Madhya Pradesh High Court
In Reference Commercial Tax vs M/S Hindustan Lever Ltd. (Now Hindustan ... on 11 September, 2025
Author: Vivek Rusia
Bench: Vivek Rusia
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1 VATA. No.73/2019 & 3 others
IN THE HIGH COURT OF MADHYA PRADESH
AT INDORE
BEFORE
HON'BLE SHRI JUSTICE VIVEK RUSIA
&
HON'BLE SHRI JUSTICE JAI KUMAR PILLAI
ON THE 11th OF SEPTEMBER, 2025
VALUE ADDED TAX APPEAL No. 73 of 2019
M/S HINDUSTAN UNILEVER LTD THROUGH RAJEEV SINGH S/O
PRAITHVI SINGH
Versus
COMMERCIAL TAXES DEPARTMENT
Appearance:
Shri P.M.Choudhary - Learned Senior Advocate with Shri Prasanna
R. Bhatnagar - Advocate for the petitioner.
Shri Bhuwan Gautam - G.A. for the respondent/State.
WITH
VALUE ADDED TAX APPEAL No. 74 of 2019
SM/S. HINDUSTAN UNILEVER LTD THROUGH RAJEEV SINGH
Versus
COMMERCIAL TAX DEPARTMENT
Appearance:
Shri P.M.Choudhary - Learned Senior Advocate with Shri Prasanna
R. Bhatnagar - Advocate for the petitioner.
Shri Bhuwan Gautam - G.A. for the respondent/State.
TAX REFERENCE No. 22 of 2021
IN REFERENCE COMMERCIAL TAX
Versus
M/S HINDUSTAN LEVER LTD. (NOW HINDUSTAN UNILEVER
LTD.)
Signature Not Verified
Signed by: VATAN
SHRIVASTAVA
Signing time: 15-09-2025
14:34:12
NEUTRAL CITATION NO. 2025:MPHC-IND:26409
2 VATA. No.73/2019 & 3 others
Appearance:
Shri Bhuwan Gautam - G.A. for the petitioner.
Shri P.M.Choudhary - learned Senior Advocate with Shri Anand
Prabhawalkar and Madhav Khandelwal- Advocate for the respondent
No.1.
TAX REFERENCE No. 23 of 2021
IN REFERENCE COMMERCIAL TAX
Versus
M/S HINDUSTAN LEVER LTD. (NOW HINDUSTAN UNILEVER
LTD.)
Appearance:
Shri Bhuwan Gautam - G.A. for the petitioner.
Shri P.M.Choudhary - learned Senior Advocate with Shri Anand
Prabhawalkar and Madhav Khandelwal- Advocate for the respondent
No.1.
ORDER
Per: Justice Vivek Rusia
The present batch of matters i.e. VATA No. 73/2019, VATA No.
74/2019, Tax Reference No. 22/2021 and Tax Reference No. 23/2021,
arises out of a common dispute concerning the proper classification of
the product White Petroleum Jelly I.P. under the Madhya Pradesh VAT
Act, 2002.
2. About the similitude in the controversy involved in these cases,
they are being heard analogously and decided by a common order.
Facts of the case, in short, are as under:-
3. The appellant is a reputed public limited company engaged in the
business of manufacturing and marketing a range of fast-moving
consumer goods (FMCG), including toilet soaps, detergents, hair oils
and allied products. The appellant maintains a branch depot at Indore
and is duly registered under the MP VAT Act, 2002, the Central Sales
Tax Act, 1956 and is also a registered dealer under the M.P. Entry Tax
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Act, 1976.
4. The dispute concerning the proper classification of the product led
to the passing of separate assessment orders, appellate orders which
have been challenged by the appellant in the present two VAT Appeals
and the learned MPCTAB has also preferred Tax reference before this
Court, all of which involve the core dispute that whether White
Petroleum Jelly I.P. is classifiable as a Drug and Medicine or as a
Cosmetic / Medicinal Preparation of Cosmetic.
5. The present two appeals arise from orders passed by the Madhya
Pradesh Commercial Tax Appellate Board, Bhopal Bench at Indore,
dated 14.05.2019, in relation to the assessment period from 01.04.2009
to 31.03.2010.
