Madras High Court
Skr Agencies vs / on 30 August, 2019
Author: Anita Sumanth
Bench: Anita Sumanth
W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
RESERVED ON : 20.08.2019
PRONOUNCED ON : 30.08.2019
CORAM:
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
W.P.(MD)Nos.10719 to 10722 of 2017, 15830, 17625 of 2014, 18148 to18155
and 19232 to 19239 of 2013
and W.M.P.(MD)Nos.8174 to 8177 of 2017, 1 and 2 of 2014, 1 of 2013 (16
Nos.) and 2 of 2013 (2 Nos.)
W.P.No.10719 of 2017:
SKR Agencies
13, Pugular Road, Karur
through its partner
Mr.S.Chandrasekaran ... Petitioner
/Vs./
1. Authority for Clarification and Advance
Ruling through
The Commissioner of Commercial Taxes,
Ezhilagam, Chennai, Tamil Nadu.
2. The Assistant Commissioner,
Karur (North), Commercial Tax Office,
Karur.
3. The Assistant Commissioner,
Enforcement, Commercial Tax,
Karur. ... Respondents
PRAYER:- Writ Petition - filed under Article 226 of the Constitution of India,
praying for the issuance of a Writ of Certiorarified Mandamus calling for the
records relating to impugned order of Clarification and Advance Ruling bearing
No.A.C.A.A.R 19/2012-13 D.Dis.Acts Cell II/16835/2012 dated 27.07.2012
1/14
http://www.judis.nic.in
W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch
and Order in Review Acts Cell II/14504/2013 dated 04.10.2013 passed by the
1st Respondent herein, quash the same and for a direction, directing the
respondents to treat “Disinfectants” including disinfectants marketed under the
trademark Lizol, as falling under Entry 27(ii), to the First Schedule till
11.07.2011 (subject to VAT @ 4%) and Entry 17A, Part B of Fourth Schedule
to the TNVAT Act (subject to NIL VAT) from 12.07.2011 till 29.05.2013.
For Petitioner in the above W.Ps : Mr.R.Murali
For Respondents in the above W.Ps : Ms.J.Padmavathi Devi,
Spl.G.P.
COMMON ORDER
The question that arises for decision in the present case is one that has been considered by various High Courts. The distributors of Reckitt Benckiser India Limited are the petitioners before me. The challenge is directed against an order of the Authority for Clarification and Advance Ruling (in short 'ACAR') dated 27.07.2012 and Order in Review dated 04.10.2013 passed by the ACAR as well as orders of assessment based on the aforesaid Clarification.
2. The petitioner is a distributor of products manufactured by Reckitt Benckiser India Private Ltd., which includes Harpic toilet cleaner, Lizol disinfectant floor cleaner, Dettol hygiene liquid, Morteim rat killer and Robin bleach. We are, in this batch of writ petitions, concerned solely with the classification and consequent tax liability of Harpic and Lizol (together and for purposes of this order referred to as 'products/products in question').
3. Between the period 01.01.2007 and 11.07.2011, the products in question were being classified as 'rodenticide' in terms of Entry 27(ii), Part B 2/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch to the First Schedule to the Tamil Nadu Value Added Tax Act, 2006 (in short ' Act'), taxable at 4%. The Entry reads as follows:
' 27(i) Chemical fertilizers
(ii)Insecticides, pesticides, rodenticides, germicides, weedicides, fungicides, herbicides and combinations thereof, anti-sprouting products, plant-
growth promoters, plant nutrients, micro nutrients, bio fertilizers, disinfectants and gypsum of all forms of all forms and descriptions'
4. The Schedule was amended w.e.f 12.07.2011 and while there was no change in the Entry itself, that is, the goods enumerated therein remained the same, the rate of tax was reduced from 4% to NIL and Entry 27(ii) was merely re-numbered and placed as Entry 17A/Part-B/Schedule IV. No VAT was collected from retailers/ultimate consumers from 12.07.2011 till 29.05.2013 and the petitioner filed monthly as well as annual returns classifying Harpic and Lizol as subject to Nil VAT.
