Madras High Court
The State Of Tamil Nadu vs Tvl.Glaxo India Limited on 1 March, 2012
Author: D.Murugesan
Bench: D.Murugesan, P.P.S.Janarthana Raja
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 01.03.2012 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Revision) Nos.742 of 2006 and 301 of 2011 The State of Tamil Nadu Rep. by the Deputy Commissioner (Commercial Taxes), Chennai (North) Division Petitioner in both the Greams Road, Chennai 600 006 .. tax case revisions -vs- Tvl.Glaxo India Limited No.39, Velacherry Road Respondent in both the Chennai 600 032 .. tax case revisions Memorandum of Grounds of Tax Case Revision Petitions under Section 38 of the Tamil Nadu General Sales Tax Act, 1959 against the order dated 26.04.2002 of the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Chennai passed in T.A.Nos.464 and 465 of 2001 for the assessment years 1994-95 and 1993-94. For Petitioner : Mr.R.Sivaraman Special Government Pleader (Taxes) For Respondent : Mr.N..Prasad ORDER
D.MURUGESAN, J.
Both the tax case revision petitions are filed by the Deputy Commissioner (Commercial Taxes), Chennai (North) Division questioning the common order passed by the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Chennai in T.A.Nos.464 and 465 of 2001 dated 26.4.2002 for the assessment years 1994-95 and 1993-94 respectively and raising the following substantial question of law:-
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the "nycil prickly heat powder" is a drug that would come under Entry 20-A of Part C of the First Schedule and would not come under Entry 1(iii) of Part F of the First Schedule which deals with talcum and toilet powder?"
The Tax Case (Revision) Petition No.742 of 2006 was admitted by this Court on 17.9.2008 in respect of the assessment year 1994-95. As the substantial question of law is one and the same in respect of the assessment year 1993-94 as well, Tax Case (Revision) Petition No.301 of 2011 is also admitted on the very same substantial question of law and both the tax case revision petitions are disposed of by this common order.
2. The facts leading to the present tax case revision petitions are as follows. The respondent-assessee, Tvl.Glaxo India Limited reported total and taxable turnover of Rs.50,70,46,825/- and Rs.49,43,99,273/- for the assessment year 1994-95 and Rs.60,77,23,119/- and Rs.58,06,30,473/- for the assessment year 1993-94 for their sale of different products including the first sale of Nycil prickly heat powder respectively. The returns were processed and the assessing authority determined the total and taxable turnover at Rs.50,05,45,701/- and Rs.49,59,52,046/- and Rs.58,56,47,556/- and Rs.57,99,15,841/- respectively for the above assessment years in respect of the different products and levied tax at the rate of 16 per cent under Entry 1(iii) of Part F of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 by rejecting the claim of the assessee to levy tax at the rate of 5 per cent for the first sale of Nycil prickly heat powder on the ground that it is a medicine or drug under Entry 20-A of Part C of the First Schedule to the Tamil Nadu General Sales Tax Act. The assessing authority also levied penalty for the two assessment years under Section 12(3)(b) of the Act. The assessing authority was of the view that the nycil prickly heat powder is a product which shall fall under Entry 1(iii) of Part F of the First Schedule relating to talcum and toilet powder and liable to be taxed at the rate of 16 per cent. Aggrieved by that portion of the levy, the assessee preferred appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner also concurred with the finding of the assessing authority and dismissed the appeals. The assessee again took up the matter to the Tamil Nadu Sales Tax Appellate Tribunal. The Appellate Tribunal found that the nycil prickly heat powder is a medicated preparation for the care of skin and by the nature of medicinal composition, the said powder belongs to the category of medicine or drug and it cannot be used as common cosmetic or talcum face or body powder. By holding so, the Appellate Tribunal allowed both the appeals. This common order of the Appellate Tribunal is questioned by the State in the present tax case (revision) petitions.
3. We heard Mr.R.Sivaraman, learned Special Government Pleader (Taxes) for the petitioner and Mr.N.Prasad, learned counsel for the respondent.
