2010 (10) TMI 233 - HC - VAT and Sales Tax

Classification Medicaments or cosmetic - The tribunal in holding Himani Navratan Oil to be an Ayurvedic medicament recorded that the liquid paraffin used for making it is also an Ayurvedic ingredient which finds mention in the Ayurvedic book Bhav Prakash and, as such, all the ingredients of the oil are Ayurvedic substances. Moreover, even otherwise the use of liquid paraffin as a filler or vehicle would not have effect of altering the character or the nature of the product. - on a survey conducted the products Boroplus Antiseptic Cream and Himani Navratan Oil are understood by the public to be Ayurvedic products in the general and, as such, fulfils the common parlance test. The said survey itself prove that the common parlance test stands duly satisfied in respect of the above items. - Product to be classified as medicament - to be taxed accordingly.

Issues Involved:
1. Classification of Himani Boroplus Antiseptic Cream and Himani Gold Turmeric Cream as cosmetics or medicaments.
2. Classification of Himani Navratan Oil as an Ayurvedic medicine or ordinary oil.
3. Application of the "twin test" for product classification.
4. Burden of proof for product classification.
5. Evaluation of evidence presented by the assessee-dealers and the revenue.

Detailed Analysis:

1. Classification of Himani Boroplus Antiseptic Cream and Himani Gold Turmeric Cream:
The tribunal classified these products as cosmetics, leading to a higher tax rate. The High Court noted that the U.P. Trade Tax Act taxes medicaments at a lower rate than cosmetics. The assessee-dealers initially had these products classified as Ayurvedic medicaments taxed at 7.5%. However, following a decision in Balaji Agency v. Commissioner of Sales Tax, these products were reclassified as cosmetics with a 15% tax rate. The tribunal upheld this reclassification without considering the substantial evidence presented by the assessee-dealers.

2. Classification of Himani Navratan Oil:
The tribunal classified Himani Navratan Oil as an Ayurvedic medicament. The revenue argued that the product contains 67% liquid paraffin, suggesting it should be classified as an ordinary oil. The High Court rejected this argument, emphasizing that the burden of proof lies with the revenue, which failed to provide evidence countering the classification as an Ayurvedic medicine. The court noted that the product is made from ingredients listed in authoritative Ayurvedic texts, satisfying the twin test.

3. Application of the "twin test":
The High Court reiterated the application of the "twin test" for product classification, which includes the common parlance test and the use of ingredients based on authoritative Ayurvedic texts. The court found that the products in question satisfied this test, as evidenced by affidavits from medical practitioners and references in Ayurvedic texts. The tribunal's failure to apply this test correctly was a significant error.

4. Burden of Proof:
The High Court highlighted that the burden of proof for classifying a product lies with the revenue. The revenue must prove that a product falls under a specific tax category. In this case, the revenue failed to provide evidence to support the classification of the products as cosmetics. The court cited several Supreme Court rulings affirming this principle, including Union of India v. Garware Nylons Ltd., CCE v. Sharma Chemical Works, and Dabur India Ltd. v. CCE.

5. Evaluation of Evidence:
The assessee-dealers presented substantial evidence, including affidavits from doctors, Ayurvedic texts, and drug licenses, proving the medicinal properties of the products. The tribunal dismissed this evidence on flimsy grounds, such as the similarity in language of some affidavits. The High Court found this dismissal unjustified, noting that the affidavits were uncontroverted and supported by other substantial evidence. The court emphasized that the products are used for treating minor cuts and wounds, not for beautification, and are understood as medicaments in common parlance.

Conclusion:
The High Court concluded that the products in question satisfy the criteria for classification as medicaments. The tribunal and subordinate authorities erred in classifying them as cosmetics. The revisions by the revenue were dismissed, and those by the assessee-dealers were allowed, setting aside the tribunal's order to the extent it classified the products as cosmetics. The court directed parties to bear their own costs.

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