5. Amendment Act 2013 omitted Entry 17A/Part-B/Schedule IV to the Act and introduced Entry 38-A/Part-B/Schedule-IV to the Act covering only insecticides, pesticides etc. used for agriculture/horticulture thereunder. Amended Entry 38A/Part-B/Schedule-IV to the Act, reads as follows:
' 38-A.Goods which are used for agriculture/ horticultural purposes, namely:-
(i) Chemical fertilizers
(ii) insecticides, pesticides, rodenticides, weedicides, fungicides, herbicides and combinations thereof, plant-growth promoters, plant nutrients, Micro Nutrients and Bio fertilizers'
6. The item 'Disinfectants', that was part of Entry 17A/Part-B/Schedule 3/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch IV was deleted from Entry 38-A/Part-B/Schedule-IV, existing Entry 22/Part C/First Schedule was renumbered as Entry 22(i) and 'Disinfectants and Germicides' were introduced in Entry 22(ii)/Part C/First Schedule, subject to VAT at the rat of 14.5% w.e.f. 29.05.2013. Amended Entry 22/Part C/First Schedule to the TNVAT Act, reads thus:
' Entry 22:
(i) Detergents whether cakes, liquid or powder, toilet soap, abir, blue, stain busters, stain removers and all kinds of cleaning powder and liquids, other than those specifically mentioned elsewhere in the Schedule.
(ii)Disinfectants and Germicides.'
7. The petitioner continued to classify Harpic and Lizol as a disinfectant, remitting VAT at the rate of 14.5% and the classification of the products in question as 'disinfectants' continued to find favour consistently with the revenue.
8. While this is so, a Clarification had been sought from the ACAR in terms of Section 48A of the Act as to whether the products in question are liable to be classified under Entry 44/Part B/First Schedule, taxable at 5%. The Entry reads as follows:
'Drugs and medicines including vaccines, syringes and dressings, medicated ointments produced under drugs license, light liquid paraffin of IP grade.'
9. The ACAR however, classified the products in terms of Entry 69/Part C/First Schedule, a residuary Entry, taxable at either 12.5% or 14.5%. In doing so, the ACAR proceeded on the basis that there is no other, specific Entry for disinfectants used in hospitals, nursing homes and homes under any 4/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch of the Schedules to the Act and thus, the products would fall within the ambit and sweep of the residuary Entry only.
10. The aforesaid Clarification appears to have triggered a surprise inspection in the premises of the petitioners giving rise to proceedings for revision of assessments and consequent assessments and demands. The petitioners are thus before this Court challenging the Clarification issued by ACAR as well as consequent assessments framed based upon the same.
11. Admittedly, the petitioners hold valid licences for the products in question obtained under the Drugs and Cosmetics Act, 1940. Test reports issued by expert authorities are placed on record in support of their stand that Lizol comprises of Benzalkonium Chloride IP 4% is liable to be classified as a 'disinfectant'.
12. The Judgments/decisions of the Supreme Court and High Courts in relation to the classification of similar/identical products as in this batch of writ petitions are as follows:
(i) Bombay Chemical Private Ltd., Vs. Collector of Central Excise, Bombay, (1995 Supp (2) SCC 646)
(ii) Reckitt Benckiser India Private Ltd., Vs. The State of Assam and others (WP(C)1377/2010 dated 18.09.2012) (Gauhati High Court at Guwahati)
(iii) Ponds India Limited (Merged with H.L. Limited) Vs. Commissioner of Trade Tax, Lucknow (2008 (8) SCC 369) 5/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch
(iv) M/s. Reckitt Benckiser (India) Ltd., Vs. State of Andhra Pradesh (Tax Revision Case No.10 of 2007 and batch dated 13.06.2012)
(v) Reckitt Benckiser (India) Ltd., vs. Assistant Commercial Taxes Officer Anti Evasion, Commercial Taxes Department Ward-III, Jaipur and another (S.B.Sales Tax Revision / Reference No.11/2012 and batch, dated 07.04.2017)
13. On the basis of the above submissions, the petitioner prays that the classification of the products as 'disinfectants' be accepted, the impugned Clarification issued by ACAR be quashed and the Writ Petitions allowed.