6. It was the consistent case of the appellant before the assessment
and appellate authorities that the said product being a medicated
formulation and manufactured under a valid drug license falls squarely
within the scope of Entry No. 19A, Part II, Schedule II of the MP VAT
Act which deals with "Drugs and medicines including vaccines,
syringes, medicated ointments produced under drug license and light
liquid paraffin of IP grade". Consequently, the appellant claimed a lower
rate of tax @ 4% up to 31.07.2009 and @ 5% thereafter under the MP
VAT Act and exemption under the Entry Tax Act on the ground that the
said product falls within Schedule III (non-taxable goods) under the
Entry Tax Act.
7. The assessing authority, however, disallowed the claim of the
appellant and classified the said product as a cosmetic, thereby
subjecting it to a higher rate of tax (12%) under the residuary entry in
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the MP VAT Act and 10% under the Entry Tax Act. The AO primarily
relied on the reasoning that the appellant, being primarily engaged in the
manufacture and sale of cosmetics and toilet articles, cannot classify the
said product as a drug, even if it was manufactured under a drug license
and interest under Section 18(1) (a) of the MP VAT Act was also levied
on the differential tax amount.
8. Aggrieved, the appellant preferred two first appeals before the
Additional Commissioner of Commercial Tax, which were dismissed by
a common order dated 28.05.2013 confirming the findings of the
assessing authority. Thereafter, the appellant preferred second appeals
before the Commercial Tax Appellate Board again raising the plea of
classification under Entry 19-A and exemption under the Entry Tax Act
relying on judgment of the Hon'ble Apex Court in the case of Ponds
India Ltd. v. Commissioner of Commercial Tax reported in (2008) 113
STJ 355 (SC) wherein the Apex Court held that White Petroleum Jelly
of IP grade manufactured under a valid drug license was a drug.
9. Before the Board, the appellant made detailed written submissions
and clarified that it manufactures two distinct types of White Petroleum
Jelly: (i) a non-perfumed variant with light liquid paraffin of IP grade
manufactured under a drug license and sold as a drug and (ii) a
perfumed variant sold as a cosmetic on which tax was duly paid at the
higher rate. It was submitted that the drug variant alone was claimed
under Entry 19A, while the other was always treated as a cosmetic.
10. Despite these submissions, the Appellate Board, by its impugned
order dated 14.05.2019, dismissed both appeals and held that the
product in question did not qualify as a drug merely because it was
manufactured under a drug license. The Board reasoned that the product
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was not prescribed by doctors nor exclusively sold through medical
shops, and that the appellant's predominant business was in cosmetics
and toilet articles.
11. Challenging these findings, the appellant has now approached this
Court by way of the present appeals under Section 53(1) of the MP VAT
Act, 2002 and Section 13 of the Entry Tax Act, 1976, raising the
following substantial questions of law relating to the classification of the
said product and the legality of interest levied.
Whether on the facts and in the circumstances of the present case
the product 'White Petroleum Jelly of IP grade' manufactured &
sold by appellant under valid drug license is classifiable in the
category of 'Drugs and Medicines' under Entry 19A of Part II
Schedule II of MP VAT Act, 2002?
Whether on the facts and circumstances of the present case the MP
Commercial Tax Appellate Board is justified in not following the
decision of the Apex Court in the case of Ponds India Ltd v/s CTT
(2008) 13 STJ 355 which relates to the classification of the same
goods viz White Petroleum Jelly of IP grade'?
Whether in view of admitted factual position that the appellant has
deposited tax that worked as per its returns interest u/s 18(4) (a) is
leviable, and whether the Appellate Board is justified in confirming
such levy of interest against the appellant?
T.R. No. 22/2021 & T.R. No. 23/2021
12. These Tax references arise from Reference Case Nos.
01/CTAB/IND/2019 and 02/CTAB/IND/2019 filed by M/s Hindustan
Lever Ltd. for the assessment period of 01.04.2004 to 31.03.2005 and
01.04.2005 to 31.03.2006.
13. In the original assessments framed under Section 28(1) of the Act,
the product White Petroleum Jelly I.P. was assessed to tax at the rate of
9.2% classifying it under Entry No. 11 of Part IV of Schedule II as
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"Drugs and Medicines". Subsequently, reassessment proceedings were
initiated by the Department pursuant to an audit objection wherein the
product was reclassified under Entry Nos. 41/49 of Part III of Schedule
II as a "medicinal preparation of cosmetics and toilet articles", attracting
a higher rate of tax.
