2023 (3) TMI 273 - HC - VAT and Sales Tax

Classification of goods - rate of tax - Choloromint Herbasol - Happydent White - Chatar Patar - liable to tax at 12.5%, as per Schedule F of PVAT Act, 2005 or @ 4% tax under the residue entry? - HELD THAT - In the present case, the issue that the goods in question namely Choloromint Herbasol and Happydent are medicines have been examined and has attained finality as per the judgments by the Uttrakhand High Court, Allahabad High Court which has been affirmed by the Hon ble Supreme Court by dismissing the SLP against the judgment passed by Allahabad High Court. Reference can now be made to the observations made by the Uttarakhand High Court in the case of Commissioner Trade Tax Vs. Perfetti Van Mell 2008 (7) TMI 870 - UTTARAKHAND HIGH COURT with respect to the appellant-Company itself, the Uttarakhand High Court has observed that the items Choloromint with Herbasol and Happydent White are manufactured by the assessee under the drug licence issued to it by the Directorate of Ayurvedic Medicines of State of Haryana. Even if, for the purpose of utility, Choloromint with Herbasol as mouth freshners and that of Happydent White (baking soda with mint flavor) to keep the teeth clean, these items will not be confectionary items, specially when these items are manufactured under a valid drug licence. The Uttrakhand High Court held the above-said two items, Choloromint with Herbasol and Happydent White being manufactured under a valid drug licence are ayurvedic medicines and trade tax payable on said items @ 4% as per clause (b) of the Sub-Section (2) of Section 4 of Uttranchal Value Added Tax, 2005. In the present case, the Revenue-respondent has not led any evidence or produced any material to discharge the onus on it. Once the goods have been manufactured by the assessee under the Drugs Licence issued by the Directorate of Ayurvedic Medicines then the ayurvedic medicines would fall under Entry 31 of Schedule B attached with the Punjab Value Added Tax Act (PVAT), 2005 and is liable to be taxed @4% as per consistent view taken by the Uttarakhand High Court. The question posed for consideration in this appeal is answered against the respondent-Revenue and in favour of the assessee-appellant - Appeal allowed.

Summary

Issues:
1. Interpretation of tax liability on specific items under the Punjab Value Added Tax Act, 2005.
2. Classification of goods 'Choloromint Herbasol' and 'Happydent White' as medicines.
3. Applicability of tax rate on ayurvedic medicines under Schedule B of PVAT Act, 2005.

Issue 1: Interpretation of tax liability under PVAT Act, 2005
The appellant challenged an order by the Value Added Tax Tribunal regarding the tax rate applicability on items manufactured by them. The dispute revolved around the items 'Choloromint Herbasol', 'Happydent White', and 'Chatar Patar' being taxed at 12.5% under Schedule 'F' of PVAT Act, 2005. The appellant contended that the High Court judgments from Uttrakhand and Allahabad supported their claim for a lower tax rate.

Issue 2: Classification of goods as medicines
The appellant argued that the items 'Choloromint Herbasol' and 'Happydent White' should be classified as medicines based on judgments from Uttrakhand, Allahabad, and Telangana High Courts. These judgments highlighted that the products were manufactured under a valid drug license and contained organic ingredients with medicinal value, thus qualifying as ayurvedic medicines.

Issue 3: Applicability of tax rate on ayurvedic medicines
The High Court analyzed the provisions of the Punjab Value Added Tax Act, 2005, and the Drugs and Cosmetics Act to determine the tax liability on ayurvedic medicines. The court referred to Entry 31 of Schedule B, which covers drugs and medicines produced under a drug license, supporting the appellant's claim for a 4% tax rate based on the consistent legal interpretations from various High Courts and the Supreme Court.

In conclusion, the High Court ruled in favor of the appellant, setting aside the tribunal's order and the Excise & Taxation Commissioner's decision. The judgment emphasized the importance of a valid drug license and the presence of medicinal value in the ingredients to classify products as ayurvedic medicines and qualify for a lower tax rate as per the relevant legal provisions and precedents.