Gujarat High Court
State Of Gujarat Through vs Sintex International ... on 9 June, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
O/TAXAP/250/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 250 of 2013
With
TAX APPEAL NO. 357 of 2013
With
TAX APPEAL NO. 358 of 2013
With
TAX APPEAL NO. 765 of 2013
With
CIVIL APPLICATION (OJ) NO. 530 of 2013
In
TAX APPEAL NO. 765 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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STATE OF GUJARAT THROUGH....Appellant(s)
Versus
SINTEX INTERNATIONAL LIMITED....Opponent(s)
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Appearance:
MR.CHINTAN DAVE, AGP for the Appellant(s) No. 1
MR DARSHAN M PARIKH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 09/06/2017
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These Tax Appeals have been clubbed together because of commonality of the issues involved. The question of law framed by the High Court at the time of admission of the appeals was common and reads as under:
"Whether on the facts and in the circumstances of the case, the Tribunal has rightly held that, products sold by the opponent company are drugs and medicines and are not cosmetics and toilet preparations including tooth paste, tooth powder, hair oil, face and body lotion, cream and soaps are therefore, exclusion clause (b) of entry no. 28(A)(i) of the Gujarat Value Added Tax Act, 2003 will not apply and on the same basis, the products sold by the opponent fall under the entry no. 28(A)(i) of the Gujarat Value Added Tax Act, 2003?"
2. The three Tax Appeals arise out of three different judgments of the Value Added Tax Tribunal. The contents of the judgments are substantially Page 2 of 15 HC-NIC Page 2 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT similar. We may record facts from Tax Appeal No.357 of 2013. The appeal is filed by the State challenging the judgment of the Value Added Tax Tribunal dated 23.03.2012. The respondent assessee is engaged in manufacturing and selling various Ayurvedic products including Bhrungraj hair oil, Brahmi hair oil, Bhallatak dantmanjan and Ayurvedic dantmanjan. Contending that these products are pharmaceutical drugs and therefore, would fall under entry 28A of the Schedule II of the Gujarat Value Added Tax Act, 2003 ('the VAT Act' for short), the assessee applied to the competent authority for determination of this issue in terms of section 80 of the VAT Act. Before the authority, the assessee made detailed submissions with respect to all four products in question. It was pointed out that the hair oils are made from Ayurvedic products applying Ayurvedic methodology. These hair oils do not contain any fragrance or perfume and in fact, contain unpleasant odor. They are therefore not used as ordinary or cosmetic hair oils. Each oil has specific medicinal purpose such as to prevent premature hair fall, to remove dandruff, to prevent headache etc. Page 3 of 15 HC-NIC Page 3 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT
3. Regarding the toothpaste, it was contended that they are used under Ayurvedic medical advice in case of person suffering from different oral diseases. They are also manufactured by using scientific methods and Ayurvedic products. It was pointed out that all the four items are registered under the Drugs and Cosmetics Act and the assessee has the license to produce and sell them under the said Act. In short, the contention of the assessee before the said authority was that the products in question are pharmaceutical drugs and not cosmetics.
4. The competent authority by an order dated 30.11.2009, passed its determination order, holding that the products in question being hair oil or tooth paste, they would fall under the exclusion clause provided under section 28A of the Schedule II to the VAT Act. The authority was of the opinion that these products may be drugs or medicines, but the exclusion clause contained in section 28A would take them out of such entry since they happened to be used as hair oil and tooth paste. According to the authority therefore these products will fall under residuary entry and Page 4 of 15 HC-NIC Page 4 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT invite higher duty.
5. The assessee carried the matter in appeal before the Tribunal. Tribunal by a detailed judgment, held that the products being drugs or medicines, they would fall under entry 28A, and would not be covered in the exclusion clause which pertained to cosmetics and toilet preparations which would include tooth paste and hair oil. It is this judgment of the Tribunal which is in challenge before us by the Government. The question framed is whether the Tribunal was correct in holding that the products in question are drugs and medicines and not cosmetics and toilet preparations. In Tax Appeal No.358 of 2013, the very same question arises in similar background. Only difference being that the assessee was different and the product manufactured and sold by the assessee was Mahabhringraj oil which also according to the assessee was an Ayurvedic drug and was therefore drug and medicine and not cosmetic.
6. Likewise in Tax Appeal No.250 of 2017, the product involved is Healwell Arnicare hair oil and Healwell soft skin cream. These are homeopathic drugs Page 5 of 15 HC-NIC Page 5 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT for skin care. In Tax Appeal No.765 of 2013, the products involved are medicinal soaps. In the said appeal, similar but slightly differently worded question was framed. For the purpose of the said appeal also, we adopt the common question reproduced earlier.