14. The appellant contested the reassessment, contending that the
reopening of the concluded assessments was impermissible under law
and that the product in question, being manufactured under a valid drug
license and classified consistently as a drug by the competent Drug
Control Authorities, could not be reclassified as a cosmetic.
15. The Appellate Board, by its common order dated 12.02.2019,
rejected the challenge to reassessment by relying upon settled precedent.
However, finding that the issue of the correct classification of White
Petroleum Jelly I.P. under the amended entries of Schedule II raised a
substantial question of law, the Board partially allowed the reference
and framed the following question of law:
"Whether, in the facts and circumstances of the case, in view of the
legislative amendments effective from 15.03.2000 in the
classification of goods in the M.P. Commercial Tax Act, 1994, the
Madhya Pradesh Commercial Tax Appellate Board was justified in
upholding the classification of the White Petroleum Jelly I.P.
manufactured by the applicant in the Entry No. 41/49 of Part III of
Schedule II instead of Entry 11 of Part IV Schedule II of M.P.
Commercial Tax Act, 1994?"
Submission of Appellant's counsel
16. Shri P.M. Choudhary, learned Senior Counsel, submitted that the
central question involved is the proper classification of White Petroleum
Jelly I.P., which is manufactured and sold by the petitioner under a valid
Drug Manufacturing License. Learned Senior Counsel submitted that
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the product squarely falls in the definition of a "drug" as contemplated
in the statutory regime and has been recognised as such by binding
judicial pronouncements, including the decision of the Hon'ble Apex
Court in Ponds India (Supra) wherein White Petroleum Jelly I.P. was
expressly held to be a drug and not a cosmetic.
17. Learned Senior Counsel while referring to Entry 19-A of Part II of
Schedule II to the Madhya Pradesh VAT Act, 2002 submitted that the
said entry provides for concessional taxation of "Drugs and Medicines"
and is a specific entry whereas the Entry invoked by the Revenue (Entry
41 or 49 of Part III) refers to "cosmetics and toilet articles" and is
residuary or general in nature. Placing reliance on the well-settled
principle that a specific entry must prevail over a general one, the
learned senior counsel submitted that once a product is classifiable
under a specific entry, the Revenue cannot resort to a broader or residual
classification merely to impose a higher rate of tax.
18. Learned Senior Counsel drew attention to the legislative history of
the relevant entries under both the M.P. Commercial Tax Act, 1994 and
the M.P. VAT Act, 2002, to submit that the intent of the legislature has
been consistent in treating essential healthcare items distinctly from
luxuries or cosmetics. Learned Senior Counsel emphasized that the
classification must be based on functional utility, therapeutic purpose,
and predominant usage as laid down in Commissioner of Central
Excise v. Hindustan Lever Ltd. reported in (2015) 34 GSTR 497 (SC)
and further affirmed in Reckitt Benckiser (India) Ltd. v. Commissioner
Commercial Tax reported in(2023) 112 GSTR 198 (SC) wherein Dettol
antiseptic liquid similarly manufactured under a Drug License was held
to be a drug.
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19. Learned Senior Counsel placed reliance on the case of Hindustan
Unilever Ltd. v. State of Tripura reported in (WP(C) No. 1284 of 2016)
wherein the High Court of Tripura upon examination of the identical
entry under the Tripura VAT regime and based on a detailed analysis of
the judgment in Ponds India (Supra) had concluded that White
Petroleum Jelly is a drug and must be taxed accordingly. Learned Senior
Counsel submitted that the authorities had failed to discharge the burden
of proof to show that the product in question is used predominantly as a
cosmetic and in the absence of any supporting material or market
evidence the mere assumption of common parlance understanding is
misplaced and further submitted that the burden lies squarely on the
department when seeking to classify the product under an entry
attracting higher tax liability.
20. Distinguishing the recent decision in the case of Heinz India Ltd.
v. State of Kerala reported in (2023) 114 GSTR 22 (SC) relied on by the
respondents the learned senior counsel submitted that the said judgment
turned on its own facts namely that the product in question (Nycil
prickly heat powder) was classifiable under a cosmetic entry in the First
Schedule to the Kerala General Sales Tax Act which was materially
different from the MP VAT entry. Learned senior counsel further pointed
out that although the product was manufactured under a drug license the
court considered its predominant usage, consumer perception and
marketing strategy in arriving at its conclusion where in contrast White
Petroleum Jelly I.P. is not marketed as a cosmetic, is not perfumed and
is not intended for beautification but is medicinal in nature used for skin
ailments, abrasions and wounds and forms part of the essential drug list
in several jurisdictions.
