2014 (5) TMI 413 - HC - VAT and Sales Tax

Whether talcum powder includes prickly heat powder or otherwise what is the rate at which the prickly heat powder should be taxed - Rate of Tax - Classification - nycil prickly heat powder Entry 20-A of Part C or Entry 1(iii) of Part F of Schedule 1 of Tamil Nadu General Sales Tax Act, 1959 Held that - the nycil prickly heat powder, which is used only to absorb sweat and moisture from the body and to keep away rashes in the human beings, cannot be considered to be either a drug or medicine and it would be only a talcum powder - However, in view of the composition, the nycil prickly heat powder is nothing but a medicinal preparation used for the purpose for which the talcum powder is used. There is no dispute that the nycil prickly heat powder is manufactured on the basis of a drug licence issued under the provisions of the Drugs and Cosmetics Act - The price of the product is also regulated, approved and the product is stored under the drug licence - It is very pertinent to note that a similar product manufactured by another assessee, which also claimed that the nycil prickly heat powder is a drug or medicine under the relevant Entries to the Kerala General Sales Tax Act in Heinz India Ltd. v. State of Kerala 2008 (9) TMI 845 - KERALA HIGH COURT -The Kerala High Court very extensively considered the medicated talcum powder after going through the various definitions of drug , medicine , cosmetic and talc , and ultimately came to the conclusion that the medicated talcum powder includes prickly heat powder - The Kerala High Court rejected the contention as to the theory of medicine and also after considering the basic ingredients of prickly heat powder, came to the conclusion that the base product is only a purified talc. This Court is also of the view that after considering the explanation to the main entry, it is only a medicated talcum powder and it certainly includes prickly heat powder also This Court agrees with the reasoning of the Kerala High Court and hold that the nycil prickly heat powder is not a drug and it is only a medicated talcum powder - Accordingly, the issue in favour of the Revenue and against the assessee - Orders of the Tribunal set aside and restore the orders of the assessing authority - Revisions are allowed Decided in Favour of Revenue.

Issues Involved:
1. Classification of "nycil prickly heat powder" under the Tamil Nadu General Sales Tax Act, 1959.
2. Determination of the applicable tax rate for "nycil prickly heat powder."
3. Interpretation of relevant statutory entries and definitions under the Tamil Nadu General Sales Tax Act and the Drugs and Cosmetics Act, 1940.

Issue-wise Detailed Analysis:

1. Classification of "nycil prickly heat powder" under the Tamil Nadu General Sales Tax Act, 1959:
The central question was whether "nycil prickly heat powder" should be classified as a drug under Entry 20-A of Part C of the First Schedule or as a talcum and toilet powder under Entry 1(iii) of Part F of the First Schedule. The assessing authority and the Appellate Assistant Commissioner classified it under Entry 1(iii) of Part F, which deals with talcum and toilet powder, levying a tax rate of 16%. The Tamil Nadu Sales Tax Appellate Tribunal, however, held that it was a medicated preparation for skin care, classifying it as a drug under Entry 20-A of Part C, which attracted a lower tax rate of 5%.

2. Determination of the applicable tax rate for "nycil prickly heat powder":
The Tribunal's classification under Entry 20-A of Part C implied a tax rate of 5%, while the assessing authority's classification under Entry 1(iii) of Part F implied a tax rate of 16%. The High Court needed to determine the correct classification to ascertain the applicable tax rate.

3. Interpretation of relevant statutory entries and definitions under the Tamil Nadu General Sales Tax Act and the Drugs and Cosmetics Act, 1940:
The court examined the definitions of "drug," "medicine," "talcum powder," and "cosmetic" under the Drugs and Cosmetics Act, 1940, and relevant dictionary definitions. The court noted that "cosmetic" means any article intended to beautify or alter the appearance of the human body, while "drug" includes substances intended for the treatment or prevention of diseases or disorders.

Detailed Analysis:

Classification and Tax Rate:
The court analyzed the composition and purpose of "nycil prickly heat powder," which includes ingredients like Chlorphenesin (anti-bacterial antifungal), Zinc Oxide (checks perspiration), Starch (absorbs perspiration), and Talc (prevents irritation). The court noted that while talcum powder is primarily used for cosmetic purposes, prickly heat powder has a medicinal composition aimed at treating skin irritation and preventing rashes, which could suggest it falls under the category of medicine.

However, the court also considered the explanation to Entry 1(iii) of Part F, which states that any item listed, even if medicated, falls under this entry. The court referred to the Supreme Court's interpretation of explanations in statutory provisions, emphasizing that explanations serve to clarify ambiguities and should harmonize with the main provision without altering its scope.

Interpretation of Statutory Entries:
The court referred to the Kerala High Court's judgment in Heinz India Ltd. v. State of Kerala, where a similar product was classified as medicated talcum powder rather than a drug. The Kerala High Court held that despite its medicinal properties, the primary nature of the product as a talcum powder prevailed, classifying it under the relevant entry for talcum powder, which included medicated talcum powder.

Conclusion:
The court concluded that "nycil prickly heat powder" is not a drug but a medicated talcum powder. The explanation to Entry 1(iii) of Part F of the First Schedule to the Tamil Nadu General Sales Tax Act includes medicated talcum powder, thus classifying "nycil prickly heat powder" under this entry and attracting a tax rate of 16%. The court set aside the Tribunal's order and restored the assessing authority's classification, answering the issue in favor of the Revenue and against the assessee.

Final Order:
The tax case revisions were allowed, and the orders of the Tribunal were set aside, restoring the orders of the assessing authority. No costs were awarded.

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