7. Learned AGP Shri Chintan Dave submitted that with effect from 01.08.2009 entry 28A of the Schedule II came to be materially amended. Before the amendment, the exclusion clauses were not there. It was only after 01.08.2009 that these clauses were introduced in the statute. Post such amendment, therefore, any cosmetics and toilet preparations such as tooth paste, tooth powder, hairoil etc., would not be included under entry 28A. He submitted that the Tribunal committed a serious error in holding to the contrary. The main thrust of the argument of the learned AGP was that even if a product were to be of a drug or medicine, as long as the same is toothpaste, tooth powder, hair oil, face or body cream or soap, the same would not fall within entry 28A. He incidentally also questioned whether these products can be stated to be drugs and medicines. According to Page 6 of 15 HC-NIC Page 6 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT him, the products in question were for beautification or for better appearance of human beings. These products were therefore cosmetics and toilet preparations.
8. On the other hand, learned advocates appearing for the assessees, opposed appeals, contending that the exclusion clauses introduced in entry 28A were more in nature of clarifications. The correct interpretation of the exclusion would be that cosmetics and toilet preparations would not fall within entry 28A which pertained to drugs and medicines. According to them for exclusion to apply, the item must be cosmetic or toilet preparation and it would not be enough that incidentally it happened to be a toothpaste, tooth powder or a hairoil.
9. Our attention was drawn to the legislative changes and certain judicial pronouncements in support of such contentions. It was contended that all the products are registered under the Drugs and Cosmetics Act and the manufacturers are enjoying necessary licenses for such purpose. These drugs are used under medical advice and are ordinarily not available without prescription.
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10. From the above, it can be seen that the central issue is of the correct interpretation of entry 28A, particularly after its amendment with effect from 01.08.2009. For proper understanding, we may reproduce the said entry before and after its amendments. Prior to the amendment of 01.08.2009, entry 28A(i) reads as under:
"Entry 28A(i) Drugs, medicines & vaccines including (Bulk Drug)"
11. This entry was substituted by the Government Amendment Act, 2009, which came into effect from 01.04.2009 and reads as under:
"Entry 28A(i) Drugs, Medicines and Vaccines including Bulk Drug but excluding (a) food and dietary supplements including foods for special dietary uses and (b) cosmetics and toilet preparations including tooth paste, tooth powder, hair oil, face and body lotions, cream and soaps."
12. It can thus be seen that prior to its amendment, entry 28A(i) referred only to drugs, medicines and vaccines including bulk drugs. This entry does not have any further elaboration nor it has any exclusion clause. With effect from 01.08.2009, while maintaining the original main description of the items Page 8 of 15 HC-NIC Page 8 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT covered under the entry, the legislature introduced an exclusion clause which had two subclauses. We are concerned with subclause(b) which pertains to cosmetics and toilet preparations including tooth paste, tooth powder, hair oil, face and body lotions, creams and soaps. In the context of these statutory changes, two questions arise; first is, are the products in which the assessees are dealing drugs or medicines or whether they are cosmetics or toilet preparations. The second question would be if these products are drugs and medicines, would they still be excluded by virtue of the exclusion clauseB because they happened to be toothpaste, tooth powder, hair oil, body lotions or soaps.
13. Insofar as the first question is concerned, we have noticed that the assessee had produced voluminous evidence before the competent authority as well as before the Tribunal to contend that the products in question were either Ayurvedic or homeopathic drugs. It was pointed out that these products which are in the nature of hair oils, tooth paste, skin creams and medicated soaps, are manufactured from Ayurvedic or homeopathic substances with scientific methodology.
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They are meant for specific diseases used under medical advice and surely not available without prescription.
14. Most significantly it was provided that they were considered drugs under the Drugs and Cosmetics Act and the manufacturers needed to have necessary licenses for manufacturing such drugs, which they have. The Tribunal accepted such stand of the assessees. In fact, the competent authority in the determination proceedings did not dispute that the products were in the nature of drugs or medicines. He was however of the opinion that even if these products were drugs or medicines being tooth paste, hair oil etc., would be covered under the exclusion clause introduced in entry 28A(i) of Schedule II.
15. We may notice that the Drugs and Cosmetics Act, 1940, makes a clear distinction between drugs and cosmetics. The term 'drug' has been defined in section 3(b) of the Act which includes all medicines for internal or external use to humans or animals. Term 'cosmetic' is defined under section 3(aaa) as to mean any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or Page 10 of 15 HC-NIC Page 10 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component or cosmetic. The Drugs and Cosmetics Act, 1940, thus makes a clear distinction between which product can be classified as drug and a product which can be treated as cosmetic. The standard quality parameters for manufacturing drugs and cosmetics are also separately laid down. It is undisputed that the products in question have been treated as drugs and medicines for the purpose of the Drugs and Cosmetics Act, 1940, and the manufacturers have necessary licenses for manufacturing the same.