14. The stand of the Department is that the products in question would not come within the ambit of Entry 27(ii)/Part B/First Schedule, since the Entry relates to fertilizers, other insecticides and other similar products that are used only in agriculture, whereas, the products in question, Harpic and Lizol are used to sterilize hands, toilet bowls and surfaces such as ceramic, marble, granite, and mosaic and comprises chemicals such as Hydrochloric acid, Hydroxyl Ethyl Oleylamine, Cetyl Trimethyl Ammonium Chloride, Methyl Salicylate, Benzalkonium Chloride solution and Quinoline Yellow.
15. According to the Revenue, a product comprising the aforesaid composition of chemicals would fall only under Item 22/Part C/First Schedule that covers all kinds of cleaning powders and liquids other than those specifically mentioned elsewhere in the Schedule, taxable at 14.5%. The bleach and rat killer would also fall, according to them, only in the category of 6/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch 'goods not specified in any of the Schedules', that is, residuary Entry 69/Part C/First Schedule, taxable at 14.5%.
16. In any event, they point out that the impugned order of the ACAR is only clarificatory and does not bind the assessing authority who, being a quasi judicial authority can well proceed to determine the classification of the products and finalise the assessments on his own, independently. However, in all the orders of assessment impugned before me, it is seen that the assessing authority has relied solely and completely upon the order of the ACAR only, and there has been no independent application of mind to the facts of the case or the nature, characteristics or usage of the products.
17. The petitioner sought and was granted leave to file a confirmation to the effect that the composition of the products in question have remained the same over the years. An affidavit dated nil.08.2019 has been filed confirming the position that the composition of the products in question remain almost wholly identical over the years, based on instructions obtained from Reckitt Benckiser India Private Ltd. The affidavit states as follows:
'. . . .
5. I submit that the composition of Lizol did not undergo any change from commencement of production of Lizol (prior to the date when TNVAT Act came into force w.e.f 01.01.2007) and its composition remains the same, till date. The regulatory authorities under the Drugs and Cosmetics Act, 1940 ('D&C Act') i.e., Drug Controller of the Stet in which Lizol is manufactured, have always treated Lizol as Disinfectants. Copy of latest License issued by Drug Controller, for manufacture of Lizol which is treated as a Disinfectant in terms of Section 3(b)(ii) of the D&C Act read with Rule 126 of the Drugs & Cosmetics 7/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch Rules ('D&C Rules') and Schedule 'O' to the D&C Rules.
6. I submit that the active ingredient of Harpic is Hydrochloric acid (HCI). Prior to 2010 the company used 9.5% of HCI as active ingredient in Harpic. In 2010, the Company increased the strength of active ingredient I.e., HCI from 9.5% to 10%. Prior to 2010 and thereafter also, the Drug Controller/State Licensing Authority, Himachal Pradesh, who had issued drug licenses for Harpic, had treated Harpic as a disinfectant. Copies of the drug licenses issued for Harpic prior to 2010 and after 2010 are produced herewith. The report of Indian Institute of Chemical Technology, CSIR, Government of India, Hyderabad dated 06.10.2010 (at Pages 7 to 13 of the Additional Typed Set filed in WP.(MD)No.18148 of 2013 – relevant page 7) records the active ingredient of Harpic as 10% HCI. Therefore, it is clear that the IICT, Hyderabad had considered Harpic Power with HCI 10% for its study and based on investigations conducted, gave its Report on the antimicrobial efficacy of Harpic. The summary and conclusion as well as interpretation of IICT, Hyderabad is at Page 13 of the Additional Typed Set. It is submitted that from 2010 till dated the active ingredient of Harpic Power continues to be HCI 10% and there is no change.
....'
