2023 (8) TMI 179 - HC - VAT and Sales Tax

Classification of commodities - rate of tax - Clohex - Clohex Plus - to be treated as medicament and taxable at 5% or not - Senquel-AD Mouthwashes - taxable at the rate of 14.5% by virtue of entry No.92(6) of SRO 82/2006 or not - HELD THAT - On a reading of the principles emerging from the decisions in Heinz India Limited v. The State of Kerala 2023 (5) TMI 290 - SUPREME COURT and Puma Ayurvedic Herbal Private Ltd. v. Collector of Central Excise 2006 (3) TMI 141 - SUPREME COURT , it can be seen that when a product contains pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, the proportion of such ingredients is not invariably decisive, and what is of importance is the curative attributes of such ingredients that render the product 'medicament' and not a cosmetic. Although a product is sold without a medical practitioner's prescription and is available over the counter, it does not lead to the conclusion that they are cosmetics - A product used mainly in curing or treating ailments or diseases and containing curative ingredients, even in small quantities, is to be branded as a medicament. The dominant use to which the product is being used certainly has a bearing. It is also to be seen that whenever a product has curative or prophylactic value as well, but the revenue still wants the said product to be brought under a different Chapter, the onus is on the revenue to show that it is not a medicament; the revenue will have to demonstrate that curative or prophylactic value is only subsidiary in nature or that the description covers the product under the Chapter wherein it is sought to be excluded. The product in the instant case normally should have come under Chapter 30 but for the specific exclusion under Note to Chapter 30 - it is also found that if a product is registered as a medicament by the Drugs Controller, that would be a strong factor to consider it as having curative or prophylactic value as a medicament. The department also did not discharge its onus of proving that the product cannot be classified as a medicament, though it certainly has attributes of a medicament - it is also found that the clarification order accepts the classification accorded to the other products Clohex and Clohex Plus by the assessee, as medicament based on the fact that they were manufactured under a drug licence. However, there is no reason discernible from the clarification order as to why Senquel-AD Mouthwash which is presented in a similar form cannot also be classified as a medicament more so when the Central Excise authorities had accepted the said classification during the relevant period. Since the clarificatory authority did not consider these aspects, it is deemed appropriate to remit it to the same authority to consider all the above aspects in the first instance. Accordingly, the impugned order (Order No. C3/26631/13/CT) of the authority for clarification dated 09.01.2015 set aside and matter remitted to the said authority for fresh consideration. Appeal allowed by way of remand.

Summary

Issues involved:
The judgment deals with the challenge to an order passed under Section 94 of the Kerala Value Added Tax Act regarding the classification and tax rate of pharmaceutical products Clohex, Clohex Plus, and Senquel-AD Mouthwash.

Details of the judgment:

Issue 1: Classification of pharmaceutical products under the KVAT Act
The appellant, engaged in manufacturing pharmaceutical products, contended that the products should be treated as medicaments based on their HSN code and therapeutic effects. The authority had classified Clohex and Clohex Plus as medicaments attracting 5% tax but classified Senquel-AD as non-medicament attracting 14.5% tax. The appellant argued that Senquel-AD should also be considered a medicament due to its therapeutic properties and prophylactic uses, supported by literature and drug license. The appellant cited relevant case laws to support the classification of the products as medicaments under Chapter 30.

Issue 2: Interpretation of the term 'medicament'
The Special Government Pleader argued that Senquel-AD is marketed as a mouthwash and does not qualify as a medicament under Chapter 30 due to the exclusion under the note to Chapter 30. Referring to case laws, it was contended that the curative or prophylactic value of a product is crucial in determining its classification as a medicament. The primary function of the product, as perceived by users, is considered in determining whether it qualifies as a medicament. The onus was placed on the revenue to demonstrate that the product is not a medicament if it has curative or prophylactic value.

Conclusion:
The High Court set aside the order of the clarificatory authority and remitted the matter for fresh consideration, emphasizing the need to evaluate all aspects and principles laid down in relevant judgments. The authority was directed to consider the classification of Senquel-AD in light of the observations made by the Court and within a specified time frame. The interim order staying further proceedings was continued until the authority's decision. The appeal was allowed accordingly.