4. To answer the substantial question of law, the relevant Entry under the Tamil Nadu General Sales Tax Act, 1959 and the meaning of the words 'drug", "medicine, "talcum powder" and "cosmetic" need a reference and they are extracted below. Entry 20(A) of Part-C of First Schedule reads as follows:
"Entry 20(A) of Part C of First Schedule (A) Medicines conforming to the following description:
Any medicinal formulation or preparation ready for use internally or externally for treatment or mitigation or prevention of diseases or disorders in human being or animals (excluding products capable of being used as creams, hair oils, tooth pastes, tooth powders, cosmetics, toilet articles, soaps and shampoos), but including
(i)Allopathic medicine.
(ii)Other medicines and drugs including ayurvedic, homeopathic, siddha and unani preparations.
(iii)Medicinal mixtures or compounds, the components of which have not already suffered tax.
(iv)Surgical dressing which expression shall include adhesive plasters, adhesive plaster dressing, gypsona plaster of paris and bandages, velroc pop bandages, elastro crape bandages, gauze, wadding gauze, lint and cotton wool poultices and similar articles impregnated or coated with pharmaceutical substances put up in forms or packings for surgical purposes which have been sterilised and conform to the accepted standards of the medical profession.
(v)Pharmaceutical and surgical products of plastic and rubber including gloves, aprons and caps.
Entry 1(iii) of Part-F of First Schedule reads as follows:
"Entry 1(iii) of Part-F of First Schedule
1.(iii) Lipsticks, lipsalve, nail polishers, nail varnishes, nail brushes, beauty boxes, face powders, toilet powders, baby powders, talcum powders, powder compacts, powder pads and puffs, toilet sets made of all materials (with or without contents), toilet sponges, scent spray, depilatories, blemish removers, eye liners all sorts, eye shadow, eye brow pencils, eye-lash brushes, eaudecologne, solid colognes, lavender water, snows, face creams, all purpose creams, cold creams, cleaning creams, make-up creams, beauty creams, beauty milk, cleaning milk, hair foods, skin tonics, complexion rouge, nail cutters, sanitary towels and napkins, astringent lotions, pre-shave and after-shave lotions and creams, moisturisers of all sorts and personal (body) deodarants.
Explanation: Any of the items listed above even if medicated or as defined in Section 3 of the Drugs and Cosmetics Act, 1940 (Central Act XXIII of 1940) or manufactured on the licence issued under the said Act will fall under this item.
Section 3(aaa) and (b) of the Drugs and Cosmetics Act, 1940 defines "cosmetic" and "drug" as follows:
"cosmetic" means any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or 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 of cosmetic.
"drug" includes--
(i)all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes;
(ii)such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of (vermin) or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette;
(iii)all substances intended for use as components of a drug including empty gelatin capsules; and
(iv)such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals, as may be specified form time to time by the Central Government by notification in the Official Gazette, after consultation with the Board."
5. Collins Concise Dictionary 21st Century Edition defines "talcum powder" as "a powder made of purified talc, usually scented, used for perfuming the body and for absorbing excess moisture." Cambridg Advanced Learner's Dictionary & Thesaurus defines "talcum powder" as "a powder, usually having a pleasant smell, put on the skin to make it feel smooth or to help it stay dry." Talcum powder is mostly used as cosmetic. Collins Concise Dictionary 21stCentury Edition defines "cosmetic" as "any preparation applied to the body, esp. the face, with the intention of beautifying it." Talcum powder is used as a product serving or designed to beautify the body, esp. the face. When it is applied, it has no other function than to beautify the body. Cambridge Advanced Learner's Dictionary & Thesaurus defines "cosmetic" as "cosmetics are substances such as lipstick or powder, which people put on their face to make themselves look more attractive." The dictionary also explains that "if you describe measures or changes as cosmetic, you mean they improve the appearance of a situation or thing but do not change its basic nature, and you are usually implying that they are inadequate." The Free Online Dictionary, Thesaurus defines "cosmetic" as "a toiletry designed to beautify the body." Cosmetics are applied "serving an esthetic rather than a useful purpose." (or) "serving an aesthetic purpose in beautifying the body."
6. Per contra, Collins Concise Dictionary 21st Century Edition defines "drug" as "any substance used in the treatment, prevention, or diagnosis of disease." "A drug is a chemical substance, esp. a narcotic, taken for the effect it produces." Collins Concise Dictionary 21stCentury Edition defines "medicine" as "(1) any drug or remedy for use in treating, preventing, or alleviating the symptoms of disease." (2) "the science of preventing, diagnosing, alleviating, or curing disease." (3) "any non-surgical branch of medical science." (4) "the practice or profession of medicine." (5) "something regarded by primitive people as having magical or remedial properties." Cambridge Advanced Learner's Dictionary & Thesaurus defines "medicine" as "(1a) a substance or preparation used in treating disease." (1b) "something that affects well-being." (2a) "the science and art dealing with the maintenance of health and the prevention, alleviation or cure of disease." (2b) "the branch of medicine concerned with the nonsurgical treatment of disease." (3) "a substance (as a drug or potion) used to treat something other than disease."