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21. Learned Senior counsel further relied on the decisions of this
court in M/S Popular Sales v. State of M.P., reported in (2012) 20 STJ
287; M/S Pidlite Industries Ltd. vs. The commissioner of Commercial
Tax in W.P. 14268 of 2010andIndian Oil Corporation Ltd. v. State of
M.P., reported in(2018) 32 GSTJ 185 to reinforce the proposition that
classification based on trade perception or audit objection cannot
substitute the legal test of predominant character. Learned senior
counsel thus prayed that the classification of White Petroleum Jelly I.P.
as a drug under Entry 19-A be affirmed and the impugned orders be set
aside.
Submissions of the respondent's counsel
22. Shri Bhuwan Gautam, learned Government Advocate appearing
for the respondents, submitted that the learned MPCTAB has correctly
assessed the product after considering all relevant materials and
applicable legal principles and thus no substantial question of law arises
for adjudication by this Court.
23. Learned G.A. further submitted that the appellant is a
manufacturer of cosmetics and toilet articles and is not engaged in the
manufacture of any drug or medicine, and the product in question,
namely White Petroleum Jelly, IP Grade, though manufactured under a
drug license, is neither prescribed by medical practitioners nor sold
exclusively through medical stores. Learned counsel further submitted
that the product is primarily marketed and used as a skin-care item and
not as a curative medicament. The packing and labeling of the product
also do not indicate its use for the treatment of any particular disease
affecting the human body. It is submitted that it is a well-settled
principle that classification of goods must primarily depend upon
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common parlance understanding and the manner in which such goods
are marketed, and thus the product has been rightly classified under the
"Cosmetics and Toilet Articles" entry.
24. Learned Government Advocate for the respondent/State further
submitted that the reliance placed by the appellants on the decision of
Hon'ble Apex Court in Ponds India Ltd (Supra) is wholly misplaced as
that case pertained to non-perfumed petroleum jelly under the U.P.
Trade Tax Act and was based on a long history of classification as a
drug. In the present case, the product is perfumed, and the department
has consistently classified it as a cosmetic without any change over the
years. Learned Government Advocate has rejected the contention that
the presence of Light Liquid Paraffin IP Grade as an ingredient
automatically makes the product a drug and submitted that such a
contention is erroneous, as the product must be assessed on its primary
purpose and use rather than the nature of one of its ingredients.
25. Learned Government Advocate has relied on the decision of the
Hon'ble Apex Court in Heinz India Ltd. v. State of Kerala (Supra)
wherein the Apex Court summarized the test for distinguishing
medicaments from cosmetics. Learned G.A. also relied on the decision
of this Court in M/s Popular Sales, Jabalpur (Supra )to assert that even
if a product has some curative elements if its primary purpose is care
rather than cure it cannot be classified as a drug or medicine and further
also relied on the decision of this court in M/s Mondelez India Foods
Pvt. Ltd. vs. Commissioner of Commercial Tax in VATA 24/2018
wherein it was held that the definition of "drug" under the Drugs and
Cosmetics Act, 1940 cannot be mechanically imported for classification
under the VAT Act. Learned G.A., thus prayed that the VAT appeals be
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dismissed and the tax reference be answered in favour of respondents,
upholding the order of the MPCTAB and directing the appellant to pay
the tax, interest and penalty as determined.
Our appreciation and conclusion
26. The appellant manufactures and sales two distinct types of White
Petroleum Jelly: (i) a non-perfumed variant with light liquid paraffin,
which is manufactured under a drug license and (ii) a perfumed variant,
salable as a cosmetic on which tax is being paid at the higher rate. The
appellant has categorized two different types of White Petroleum Jelly
and paid the taxes accordingly under the respective categories.
Admittedly, the perfumed variant White Petroleum Jelly is a cosmetic
product, and the appellant has been paying tax at the higher rate. So far
as the non-perfumed variant of White Petroleum Jelly is concerned, the
revenue department charged tax as a Drug, but the dispute arose when
that assessment was reopened, and it was a cosmetic product.
