2017 (1) TMI 1834 - HC - VAT and Sales Tax

Classification of goods - prickly heat powder sold under the brand name Nycil - Constitutional Validity - words including medicated talcum powder as found in Entry 127 of the First Schedule to the Kerala General Sales Tax Act, 1963 during the period from 01/04/1992 to 31/12/1999 and the words including medicated talcum powder as found in Entry 144 to the KGST Act during the period from 1/1/2000 to 31/3/2005 - violative of Articles 14, 19(1)(g) and 265 of the Constitution of India or not - HELD THAT - From 01/4/92 to 31/12/1999, under Sl. No. 79, medicines and drugs including allopathic, ayurvedic, homeopathic, sidha and unani preparations and glucose I.P. were taxed at 8%, whereas under Sl. No. 127, shampoo, talcum powder including medicated talcum powder, sandalwood oil, ramacham oil, cinnamon oil and other perfumeries and cosmetics not falling under any other entry in the schedule was taxed at 20%. From 1/1/2000, Sl. No. 127 had been changed to 144 and the tax was imposed at 20%. It is apparent from the Schedule that the rate of tax is not fixed on the basis of HSN Code whereas rate of tax has been specified based on specific entry made in the Schedule. The petitioner's product apparently is a medicated talcum powder and it is so found by Division Bench of this Court in S.T. Revn. Nos. 164/2007 and 172/2008 2008 (9) TMI 845 - KERALA HIGH COURT . It is settled law that a legislative provision cannot be struck down by this Court lightly. Fiscal measures adopted by the Government in a taxing statute cannot be termed as arbitrary, however, harsh it may be. Despite contending that the provision is unconstitutional, no facts are placed to arrive at such a finding. This Court will not be justified in interfering with the Entry by which medicated talcum powder has been included in the Schedule to the KGST Act by which tax is levied at 20% - there are no reason to grant the reliefs prayed for -- petition dismissed.

Summary

Issues Involved:
1. Constitutionality of the classification of "medicated talcum powder" under the KGST Act.
2. Discriminatory taxation of medicated talcum powder compared to other skin care drugs.
3. Validity of legislative entries and their interpretation.

Issue-wise Detailed Analysis:

1. Constitutionality of the classification of "medicated talcum powder" under the KGST Act:

The petitioner, a dealer under the KGST Act and KVAT Act, sought a declaration that the words "including medicated talcum powder" in Entry 127 of the First Schedule to the KGST Act (from 01/04/1992 to 31/12/1999) and Entry 144 (from 1/1/2000 to 31/3/2005) were unconstitutional and violative of Articles 14, 19(1)(g), and 265 of the Constitution of India. The petitioner argued that Nycil prickly heat powder, which is classified as a drug under Central Excise Law and various judicial precedents, should not be taxed as a cosmetic or talcum powder.

2. Discriminatory taxation of medicated talcum powder compared to other skin care drugs:

The petitioner contended that while drugs intended for skin care in the form of creams or ointments were taxed at 8% under Sl. No. 79 of the First Schedule of the KGST Act, drugs for skin care delivered through the medium of powder were taxed at a higher rate of 20%. This classification was argued to be irrational and discriminatory, especially in light of the Supreme Court's judgment in Muller and Phipps (India) Ltd. v. Collector of Central Excise, Bombay-I, which held that prickly heat powder is a medicine and not a cosmetic.

3. Validity of legislative entries and their interpretation:

The respondents argued that the major component in prickly heat powder is talcum purified, used in all talcum powders, and that the product should be taxed at 20% under Entry 127 of the First Schedule. The court noted that the product is indeed a medicated talcum powder, as previously held by a Division Bench in S.T. Revn. Nos. 164/2007 and 172/2008. The court emphasized that legislative entries should be interpreted based on their popular meaning and not scientific or technical definitions. The court also referenced several judgments, including those of the Supreme Court and the Delhi High Court, which classified similar products as medicaments under different statutory contexts.

Conclusion:

The court concluded that the legislative entry specifying medicated talcum powder for taxation at 20% was not unconstitutional. It held that fiscal measures in taxing statutes cannot be deemed arbitrary simply because they are harsh. The court dismissed the writ petition, stating that there was no justification to interfere with the legislative entry that included medicated talcum powder in the KGST Act's schedule for taxation at 20%.