7. Talcum Powder: Talc is a mineral. It is the softest mineral found on the earth and it is used in the talcum powder so that the particles of powder do not prick the human beings. The colour of the talc mineral is white, but it is also found in various colours like green, pink, yellow, grey and black too. The principal ingredients of talcum powder are talc powder, boric acid, magnesium and spices, carbonic acid, etc. The talcum powder can absorb the sweat liquid, slippery comfortable skin and can also reduce prickly heat taking place. The benefit of talcum powder is that it absorbs sweat and moisture from the body. The talcum powder is used during summer because the human beings sweat a lot. Rashes in the humans can be kept away with the help of talcum powder. Humid atmosphere in summers is the worst because human beings sweat a lot due to humidity in the weather and sweat produces bad body odour. In such case, talcum powder is used to remove bad odour from the body. The absorption capacity of talcum powder is more so that it will absorb sweat easily. Due to temperature raise, the body sweats more and thus the accumulation of sweat produces body odour and so people use talcum powder to stay away from this smell and remain fresh. It can be also used after taking a bath so that the body will remain fresh and energetic for long.
8. Prickly heat powder: The composition of nycil prickly heat powder is as follows:
Chlorphenesin IP 1% Zinc Oxide IP 16% Starch IP 51% Talc Purified IP to 100% The utility of the above ingredients in the talcum powder is as follows:
"(i) Chlorphensin is anti-bacterial antifungal. This is active against various species responsible for causing "Athlete's Foot" and irritation and other bacteria. Although this content is only 1%, it is most potent and effective medicinal ingredient.
(ii) Zinc Oxide is used for checking perspiration.
(iii) Starch helps to absorb excessive perspiration which is responsible not only for 'prickly heat' but also for offensive body odour due to action of bacteria on sweat.
(iv) Talc is used as it is useful for allaying irritation and for prevention of chafing."
9. After considering the definitions of "cosmetic", "drug", "medicine", "talcum powder" and also the relevant Entries in the Tamil Nadu General Sales Tax Act, we have to decide as to whether talcum powder includes prickly heat powder or otherwise what is the rate at which the prickly heat powder should be taxed?
10. The contention of the assessee is that it should be considered as medicine to be taxed under Entry 20(A) of Part 'C' of the First Schedule and the contention of the Revenue is that it should not be considered as medicine, as it falls under Entry I(iii) of Part 'F" of First Schedule to the Act. The relevant Entries have already been extracted in the earlier portion of the order. A reading of Entry I(iii) of Part 'F' of First Schedule would show that it includes face powder, toilet powder, baby powder, talcum powder, powder compacts, powder pads and puffs etc. It is also very significant to note that it does not include prickly heat powder. But an explanation was added to the said Entry, which categorically states that any of the items listed in the entry even if medicated or as defined in Section 3 of the Drugs and Cosmetics Act or manufactured on the licence issued under the said Act will fall under Entry I(iii) of Part 'F' of the First Schedule. The contention of the learned Special Government Pleader for the Revenue is that the prickly heat powder is a medicated talcum powder and it will fall only under Entry I(iii) of Part 'F' of First Schedule by virtue of the explanation to the said entry.
11. Under Section 3(b) of the Drugs and Cosmetics Act, the word "drug" has been defined as "including all medicines used for internal or external use of human beings or animals intended to be used for mitigation or prevention of any disease or disorder. On the other hand, "cosmetics" under Section 3(aaa) of the said Act means, "any article intended to be sprinkled or sprayed or introduced or otherwise applied to a human body for cleansing, beautifying, promoting attractiveness or altering the appearance, which also includes any article intended for use as a component of cosmetic. In order to bring a product under Entry 20(A) of Part 'C' of First Schedule, the product must be a medicinal formulation or preparation which is ready for use either internally or externally for treatment or mitigation or prevention of diseases or disorders in human beings or animals. The word "treatment" employed in the said entry must relate to diseases or disorders. In the event of medicinal formulation or preparation, though could be used internally or externally, unless such use is by way of treatment of a disease or disorder in human beings or animals, it cannot be brought under the category of medicine. On the contrary, the products under Entry I(iii) of Part 'F' of First Schedule includes, among other products, the talcum powder as well.
