TMI Blog2023 (5) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ADRAS HIGH COURT] ] - HELD THAT:- The legislative history of the entry is telling. Talcum powder, lipsticks, lip salve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders, talcum powders, powder pads, etc. clearly showed that all manner of talcum powder fell within Entry, i.e. Item 1. After the amendment, with effect from 01.04.1994, the explanation was added. The explanation specifically stated that items listed above even if medicated or as defined in Section 3 (of the Drugs Act) or manufactured on the license issued under the said Act will fall under this item . The explanation included, in Item 1, Part F medicated talcum powder, regardless that the license to manufacture it, was under the Drugs Act. The pointed reference to toilet powders, baby powders, talcum powders, powder pads, along with the additional words even if medicated again, like in the Kerala case, is decisive. In the present case, the TNGST was consciously amended to include talcum powder, whether or not medicated in the specific entry or class of entries, enumerating cosmetics. Hence, like in the Kerala case [[ 2008 (9) TMI 845 - KERALA HIGH COURT] ], the plain meaning of that ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry stated that: 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 license issued under the said Act will fall under this item. 3. Heinz s appeal from the Kerala High Court is concerned with assessment years 1999-2000 and 2000-2001. For the assessment year 1999-2000, Heinz filed its annual return which was accepted by the assessing officer; the tax payable on the taxable turnover was 8%, and the treatment on the sale of Nycil prickly heat powder was accepted to be an item falling under Entry 79 of the First Schedule to KGST Act, by order dated 18-11-2005. The revisional authority was of the view that the order of assessment passed by the assessing authority was prejudicial to the interest of the revenue; it initiated proceedings under Section 35 of the KGST Act, proposing to set aside the assessment of the assessing authority on the premise that levy of tax at 8% on Prickly heat powder by treating it as medicine by the assessing authority was prejudicial to the interest of the revenue and the rate of tax at 20% was to be applied as applicable to Medicated Talc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame requires to be brought under the special entry rather than the general entry. 5. The High Court further held that Entry 127 of the First Schedule immediately after the expression talcum powder has used the word including . The word includes/including, is used in interpretation clause to enlarge the meaning of the word in the statute. When such word is used in an interpretation clause, it must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. It was, therefore held that since Entry 127 is a specific entry in a fiscal statute, the general entry (Entry 79) had to give way to the specific entry. The court observed that: though the Nycil Prickly Heat Powder is used for the care of the skin and not cure of the skin and though it contains a small quantity of Chlorphenesin, which has curative effect; in view of the specific entry, it has to be classified only under Entry 127 of First Schedule to the KGST Act and not under Entry 79 of the Act which speaks of medicines and drugs. Heinz is aggrieved by these findings. II 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oric 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. Relying upon the findings of the Kerela High Court, Madras High Court further observed that: 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 powd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infected with bacterial or fungi, and Nycil is effective in eliminating such organisms. 11. In Shah Co (supra), it was held that Nycil as powder or ointment is recommended for the treatment of prickly heat and dhobie itch and active skin protection during ringworms and other fungicidal infections. It was submitted that Nycil powder is suitable for the initial treatment of acute mycotic infection since it is an absorbant, in addition to exercising its fungicidal action. It was argued that the ingredients of Nycil powder are Chlorphenesin B.P. 1%; Zinc Oxide I.P. 16%; Boric Acid 16% Starch I.P. 51% and Talc. Thus, about one third (33%) of its ingredients are medicinal products. It was pointed out that the face of the container, in which the product is sold, contains the following description: Nycil contains chlorphenesin the antibacterial and antifungal agent. It actively prevents prickly heat and protects the skin from sores, dhobie itch, and athlete s foot. 12. It was argued that under Section 3(b) of the Drugs Act, drug is defined as including all medicines used for internal or external use of human beings or animals intended to be used for mitigation or preven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticals Ltd. ), Selsun Shampoo was under consideration for purposes of Central Excise classification. The manufacturers claimed that the shampoo was a medicated one, meant to treat dandruff, a scalp disease. This court took note of the preparation, label, literature, character, common and commercial parlance and held the product was classifiable as a medicament, as it was not an ordinary shampoo of common use but was meant to cure a particular scalp or hair disease. After the cure, it was not meant to be used in the ordinary course. Muller Phipps (India) Ltd (supra) was next relied on to urge that similar to this case, Johnson Prickly Heat Powder was held to be a medicament as it was not an ordinary talcum powder but a powder to be used to get rid of the problem of prickly heat . 