2016 (7) TMI 1057 - SC - VAT and Sales Tax

Entry tax - products, namely, Mediker and Starch (Revive) - common parlance test - Madhya Pradesh Entry Tax Act, 1976 - Held that - Mediker which is used for anti-lice treatment is a drug because of its medicinal affect. This position has been accepted by this Court. Once it is a drug, it cannot be a shampoo. As a natural corollary, it will not invite the liability of levy of entry tax. - Decided against the revenue.

Summary

Issues Involved:
1. Classification of Mediker as a drug or shampoo for the purpose of entry tax under the Madhya Pradesh Entry Tax Act, 1976.
2. Classification of Revive instant starch as a chemical for the purpose of entry tax under the same Act.

Issue-Wise Detailed Analysis:

1. Classification of Mediker:
The primary issue was whether Mediker, a product marketed for anti-lice treatment, should be classified as a drug or a shampoo under the Madhya Pradesh Entry Tax Act, 1976. The State of Madhya Pradesh contended that Mediker is a shampoo and thus falls under Entry 32 of Schedule II, which includes "hair shampoo" and is subject to entry tax. The respondent, however, argued that Mediker is a medicinal product, classified as a drug under the Drugs and Cosmetics Act, 1940, and thus should not be subject to entry tax.

The High Court had previously ruled in favor of the respondent, stating that Mediker is a medicinal product and not a shampoo. The Supreme Court upheld this decision, emphasizing that Mediker is used specifically for anti-lice treatment and contains active ingredients like D-Phenothrin, which paralyze and kill lice. The Court referred to previous judgments, including those from the Central Excise Tribunal and the Supreme Court, which classified similar products as medicaments. The Court concluded that Mediker's primary function is medicinal, not cosmetic, and thus it should be classified as a drug, exempting it from entry tax.

2. Classification of Revive Instant Starch:
The second issue was whether Revive instant starch should be classified as a chemical under Entry 55 of Schedule II, which includes "all kinds of chemicals and acids, sulpher and bleaching powder," making it liable for entry tax. The respondent argued that Revive instant starch is not a chemical but a starch product derived from Tapioca roots, used primarily for washing clothes.

The Supreme Court noted that the burden of proof lies with the revenue authorities to show that a product falls under a specific taxable category. The Court found that the revenue had failed to provide any evidence that Revive instant starch is a chemical. The Court applied the common parlance test, which considers how the product is generally understood by people conversant with the subject matter. Since Revive instant starch is commonly used for washing clothes and not regarded as a chemical, the Court concluded that it does not fall under Entry 55 and is not subject to entry tax.

Conclusion:
The Supreme Court dismissed the appeal by the State of Madhya Pradesh, upholding the High Court's decision that Mediker is a drug and Revive instant starch is not a chemical. Consequently, neither product is liable for entry tax under the Madhya Pradesh Entry Tax Act, 1976. The Court emphasized the importance of the common parlance test and the burden of proof on the revenue authorities in classifying products for taxation purposes.