27. White Petroleum Jelly has some ingredients for caring and
protection from specific skin problems, but it is not saleable as a beauty
product. It is correct that it can be purchased from any shop, especially
in a general store, without a prescription from a dermatologist;
therefore, the taxing authorities have concluded that it would fall within
the entry relating to the cosmetic material. The learned Tax Board has
considered this White Petroleum Jelly as not exclusively a medicine for
treating the special medical condition, but also a skin care product. It is
correct that this petroleum jelly is a skin care product. The word "care"
denotes that the product is used to prevent skin-related ailments in a
particular weather condition or situation. It is also not a product which is
exclusively used for beautification; sometimes it is recommended as a
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medicine for curing the skin during the extreme winter season. The fact
remains that the appellant is manufacturing this product, White
Petroleum Jelly, under the drugs and medicines license.
28. White petrolatum is highly effective for healing minor cuts,
scrapes, and scratches. Creating a moist environment prevents the
wound from drying out and forming a scab, which can prolong the
healing process and contribute to scarring. Studies have shown that a
thin layer of petrolatum is as effective as a topical antibiotic ointment
for non-infected wounds. It also serves as a protective barrier against
external dirt and irritants. For minor burns, applying a thin layer of
petrolatum up to three times per day creates a waterproof layer that
protects the skin as it heals. This prevents external irritants from
reaching the sensitive skin while also locking in moisture to support the
body's natural healing process. In case of baby care, it is the primary
active ingredient in many diaper rash creams, where it protects the
chafed skin and seals out wetness.
29. Apart from that, the White petrolatum is used as a highly effective
moisturiser for dry areas of the body, such as the hands, feet, elbows,
and knees. By forming a barrier on the skin it prevents water from
evaporating, helping to lock in moisture and alleviate dryness. Its
moisturising effect is enhanced when applied to slightly damp skin
immediately after a shower or bath. The product's properties make it an
ideal ingredient for lip care, serving as a standalone lip balm, a gloss, or
a base for homemade formulations, which creates confusion that it is a
beauty product.
30. The taxability of this product had been under consideration i.e.
White Petroleum Jelly, before the Supreme Court of India in Ponds
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India (Supra), and specifically held in favour of the assessee that it is a
medicament. The appellant had taken over the "Ponds India" with the
same name and brand of Veseline Intensive Care Heal Guard. The
Apex Court shifted the burden on the revenue to establish that the goods
ceased to fall under the entry of drugs and medicines, whereas the
chemical examiner submitted a report in favour of the assessee. The
Apex Court has held that the product used for the purpose cannot be
described as a cosmetic simply because it has ultimately led to
improvement in the appearance of a person, like in a case of hair grow
products which primarily grow the hair of the head by curing baldness,
which finally enhanced the appearance of the person in public. The apex
court had already answered all the points raised. The learned
Government Advocate. The Tripura High Court has followed the
aforesaid judgment in the case of Hindustan Unilever Ltd. (supra) and
classified the White Petroleum Jelly as coming in the pharmaceutical
category.
31. The similar issue came up for consideration before the Apex Court
as to whether the Veseline Intensive Care Heal Guard is to be treated
as merely a skin care preparation or it is a medicament having curing
properties for the purpose of classification under the Chapter sub-
heading 3304 00 of the First Schedule to the Central Excise Act in the
case of Commissioner of Central Excise vs. Hindustan Lever Ltd.
reported in (2015) 34 GSTR 497 (SC). For ready reference, paragraphs
No.7, 8, 9, 10, 14 and 16 are reproduced below:-
"7. In BPL Pharmaceuticals Ltd. v. CCE, Vadodra, this Court has laid
down the principles which are to be kept in mind while deciding as to
whether a particular product would fall under Chapter 30 or under
competing Chapter 33. That was a case where the assessee was engaged in
manufacture of Selenium Sulfide Lotion which contained 2.5% selenium
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sulfide W/V. The assessee was manufacturing this product under a loan
licence from Abbott Laboratories in accordance with Abbott's
specifications, raw materials, packing materials and quality control. It was
sold under the private name 'Selsun'. The assessee in that case claimed that
this product was used in the therapeutic quantity i.e. 2.5% W/V which was
the only active ingredient and other ingredient merely served the purpose
of a bare medium. It was also claimed that the product is manufactured
under a drug licence issued by the Food and Drug Administration. The
assessee, thus, wanted the product to be classified under heading 3003.19
as Pharmaceutical Product under Chapter 30. However, the Revenue took
the plea that it would fall under sub-heading 3305.90 i.e. under Chapter 33.