18. Now coming to the cases cited at the bar, the Supreme Court in in Bombay Chemical Private Ltd., Vs. Collector of Central Excise, Bombay, (1995 Supp (2) SCC 646) considered the classification of 'Phenolic compounds and high boiling tar acids' as 'disinfectants' and holds as follows:
'A disinfectant which is used for killing may broadly be covered in the word pesticide. Disinfectants, may be of two types; on to disinfect and other to destroy the germs. The former, i.e., those products which are used as disinfectant for instance lavender etc. may not be covered in the expression 'pesticide'. But those products which are used for killing insects by use of substances such as high boiling tar acid have the same characteristic as 'pesticide'. The categories of goods mentioned in Item 18 have to be understood in a broad sense. The test of strict construction of exemption notification applied at the entry, that is, whether a particular goods is capable of falling in one or the other category but once it falls then the exemption notification has to be construed broadly and widely. Each of the 8/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch words insecticides, pesticides, fungicides or weedicides are understood both in the technical and common parlance as having broad meaning. Therefore, if any goods or items satisfied the test of being covered in either of the expressions, then it is entitled to exemption. The broad and basic characteristic for exemption under the notification is that the goods must have the property of killing germs and bacteria, insects or pests and it should be understood in the technical as well as common parlance as being covered in one of the broad categories mentioned in the exemption notification. Since the goods produced by the appellant are capable of killing bacteria and fungi which too, is covered in the expressions 'pesticide 'and 'fungicide' there appears no reason to exclude the goods from the aforesaid notification.'
19. The Supreme Court of India in Ponds India Limited (merged with H.L. Limited) Vs. Commissioner of Trade Tax, Lucknow (2008 (8) SCC 369), while considering the classification of 'Vaseline – white petroleum jelly' as either a drug or a cosmetic has held thus:
'...
35. It is, therefore, difficult to agree with Mr.Dwivedi that a medicinal preparation must be one which has the effect of curing a disease, While interpreting an entry in a taxing statute, the court's role would be to consider the effect thereof upon considering the same from different angles. Different tests are laid down for interpretation of an entry in a taxing statute, namely, dictionary meaning, technical meaning, user's point of view, popular meaning, etc.
38.Whether a product would be a drug or a cosmetic sometimes poses a difficult question and, thus, answer thereto may not be easy. For the said purpose, the court may not only be required to consider the contents thereof, but also the history of the entry, the purpose for which the product is used, the manner in which it has been deal with under the relevant statute as also the interpretation thereof by the implementing authorities.
49. The said decision, therefore, in our opinion, cannot be held to be of any assistance for determining the issue involved herein. For the purpose of finding out the definition of “drug'', within the meaning of the Sales Tax Act, this reference to the statutory meaning contained in the Act would be permissible.
However, if the definition contained therein does not fit in with the object and purport for which an entry had been introduced under the local Sales Tax Act, the matter would be different. It 9/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch has not been suggested nor could it be that even the ordinary meaning of ''medicine'' cannot be read into the taxing statute while interpreting an entry made therein.'
20. Moreover, I find that this very issue, in regard to the classification of Lizol and Harpic as disinfectants, has been considered by various Courts after extensive discussion in regard to their composition and usage. The Guwahati High Court in Reckitt Benckiser India Private Ltd., Vs. The State of Assam and others (WP(C)1377/2010 dated 18.09.2012) considers the classification of Lizol and Harpic itself and holds as follows:
38...
Here, in the present case, there are tow possible view:
either to take the products Harpic and Lizol to be merely stain remover and cleansing agents or as disinfectants and in respect of Dettol, to treat it as a mere toilet preparation or a drug or medicine. Since there are sufficient materials to consider harpic and Lizol as disinfectants and accordingly, as pesticides, and Dettol as medicament, following the aforesaid principle of law, it can be held that the said products are pesticides and drugs respectively.
39. In view of the aforesaid possible views taken to consider Harpic and Lizol as pesticides and Dettol as a drug, based on materials as discussed above, it will not be appropriate to deny their qualification under the aforesaid Entry Nos.19 and 21 and consign them to the residual entry.