12. In the above background, the nycil prickly heat powder, which is used only to absorb sweat and moisture from the body and to keep away rashes in the human beings, cannot be considered to be either a "drug" or "medicine" and it would be only a "talcum powder". However, in view of the composition, the nycil prickly heat powder is nothing but a medicinal preparation used for the purpose for which the talcum powder is used.
13. Coming to the submission of the learned Special Government Pleader, we should consider the nature, scope and interpretation of the explanation to the Entry I(iii) of Part 'F' of First Schedule to the Tamil Nadu General Sales Tax Act. The Apex Court considered the object of the explanation to proviso to Section 10(2) of the Tamil Nadu Rent Control Act in the judgment in S.Sundaram Pillai and others v. V.R.Pattabiraman and others, (1985) 1 SCC 591 and held in paragraph 53 as follows:
"53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is--
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,
(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and
(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same."
14. The Apex Court in Dattatraya Govind Mahajan and others v. State of Maharashtra and another, (1977) 2 SCC 548 also considered the scope of the explanation to a statutory provision and held in paragraph 9 as follows:
"9.....It is true that the orthodox function of an explanation is to explain the meaning and effect of the main provision to which it is an explanation and to clear up any doubt or ambiguity in it. But ultimately it is the intention of the legislature which is paramount and mere use of a label cannot control or deflect such intention. It must be remembered that the legislature has different ways of expressing itself and in the last analysis the words used by the legislature alone are the true repository of the intent of the legislature and they must be construed having regard to the context and setting in which they occur. Therefore, even though the provision in question has been called an Explanation, we must construe it according to its plain language and not on any a priori considerations."
In Mrs.Zakiya Begum and others v. Mrs.Shanaz Ali and others, AIR 2010 SC 3385, the Apex Court considered a similar explanation and held in paragraph 29 as follows:
"29. An explanation to a Section should normally be read to "harmonise with and clear up any ambiguity in the main Section" and normally not to widen its ambit. (See Bihta Co-operative Development and Cane Marketing Union Ltd., and another v. Bank of Bihar and others, AIR 1967 SC 389 at page 393 and M/s Oblum Electrical Industries Pvt.Ltd., Hyderabad v. Collector of Customs, Bombay, AIR 1997 SC 3467 at page 3471)."
15. In the present case, there is no dispute that the nycil prickly heat powder is manufactured on the basis of a drug licence issued under the provisions of the Drugs and Cosmetics Act. The price of the product is also regulated, approved and the product is stored under the drug licence. It is very pertinent to note that a similar product manufactured by another assessee, which also claimed that the nycil prickly heat powder is a drug or medicine under the relevant Entries to the Kerala General Sales Tax Act, was considered by the Kerala High Court in the judgment in Heinz India Ltd. v. State of Kerala, (2009) 19 VST 193 (Ker). Entry 79 and Entry 127 of the First Schedule to the Kerala General Sales Tax Act read as follows:
"Entry 79: Medicines and drugs including allopathic, ayurvedic, homeopathic, sidha and unani preparations and glucose I.P."
Entry 127: Shampoo, talcum powder including medicated talcum powder, sandalwood oil, ramacham oil, cinnamon oil, other perfumeries and cosmetics not falling under any other entry in this Schedule."