Thus, the respective contentions of the Department as well as the assessee
were almost on the same lines as in the present case, namely, whether the
said product was Pharmaceutical product or it was a cosmetic/toiletry
preparation. The only difference was of sub-headings under those
Chapters. This Court went into the essential characteristics of the product
and found it that dominant use of the product was medicinal, as it was sold
only on medical prescription as a medicine for treatment of disease known
as Seborrhoeic Dermatitis, commonly known as Dandruff. It was
manufactured under a Drug Licence; the Food and Drug Administration
had certified it as a Drug; and the Drug Controller had categorically opined
that Selenium Sulfide present in Selsun was in a therapeutic concentration
etc. The relevant passages from the said judgment throwing light on these
aspects are reproduced below:
"19. So far as medicinal properties of the product are concerned
it can be gathered from the technical and/or pharmaceutical
references that Selenium Sulfide has anti-fungal and anti-
seborrhoeic properties and is used in a detergent medium for the
treatment of dandruff on the scalp which is milder form of
Seborrhoeic Dermatitis and Tinea Versicolour 2.5% of this
compound is the therapeutic quantity.
24. Elaborating the above submissions, the learned counsel for
the respondents invited our attention to chapter notes of Chapter
30 and Chapter 33 and also the rules of interpretation.
According to the learned counsel a careful reading of chapter
notes of Chapter 30 would show that preparations of Chapter 33
even if they have therapeutic or prophylactic properties would
not fall under Chapter 30. However, he fairly admitted that
'medicaments' are those that have therapeutic or prophylactic
uses. Nevertheless those medicaments, if they are classifiable
under Chapter 33 or Chapter 34 will not fall under Chapter 30,
according to him, if they are more specifically preparations
falling under Chapter 33 or Chapter 34. In other words, he
wants to equate the product in question to 'shampoo'
enumerated under Heading No. 33.05. He also invited our
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attention to the fact that the appellants before the coming into
force of the new Tariff Act described the product as shampoo
and they have omitted the word 'shampoo' deliberately only to
claim that the product would fall under Chapter 30.
25. We do not think that we can accept all the contentions of the
learned counsel for the respondents except certain obvious
admitted positions. The submission that the product in question
must be equated to shampoo falling under Chapter 33 is not at
all correct.
26. It is true that the learned counsel for the appellants have
placed reliance on the definition of the words "cosmetic and
drug" as defined in the Drugs and Cosmetics Act, 1940. On a
perusal of the definitions, we can broadly distinguish cosmetic
and drug as follows:
"A '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." and "A 'drug' includes 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."
27. We cannot ignore the above broad classification while
considering the character of the product in question. Certainly,
the product in question is not intended for cleansing,
beautifying, promoting attractiveness or altering appearance.
On the other hand it is intended to cure certain diseases as
mentioned supra.
35. The learned counsel also placed reliance on a number of
judgments to support his argument that in common and
commercial parlance the product is known as medicine rather
than cosmetic. As pointed out already and in support of that
submission, affidavits and letters from chemists, doctors and
customers are filed to show that the product is sold under
prescription only in chemists' shops unlike shampoos sold in any
shop including provision shops. This conclusion, namely, that
the product is understood in the common and commercial
parlance as a patent and proprietary medicine was also found
by the Central Board of Excise and Customs as early as in 1981
and accepted by the Excise authorities and in the absence of any
new material on the side of the respondents there is no difficulty
in accepting this contention without referring to decision cited
by the counsel for the appellants."
8. The aforesaid case draws and delineates a clear distinction between a
'cosmetic' and a 'drug'. It further lays down that essential character of the
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product in question is to be kept in mind for ascertaining whether it would
be a cosmetic or a drug. Another relevant consideration, which is
highlighted, is to see whether in common and commercial parlance the
product is known as medicine or cosmetic/skin care product. If the product
is registered as medicament by the Drug Controller, that would be a strong
factor to consider it as having curative or prophylactic value and it is not
for the care of the skin per se.
