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2018 (2) TMI 1816 - HC - VAT and Sales TaxClassification of goods - Chlormint with Herbasol - Happydent White - whether classified as ayurvedic medicines and liable to be taxed @ 4% in view of Item 41 of Part A in Schedule-II to U.P. VAT Act or classified under the residuary entry in Schedule-V @ 12.5%? - onus to prove - Held that - It is settled that onus or burden to show that a product falls within a particular tariff item is always on the revenue. Once the assessee has discharged its initial burden of proving the product to be covered by Entry 41 it was then for the revenue to prove by adducing cogent evidence that the product did not fall under the Entry 41 so as to take it to the residuary entry. Revenue admittedly has failed to discharge such onus. The assessing authority cannot rely upon its own understanding of the product or his personal knowledge to determine the nature of product after discarding specific evidence led by the assessee particularly when no contra evidence is otherwise brought on record by the revenue. The question posed for consideration in this revision is answered against the revenue and in favour of the assessee - revision dismissed.
Issues Involved:
1. Classification of products "Chlormint with Herbasol" and "Happydent White" under the U.P. VAT Act. 2. Applicability of Item 41 of Part-A in Schedule-II versus the residuary entry in Schedule-V. 3. Application of the common parlance test. 4. Burden of proof regarding the classification of products. Issue-wise Detailed Analysis: 1. Classification of Products: The central issue in this case is whether "Chlormint with Herbasol" and "Happydent White" should be classified as ayurvedic medicines under Item 41 of Part-A in Schedule-II of the U.P. VAT Act, thereby attracting a tax rate of 4%, or as confectionery items under the residuary entry in Schedule-V, attracting a tax rate of 12.5%. The Tribunal accepted the assessee's claim that these products are ayurvedic medicines, manufactured under a drug license issued under the Drugs and Cosmetics Act, 1940, and thus should be taxed at 4%. The Tribunal relied on a Division Bench judgment of the Uttarakhand High Court in Commissioner, Trade Tax/Commercial Tax Vs. Perfetti Van Melle (India) Pvt. Ltd., which dealt with the same products and the same assessee. 2. Applicability of Item 41 of Part-A in Schedule-II versus the Residuary Entry in Schedule-V: The Tribunal noted that the applicable provisions of the Uttaranchal Value Added Tax Act, 2005, are similar to the U.P. Value Added Tax Act, 2008. Item 41 in Part-A of Schedule-II includes "Drugs & Medicines" and the products in question were argued to fall under this category. The Tribunal found that the products were manufactured under a valid drug license and contained ingredients with medicinal value, as per authoritative ayurvedic texts. The revenue's contention that the products should be classified under the residuary entry was rejected due to the lack of contradicting evidence. 3. Application of the Common Parlance Test: The revenue argued that the products are mouth fresheners similar to chewing gum and should be taxed as confectionery items. They contended that the Tribunal failed to apply the common parlance test to ascertain the true nature of the products. However, the Tribunal and the Uttarakhand High Court found that the products, despite being sold over the counter and not necessarily on a doctor's prescription, are still considered ayurvedic medicines due to their manufacturing process and ingredients. 4. Burden of Proof Regarding the Classification of Products: The Tribunal emphasized that the burden of proof lies on the revenue to show that the products fall under a particular tariff item. The assessee had produced relevant literature and evidence to support their claim that the products are ayurvedic medicines. The revenue failed to provide any contra evidence to refute this claim. The Tribunal and the High Court relied on precedents which state that the mere fact that a product is sold over the counter does not disqualify it from being classified as a medicine if it is manufactured under a drug license and contains medicinal ingredients. Conclusion: The High Court upheld the Tribunal's decision, dismissing the revenue's revision. It concluded that "Chlormint with Herbasol" and "Happydent White" are ayurvedic medicines and should be taxed at 4% under Item 41 of Part-A in Schedule-II of the U.P. VAT Act. The revenue's arguments were found insufficient to reclassify the products under the residuary entry in Schedule-V. The judgment reinforced the principle that the burden of proof lies on the revenue to provide evidence when challenging the classification of products.
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