In our opinion, the difference between the Entries under the Tamil Nadu General Sales Tax Act and the Kerala General Sales Tax Act is that it is an inclusive definition under the Kerala General Sales Tax Act, namely, talcum powder including medicated talcum powder under Entry 127 of the Schedule. But in the Tamil Nadu General Sales Tax Act, only by way of an explanation it is added that any of the items even if medicated or as defined in Section 3 of the Drugs and Cosmetics Act will fall under the Entry I(iii) of Part 'F' of the First Schedule. We feel that there is no much difference between the two enactments, namely, one is an inclusive definition and another is by way of explanation the product was included. In the present case, we also find that the nycil prickly heat powder is a medicated talcum powder. The Kerala High Court very extensively considered the medicated talcum powder after going through the various definitions of "drug", "medicine", "cosmetic" and "talc", and ultimately came to the conclusion that the medicated talcum powder includes prickly heat powder and held in paragraphs 34, 37 and 41 as follows:
"34. The expression "talcum powder" has been considered by various courts and consistent thinking is that it is a cosmetic and not medicine. The Legislature while enumerating the articles in entry 127 of the First Schedule to the Act has used the expression "talcum powder including medicated talcum powder". When the entry uses the expression "include" it is prima facie extensive. That only means that even medicated talcum powder is brought under entry 127 of the First Schedule to the Act. The word "medicated" has a wide import. In the Dictionary of Medicine by Peter Hodgson Collion, the word "medicated" is defined as a product which contains medicinal drugtalcum powder which contains a medicinal drug.
37. The ingredients of Nycil powder are chlorphenesin B.P. one percent, zinc oxide I.P. 16 per cent, boric acid I.P. 16 per cent, starch I.P. 51 per cent, talc 100 per cent. Chlorphenesin is contained in Nycil powder to the extent of only one per cent and the other antiseptic medicinal agents are comprised to the extent of 32 per cent and the rest of the materials which go into the making of Nycil powder are composed of starch and talc. Nycil prickly heat powder contains chlorphenesin, a product specifically meant for treatment of skin disease. The inclusion of this medicine in the composition makes all the difference. It is this addition of medicine which changes its basic character. Therefore, the product in question is not merely talcum powder in view of the presence of chlorphenesin, though in a small quantity, though the base was purified talc.
41. All this discussion would lead us to draw a distinction whether Nycil powder is merely talcum powder which is normally used for the purpose of smoothening and giving a fair look to the skin or whether it has the qualities of preventive or curative effect for ailment of skin. We would definitely say that "Nycil powder" is not an ordinary talcum powder as understood in common or commercial parlance, but has a medicinal value and is used for treatment of prickly heat and other skin ailments. But then, under which entry should we classify the commodity in question? In our view, if not for the inclusive definition under entry 127 of the First Schedule to the KGST Act, we would not have had any hesitation in classifying the commodity in question as a medicine. In our view, the Legislature consciously immediately after the expression "talcum powder" by employing the expression "including" has thought it fit to include "medicated talcum powder" under entry 127 of the First Schedule to the Act. In view of this inclusive definition, though Nycil powder has all the qualities and ingredients of medicines and since the same is basically a talcum powder which has preventive and curative power, the same requires to be brought under the special entry rather than the general entry."
16. The Kerala High Court rejected the contention as to the theory of medicine and also after considering the basic ingredients of prickly heat powder, came to the conclusion that the base product is only a purified talc. We are also of the view that after considering the explanation to the main entry, it is only a medicated talcum powder and it certainly includes prickly heat powder also. We agree with the reasoning of the Kerala High Court and hold that the nycil prickly heat powder is not a "drug" and it is only a medicated talcum powder. We are also informed that M/s Heinz India Limited, the petitioner-assessee before the Kerala High Court, had purchased the manufacturing unit of the respondent- assessee before us in respect of prickly heat powder. Accordingly, we answer the issue in favour of the Revenue and against the assessee. Even though number of judgments were cited by both the counsel in support of their contentions, it is seen that the Kerala High Court has considered all those judgments in detail under the various enactments like Central Excise Act and the various State Sales Tax Act enactments. Therefore, it is not necessary to once again consider all those judgments cited by both the learned counsel, since the issue is already settled by the judgment of the Kerala High Court in the case of Heinz India Limited. Under these circumstances, we set aside the orders of the Tribunal and restore the orders of the assessing authority. The tax case revisions are allowed. No costs.
Index : yes (D.M.J.,) (P.P.S.J.,J.)
Internet : yes 01.03.2012
ss
To
1. The Assistant Registrar
Tamil Nadu Sales Tax Appellate Tribunal
Main Bench, Chennai.
2. The Deputy Commissioner (Commercial Taxes)
Chennai (North) Division
Greams Road, Chennai 600 006
3. The Assistant Commissioner (Commercial Taxes)
Zone I
Greams Road, Chennai 600 006
D.MURUGESAN,J.
and
P.P.S.JANARTHANA RAJA,J.
ss
Order in
T.C.(R) Nos.742 of 2006 etc.
01.03.2012