In this connection, we may recollect the observations of the Hon'ble Supreme Court in the Dunlop India Ltd., Vs. Union of India, (1976) 2 SCC 241, where the Hon'ble Supreme Court held as : -
''35. It is good fiscal policy not to put people in doubt and quandary about their liability to duty. When a particular product like V.P. Latex known to trade and commerce in this country and abroad is imported, it would have been better if the article is, eo nomine, put under a proper classification to avoid controversy over the residuary clause. As a matter of fact in the Red Book (Import Trade 10/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch Control Policy of the Ministry of Commerce) under Item 15-0, in Section II, which relates to “fubber, raw and gutta percha, raw'', synthetic lates including vinyl pyridine latex and copolymer of styrene butadlene latex are specifically included under the sub-head ''Synthetic Rubber''. WE do not see any reason why the same policy could not have been followed in the ICT book being complementary to each other. When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the percentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing.. ''
41. In the light of the above discussions, we are of the view that these petitions should be allowed and the products Harpic and Lizol having been declared to be pesticides as discussed above, would be liable to tax under Entry No.19 of the Part A of the Second Schedule of the Assam VAT Act and Dettol would be liable to be assessed as an item under Entry
21 of the Fourth Schedule of the Assam Vat Act and will not fall within the excluded category under the Explanation.'
21. In Tax Revision Case No.10 of 2007 and batch dated 13.06.2012 in M/s. Reckitt Benckiser (India) Ltd., Vs. State of Andhra Pradesh, a Division Bench of the Andhra Pradesh High Court in considering the classification of Lizol and Harpic, holds as under:
'Thus to sum up on this aspect we hold that Harpic and Lizol are disinfectants capable of destroying germs and microorganisms like Escheriachia coli, Staphylocococcus aureus, Enterococcus hirae, Pseudomonas aeruginosa and Candida albicans etc. Being disinfectants they fall within the category of pesticides covered by entry 20 of IV Schedule. We also conclude that even though Harpic Lizol are manufactured under drug licence issued in Form-25 issued under Rule 70 of the Drug Rules, they do not fall under entry 88 and, therefore, the question of these goods coming within the excluded category under entry 88(b) does not arise. Both the goods in question, therefore, are exigible to 11/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch tax at 4% but not at 12.5% In view of these findings we are not able to approve the ruling of the ARA as affirmed by the STAT.'
22. At paragraph No.29 the High Court of Judicature for Rajasthan Bench at Jaipur in the case of Reckitt Benckiser (India) Ltd., vs. Assistant Commercial Taxes Officer Anti Evasion, Commercial Taxes Department Ward- III, Jaipur and another (S.B.Sales Tax Revision / Reference No.11/2012 and batch, dated 07.04.2017) holds as follows:
'29. Taking into aforesaid, in my view, the claim of the assessee that the products being sold by the assessee would fall in Entry 21 or 29 of the Act as the case made be is well reasoned and justified and the authorities were unjustified in taking it under the residuary Schedule (V). The claim of the assessee is just and proper.'
23. Special Leave Petitions in S.L.P (Civil) Diary No (s) 924 of 2018 and S.L.P (Civil) Diary No(s) 42434 of 2017 challenging the decision of the Rajasthan High Court came to be dismissed by the Supreme Court by judgements dated 02.02.2018 and 06.04.2018.
24. The discussion as above leads to the inevitable conclusion that the products in question are liable to be classified as 'disinfectants' only. These Writ Petitions are thus allowed and connected Miscellaneous Petitions are closed with no order as to costs.
30.08.2019 Index: Yes /No Internet: Yes / No sm 12/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch To
1. Authority for Clarification and Advance Ruling through The Commissioner of Commercial Taxes, Ezhilagam, Chennai, Tamil Nadu.
2. The Assistant Commissioner, Karur (North), Commercial Tax Office, Karur.
3. The Assistant Commissioner, Enforcement, Commercial Tax, Karur.
13/14 http://www.judis.nic.in W.P.(MD)Nos.10719 to 10722 of 2017 etc. batch DR.ANITA SUMANTH, J.
sm Pre-delivery order made in W.P.(MD)Nos.10719 to 10722 of 2017, 15830, 17625 of 2014, 18148 to18155 and 19232 to 19239 of 2013 and W.M.P.(MD)Nos.8174 to 8177 of 2017, 1 and 2 of 2014, 1 of 2013 (16 Nos.) and 2 of 2013 (2 Nos.) Dated:
30.08.2019 14/14 http://www.judis.nic.in