphasized that penalties are not justified in cases where the classification of goods is disputed and all relevant entries are recorded in the books of account. The court referenced the Supreme Court's decision in Sree Krishna Electricals v. State of Tamil Nadu, which held that penalties cannot be imposed when items not included in the turnover are disclosed in the dealer's account books and subsequently included by the assessing authority. The court also cited its own decision in CTO v. Bambino Agro Industries Ltd., which supported the view that penalties are not applicable in cases of bona fide classification errors.

Conclusion:

The court dismissed the petitions filed by both the assessee and the Revenue. It upheld the Tax Board's classification of "Shower to Shower" and "Listerine Mouthwash" as non-medicinal products taxable at the higher residuary rate, and "Savlon" as a drug taxable at a lower rate. The court also upheld the Tax Board's decision to delete the penalty imposed under Section 61, finding no concealment or furnishing of inaccurate particulars by the assessee.