9. This Court in Muller & Phipps (India) Ltd. v. Collector of Central
Excise, Bombay-I was called upon to decide as to whether prickly heat
power, which was manufactured and marketed by the appellant/assessee
therein under the brand name Johnson's Prickly Heat Powder and Phipps
Processed Talc, was a medicament or was simply a product for care of the
skin. The case put- forth by the assessee therein was that prickly heat
power contains a range of medicines and is used only for the treatment and
prevention of a skin ailment known as Milaria Rubra, commonly known as
prickly heat. Prickly heat powders are manufactured under a Drug Licence
issued under the Drug and Cosmetics Act, 1940 and have been treated as a
drug and not a cosmetic by the authorities under the Drugs Act. On a
reference made by the Finance Ministry, the Drug Controller of India has
opined that due to the high content of 5% boric acid in a prickly heat
powder, it would be classifiable as a drug or medicament and not as a
cosmetic. From 1970 till 1985, prickly heat powders have been classified
and assessed under Tariff Item 14E of the old tariff as 'Patent or
Proprietary Medicines'. It was also contended that prickly heat power not
only relieves prickly heat faster but actually helps prevent it. When a
person perspires profusely the sweat stays on the skin too long and the
person becomes a potential victim of prickly heat. This specially
formulated prickly heat powder absorbs the sweat better and faster and
prevents the buildup of bacteria on the skin. Therefore, the person avoids
getting a red rash, itching and burning. No person who requires ordinary
talk for the purposes of beautifying her or himself would use the said
products which contain the aforesaid active therapeutic ingredients. These
products are known as, as already mentioned above, prickly heat/ Milaria
Rubra. The sale of these products is much higher in hot summer months
when this disease frequently erupts.
10 Accepting the aforesaid case set up by the assessee therein, the Court
held that the said prickly heat power was a medicament for treatment of
red rashes, itching and burning and not merely a powder for care of skin or
for the purpose of beauty. The Court was greatly influenced by the fact that
a department like Drug Controller and Central Sales Tax authorities had
accepted the product in question as medicinal preparation. The discussion
which is relevant for our purposes is contained in paras 11 and 12 of the
said judgment and we reproduce the same hereinbelow:
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11. But in the present case when throughout the meaning given
to products in question not only by the department itself but also
by other departments like Drug Controller and Central Sales
Tax authorities is that the product in question is a medicinal
preparation should be accepted.
12. Applying the principles enunciated in BPL Pharmaceuticals
Ltd. case and taking into consideration various circumstances
as to the manner in which the goods had been treated on the
earlier occasions by the department and the product having
been utilised with reference to the commercial parlance and
understanding, that it had been treated as a drug it would not
cease to be one even though new tariff act has come into force.
What is to be seen in such cases is when in the common
parlance, for purposes of the Drug Act, for purposes of Sales
Tax Act and in various findings recorded on earlier occasions by
the department itself, having been noticed, the conclusion is
inevitable that the products in question must be treated as
medicinal preparations."
14. Main feature which needs to be taken note of from the discussion
above is that small percentage of the ingredients of pharmaceutical
constituents would not be a reason by itself to conclude that
pharmaceutical constituents are subsidiary in nature. On the other hand,
what is more relevant is the purpose for which the product is used, namely,
functional test. On that basis, the product in that case was treated as
medicament. What is important is that the Court, in the process, laid down
the guiding principles which are to be kept in mind while determining the
classification. These principles are formulated in the following manner:
"22. Thus, the following guiding principles emerge from the
above discussion:
22.1. Firstly, when a product contains pharmaceutical
ingredients that have therapeutic or prophylactic or curative
properties, the proportion of such ingredients is not invariably
decisive. What is of importance is the curative attributes of such
ingredients that render the product a medicament and not a
cosmetic.
22.2. Secondly, though a product is sold without a prescription
of a medical practitioner, it does not lead to the immediate
conclusion that all products that are sold over/across the
counter are cosmetics. There are several products that are sold
over the counter and are yet, medicaments.
22.3. Thirdly, prior to adjudicating upon whether a product is a
medicament or not, the courts have to see what the people who
actually use the product understand the product to be. If a
product's primary function is "care" and not "cure", it is not a
medicament. Cosmetic products are used in enhancing or
improving a person's appearance or beauty, whereas medicinal
products are used to treat or cure some medical condition. A
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product that is used mainly in curing or treating ailments or
diseases and contains curative ingredients even in small
quantities, is to be branded as a medicament.
16. As pointed out above, the product in question, Vaseline Intensive Care
Heel Guard, is marketed as a solution for cracked heels and it is claimed
that this solution is specially developed by the scientists at Vaseline
Research. The composition of this product includes salicylic acid I.P. 1.5%
w/w. lactic acid 8.0% w/w. Triclosan 0.1% w/w. Cream base - q.s.