16. In case of Puma Ayurvedic Herbal (P) Ltd. v. Commissioner of C. Ex., Nagpur reported in 2006 (196) E.L.T. 3(S.C.), the Supreme Court considered whether neem facial pack, herbal facial pack and antidandruff oils could be classified as medicines under Chapter 30 of the Central Excise Tariff Act or whether under Chapter 33 as cosmetics. The Court held that the products were in the nature of medicines and not cosmetics.
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17. A Division Bench of this Court in case of B. Shah & Co., Surat v. State of Gujarat reported in [1971] 28 STC 5 (Guj), held that nycil medicated powder was a drug and not cosmetic. We may notice that in case of one of the assessees before us, the very product Mahabhringraj oil was center of a controversy for the purpose of the Central Excise Act. The Tribunal held that the product was a medicine and not a cosmetic. The Revenue approached the Supreme Court. The Supreme Court had rejected the appeal observing as under:
"All these Appeals can be disposed of by this common Judgment. The question in these Appeals is whether the concerned Respondents' product i.e. "Mahabhringraj Tail" is classifiable, for the period from 131983 to 2821986 under Tariff Item 14E (as claimed by the Respondents) or Tariff Item 14F (as claimed by the Appellants) and for the subsequent period under Tariff Item 30.03 (as claimed by the Respondents) or under Tariff Item 33.05 (as claimed by the Appellants).
In our view, these cases are squarely covered by the decision of this Court in the case of Meghdoot Gramudyog Sewa Sansthan v Commr. Of C. Ex., Lucknow reported in 2004 (174) E.L.T. 14. In this case it has been held that "Bhringraj Tail" is classifiable under Tariff Item 30.03. The same logic would also apply for the earlier period and the product would therefore be classified under Tariff Item 14E. We are in respectful agreement with the decision.
The Appeals therefore fail and stand dismissed. There shall be no order as to Page 12 of 15 HC-NIC Page 12 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT costs."
18. From the above judicial trend, it can be seen that various Courts have looked into similar products and found that when a product is manufactured from medicinal drugs, be it Ayurvedic or homeopathic, is used under medical advice for specific disease, merely because it may have an element of improving appearance of the human beings, would not mean that the same is not a drug or a medicine, but a cosmetic. The Tribunal therefore correctly held that the products in question were drugs and medicines and not cosmetics or toilet preparations. If that be so, the consequential effect of the items being included in entry 28A(i) becomes simple. Entry 28A(i) as noted, prior to its amendment, contained only the words "Drugs, medicines & vaccines including (Bulk Drug)". Post amendment, the exclusion clause provided that after amendment, following words were added "but including ... (b) cosmetics toilet preparations including toothpaste, tooth powder, hair oil, face and body lotions, creams and soaps". For the said inclusion to apply therefrom, a product has to be a cosmetic and toilet preparation. The later portion of the amendment that Page 13 of 15 HC-NIC Page 13 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT is including toothpaste, tooth powder etc. would not govern the interpretation of the main portion of the exclusion clause viz. the cosmetics and toilet preparations. In other words, the exclusion clause cannot be applied by simply holding that the product in question is a toothpaste or a tooth powder whether it is a cosmetic or toilet preparation or not. We may refer to the statements of objects and reasons for introducing the said amendment which provides that the bill seeks to substitute entry 28A of the Schedule II so as to explicitly exclude dietary and food supplements and cosmetic and toilet preparations from this entry. The purpose of the amendment in the entry thus was to exclude cosmetics and toilet preparations. The later expressions of the cosmetics and toilet preparations including hairoils and toothpaste etc. were more in the nature of elaboration of the terms cosmetic and toilet preparations. In other words, true legislative intent was to remove any possible doubt and to exclude from entry 28A(i) pertaining to the drugs and medicines in cosmetics or toilet preparations.
19. In the result, we find no error in the view of Page 14 of 15 HC-NIC Page 14 of 15 Created On Fri Aug 18 06:54:42 IST 2017 O/TAXAP/250/2013 JUDGMENT the Tribunal. The question is answered in favour of the assessees. Tax Appeals are dismissed.
20. In view of the order passed in present Tax Appeals, Civil Application (OJ) No.530 of 2013 will not survive and hence, the same is also disposed of.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) ANKIT Page 15 of 15 HC-NIC Page 15 of 15 Created On Fri Aug 18 06:54:42 IST 2017