2015 (10) TMI 218 - HC - VAT and Sales Tax

Classification of goods - Classification of Keo Karpin Baby oil as cosmetic or medicine - Rate of duty - 6% or 12% - Held that - burden to prove that a certain items is exigible to tax and falls under a given taxable entry is always on the revenue - Held that - burden on the Revenue department to bring it within entry No. 70 relating to cosmetic as notified under section 5 of the extant Rajasthan Sales Tax Act, 1954 (hereinafter the Act of 1954 ) was not at all discharged. No evidence of any sort with regard to the ingredients of the product sold or other aspects relating to its label and literature were even adverted to, what of considered by the assessing authority. The assessing authority merely seems to have proceeded on its own ipse dixit. That was mechanically dittoed by the appellate authority in its order dated October 30, 1996. - Further the product in issue was manufactured under a licence issued under the Act of 1940 and had prophylactic qualities, protecting children from rickets and checking vitamin A and E deficiency in them, entitling it to be classified as a medicine/drug. - no force in the challenge to the impugned order dated February 20, 2001, passed by the Tax Board - Decided against Revenue.

Summary

Issues:
Classification of Keo Karpin Baby Oil as a medicine or a cosmetic for sales tax purposes.

Detailed Analysis:

The Commercial Taxes Department challenged a judgment by the Rajasthan Tax Board, which classified Keo Karpin Baby Oil as a medicine and not a cosmetic for sales tax purposes. The Department argued that the product should be considered a cosmetic and taxed at a higher rate of 12 per cent ad valorem instead of the lower rate of 6 per cent. The Department contended that the product was used for massaging and maintaining healthy skin, making it a cosmetic. However, the Tax Board had relied on a previous judgment and classified the product as a medicine, eligible for the lower tax rate. The Department filed a revision petition before the High Court challenging the Tax Board's decision.

The High Court examined the relevant notifications under the Rajasthan Sales Tax Act, 1954, and noted that the Department's case was based on the product being a cosmetic and not a face cream. The court referred to previous Supreme Court judgments emphasizing the broad definition of drugs under the Drugs and Cosmetics Act, 1940. It reiterated that the burden of proof lies with the revenue department to establish the correct classification for taxation. The court found that the assessing authority had not provided any evidence or considered the ingredients of Keo Karpin Baby Oil to support its classification as a cosmetic. The appellate authority had also failed to discharge this burden, merely echoing the assessing authority's decision. In contrast, a Division Bench of the court had previously held that the product's chemical composition and prophylactic qualities qualified it as a medicine. The court applied tests from previous Supreme Court cases to determine the product's classification and upheld the Division Bench's decision.

Citing the principle of precedent and the theory of precedent value, the court rejected the Department's challenge to the Tax Board's decision. It emphasized that unless there is a new ground or a material change in facts, courts generally follow earlier pronouncements of law or conclusions of fact for consistency. The court found no merit in the Department's argument to re-agitate a question of law already settled. Therefore, the revision petition was dismissed.