Salicylic acid is described as keratolytic substance having bacteriostalic
and fungicidal properties used in the treatment of fungus infection of the
skin. The Tribunal, while deciding that the aforesaid product is a
medicament, pointed out that the product was formulated and essentially
used for treatment of 'cracked heels', protection from further cracks in the
human heels due to extreme climatic conditions and low humidity,
constant exposure of feet to water and due to absence of shoe or other
protection while walking. It also found that this product was manufactured
under a drug licence as drug authorities had treated the same as a
medicament. The Tribunal also found that the usage of this product was
related to the effect of therapeutic or mitigating substance of prophylactic
substances added. Thus, the effect of mitigation of an external condition is
primary effect and the effect of smoothing the skin was secondary in
nature and, therefore, it was to be treated as a medicament and classified
under Chapter 30.
32. The Apex Court in the case of Reckitt Benckiser (India) Ltd. vs.
Commissioner Commercial Taxes and Others reported (2023) 112
GSTR 198 (SC) applying the principle laid down in the case of Ponds
India (supra) as well as Hindustan Lever (supra) in which the Apex
Court has held that considering the dominant use of Dettol and the
active ingredients of Dettol referred to in hereinabove, the same is used
as an antiseptic and is used in hospitals for surgical use, medical use
would fall under entry 36(8)(h)(vi) as claimed by the appellant and
would not fall under the residuary entry as claimed by the Revenue it
means it is a medicine.
33. The learned Government Advocate has placed heavy reliance on
Heinz India Limited (supra), where the product Nycil Prickly Heat
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Powder was under consideration, whether it is a talcum powder
including medicated medicinal ingredients, is a drug or a cosmetic. In
this case the Apex Court in para 47 has considered the expression
"including" in the Karnataka state tax enactment in which the talcum
powder is classified as a cosmetic with an expression "including" used
in entry 127 "medicated talcum powder", therefore, the Apex Court has
held that such entries have not come up for consideration before this
Court in the cases cited by the assessee is Ponds India (supra). The
Apex Court has finally held that the use of the term "includes" after
talcum powder, followed by "medicated talcum powder" in this court's
opinion, can lead to only one inference, which is that the clear
legislative intent means that all kinds of talcum powders should
necessarily be treated as cosmetics falling under entry 127.
34. In the VAT Act as well as in Entry Tax there is no such specific
entry for White Petroleum Jelly; the Revenue is trying to bring such in
the cosmetic and beauty product whereas, under Entry No. 19A, Part II,
Schedule II of the MP VAT Act the Drugs and medicines including
vaccines, syringes, medicated ointments produced under drug license
and light liquid paraffin of IP grade and the White Petroleum Jelly IP
having light liquid paraffin of IP grade. Hence, it is manufactured and
marketed by the appellant under a valid drug and medicine licence;
therefore, we hereby answer the question in favour of the assessee. That
a White Petroleum Jelly of IP grade manufactured and sold by appellant
under a valid drug licence is liable to be classified as a category of drug
and medicine under Entry 19-A of Part II, Schedule II of the MP VAT
Act. Hence, the M.P. Commercial Tax Board was not justified in
following the decision of the Apex Court in the case of Ponds India Ltd.
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vs. CCT (supra). Accordingly, the appellant is not liable to pay interest
under Section 18(1)(a) of the MP VAT Act.
35. In the facts and circumstances of the case, the learned Madhya
Pradesh Commercial Tax Appellate Board was not justified in upholding
the classification of the White Petroleum Jelly I.P. manufactured by the
applicant in the Entry No. 41/49 of Part III of Schedule II instead of
Entry 11 of Part IV Schedule II in view of the legislative amendments
effective from 15.03.2000 in the classification of goods in the M.P.
Commercial Tax Act, 1994.
36. In view of the above, the impugned order dated 14.05.2019 passed
in both the VAT Appeals is hereby quashed. The questions of law in VAT
appeals, as well as in Tax References, are hereby answered.
37. With the aforesaid, VAT appeals and Tax References are hereby
disposed of.
Let a copy of this order be kept in the record of connected cases.
(VIVEK RUSIA) (JAI KUMAR PILLAI)
JUDGE JUDGE
Vatan
