The Supreme Court upheld that the “Nycil Prickly Heat Powder” product should be considered a “Medicated Talcum Powder” and not a medication under the Kerala General Sales Tax Act, 1963.
The Court emphasized that when it comes to revenue statutes, a strict interpretation must be given to the statute to avoid any alteration or modification of the legislative intent. The Court’s primary role is to decipher the plain meaning of the statute’s wording and not to give an unnatural or strained meaning to it.
Brief Facts of the Case:
The Supreme Court analyzed issues regarding the classification of medicated talcum powder as medicine, drug, cosmetic, or medicated talcum powder under the relevant statutes.
In the first set of appeals, Heinz India Ltd (hereinafter referred to as 'Heinz') challenged the Kerala Sales Tax Appellate Tribunal's decision that 'Nycil prickly heat powder' was classified as medicated talcum powder instead of medicine under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as 'K GST'). The Kerala High Court rejected Heinz's argument.
In the second set of appeals, M/s Glaxo Smithkline Pharmaceuticals Ltd (hereinafter referred to as 'Glaxo') challenged the decision of the High Court of Madras that its prickly heat powder was classified as toilet powder under the Tamil Nadu General Sales Tax Act 1959 (hereinafter referred to as 'TN GST') instead of a medicinal formulation or preparation.
Brief Background of the Case:
For the Financial year 1999 – 2000, Heinz filed its annual return, which the assessing officer accepted, and the tax payable on taxable turnover was 8%. The treatment of the sale of 'Nycil prickly heat powder' was accepted as an item falling under Entry 79 of the First Schedule to K GST by order of 2005.
Glaxo filed its annual return for assessment years 1993-94 and 1994-95. The assessing officer levied tax at the rate of 16%, rejecting Glaxo's claim to levy tax at the rate of 5% for the first sale of 'Nycil prickly heat powder' on the grounds that it is a medicine or drug under Entry 20-A of Part C of the First Schedule to the TN GST.
Procedural History:
The Appellate, Assistant Commissioner confirmed the assessing officer's opinion that 'Nycil prickly heat powder' was a toilet powder. Heinz disagreed with this and approached the Appellate Tribunal, which agreed with Heinz and classified the product as a medicine or drug. However, the revenue office appealed this decision to the Madras High Court, which ruled that 'Nycil prickly heat powder' was indeed toilet powder. Despite this ruling, the manufacturer had a license under the Drugs and Cosmetics Act, 1940 (hereinafter referred to as the 'Drugs Act'), which the court believed made the product fall within the scope of the Explanation to Entry I (iii) to Part F of the First Schedule. The court relied on a similar decision made by the Kerala High Court on medicated talcum powder, which held that such products were classified as drugs.
Later, the revisional authority set aside the assessment order for 1999-2000 and asked the assessing authority to issue a new assessment order by imposing a tax rate of 20%, which Heinz contested. The Appellate Tribunal and the High Court supported the revisional authority's decision, citing the specificity of Entry 127 over the general entry of Entry 79. Consequently, Heinz appealed in the Kerala High Court regarding the assessment years of 1999-2000 and 2000-2001. Glaxo appealed against the impugned judgement of the High Court of Madras concerning its evaluation of 1993-94 and 1994-95.
Contentions of the Appellants (Heinz India Ltd and M/s M/s Glaxo Smithkline Pharmaceuticals Ltd):
The appellants argued that Nycil is the trading name for a substance known as 'Chlorphenesin' and falls under Entry 79 of the first schedule to KGST. The Nycil powder contains zinc oxide and boric acid, constituting 32% of the total contents, while the rest is starch and talc. Nycil powder is designed to retain skin cleanliness and protect against prickly heat and infection. The appellants argued that Nycil powder treats several dermatological conditions, including prickly heat, and should be considered either a 'drug' or 'medicine.'
The appellants cited the decision in Puma Ayurvedic Herbal to support their argument. The court adopted a twin test to consider whether any item is a drug, medicament, or cosmetic. The appellants further argued that the Explanation to Entry I (iii) needed to be considered in the context of the established rule. If the language or purpose requires, a different rule may apply.
Contentions of the Respondent (State of Kerala and State of Tamil Nadu):
The respondents argued that the correct test to be applied was whether the product could be used as a medication. They submitted that the expression 'medicated' had great significance and argued that the legislature intended to ensure that the article fell within the cosmetic class of products while classifying it. The respondents argued that including 'talcum powder' and 'medicated talcum powder' under the same entry was designed to ensure the product was not classified elsewhere.
The respondents submitted that the statute required the classification of Nycil powder as a cosmetic, along with others, given the specific and unambiguous use of the term 'medicated talcum powder'. They submitted that when an interpretation clause uses the word 'includes,' it is meant to be extensive.
The respondents argued that the history of the legislation is an important factor in determining the classification of a product. They pointed out two factors: first, the entry for 'medicines' in the First Schedule was amended in 1994, and before the amendment, preparations or formulations used as creams, hair oils, toothpaste, etc., were excluded. Second, talcum powder was placed under cosmetics in Entry 1 of Part F, establishing that all talcum powder fell under Entry 1(iii). The explanation added in 1994 further clarified that items listed in Entry 1, Part F, even if medicated or manufactured under a license, would fall under the same entry.
Observations of the Court:
The Supreme Court examined the term 'includes' used in conjunction with talcum powder and 'medicated talcum powder'. It concluded that the clear legislative intent was that all talcum powders containing medications, regardless of the proportion, should be categorised as cosmetics under Entry 127.
The Court emphasised that its role was to adhere to the plain meaning of the words used in the statute and avoid interpreting them unnaturally. The legislative history of the entry reinforced the conclusion that all kinds of talcum powder were covered under Entry 1. The amendment added an explanation that specifically included medicated talcum powder, even if it was manufactured on a license issued under the Drugs Act.
The decision of the Court:
The Civil Appeals presented by Heinz India Ltd and M/s Glaxo Smithkline Pharmaceuticals Ltd were rejected by the Supreme Court. The Court affirmed that the Madras High Court and Kerela Sales Tax Appellate Tribunal had evaluated appropriately. Consequently, the Supreme Court upheld the order and judgment previously pronounced by the Madras High Court and the Kerala Sales Tax Appellate Tribunal.
Case Title: Heinz India Ltd. v State of Kerala
Case No.: Civil Appeal no. 2338-2339 of 2010
Citation: 2023 Latest Caselaw 445 SC
Coram: Hon'ble Mr. Justice S. Ravindra Bhat and Hon'ble Mr. Justice Dpankar Datta
Advocates for Petitioner: Mr. S.K. Bagaria, Sr. Adv., Mr. E.R. Kumar, Adv., Mr. D.P. Mohanty, Adv., Ms. Tanya Chaudhry, Adv., Ms. Pratyusha Priyadarshini, Adv., Mr. Kumar Ajit Singh, Adv., M/S. Parekh & Co., AOR, Ms. Charanya Lakshmikumaran, AOR, Ms. Apeksha Mehta, Adv, Ms. F. Gupta, Adv., Mr. Pranav Mundra, Adv..
Advocates for Respondent: Mr. Pallav Sisodia, Sr. Adv., Mr. C. K. Sasi, AOR, Mr. Abdulla Naseeh V T, Adv., Ms. Meena K Poulose, Adv., Mr. K. Radhakrishnan, Sr. Adv., Mr. Sabarish Subramanian, AOR, Mr. Vishnu Unnikrishnan, Adv., Ms. Shivani Jena, Adv., Mr. Naman Dwivedi, Adv., Mr. P. Shankar, Adv.
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