16. In Ponds India (supra), the court had to consider whether white or yellow petroleum jelly (non-perfumed) sold as Vaseline was a drug or a cosmetic . It was urged that the court took note of the fact that the assessee was a licensee under the Drugs Act and that cosmetics within the meaning of the provisions were not covered in the Schedule to the exemption notification. It was pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the tangible material or evidence to determine how such an article is understood in common parlance or in commercial world or in trade circle or in its popular sense meaning. It is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intention, when the statute was enacted. 19. The submissions of learned senior counsel, in Heinz were substantially adopted on behalf of GSK, in the Tamil Nadu case. In addition, Ms. Charanya Laxmikumaran, learned counsel urged that the statute in TGST Act is different, because in the Entry, relied on by the revenue, is dependant solely on the Explanation [to Entry I (iii) of Part F of the First Schedule]. However, the product, by its description, purpose, and application of the common parlance test, squarely fell within Entry 20A of Part C of the First Schedule, which were medical preparations, to be used internally or meant for external use or application for treatment of diseases or disorders . It was underlined that the exclusion from this entry was of products capable of use as creams, hair oils, tooth pastes, tooth powders, cosmetics, toi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relevant factors, and devised the following test: 19. Thus, the following guiding principles emerge from the above discussion. 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. 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. Thirdly, prior to adjudicating upon whether a product is a medicament or not, 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 product that is used mainly in curing or tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning, but for the definition the words 'includes' thus, means 'comprises' or 'consists of . 27. Mr. K. Radhakrishna, learned senior counsel appearing for the revenue, in the Tamil Nadu case, contended that the history of the legislation is a decisive factor to be taken into account, while determining the proper classification of a product. It was pointed out that two factors are important: one, that the entry (entry 20, Part C of the First Schedule which deals with medicines ) was amended in 1994. Before amendment (on 01.04.1994), the entry clearly stated that preparations or formulations that were capable of being used as creams, hair oils, tooth pastes, tooth powders, cosmetics, toilet articles, soaps and shampoos were to be excluded . For the same period, cosmetics (described as scents, hair oils etc, and falling in Entry 1 of Part F of the First Schedule) included talcum powder. Two, the placement of talcum powder, with lipsticks, lip salve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders, talcum powders, powder pads, etc. clearly established that all manner of talcum powder fell within the entry, i.e. Entry 1(iii). After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or agent of a non- resident dealer referred to in clause (ii)], whose total turnover for a year exceeds 3 lakhs ₹ is subjected to sales tax levy. 33. GSK, the assessee, contends that the product, Nycil prickly heat powder is a medication or drug, classifiable under Entry 20 of Part C, which reads as follows: Part C of the First Schedule. Entry 20(A) (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, waddi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e KGST Act. The nature, composition and property of Nycil powder, was set out by the Gujarat High Court in the case of Shah Co (supra): Nycil Powder has the following features and attributes: (1) Chlorphenesin, being a medical substance was introduced as a result of original work in the British Drug House Research Laboratories. Nycil is the trade name under which the British Drug House product of chlorphenesin is manufactured and marketed. (2) Chlorphenesin is a potent antifungal, antibacterial and trichomonicidal substance of low toxicity. Organisms against which it is effective include the common dermatophytes causing tinea pedis (Athelct's foot) and other dematomycoses, epidermophyton, floccosum and the various trichophyton species such bacteria as streptococci, staphyloccocci, coliform organisms and clostridii. Nycil is effective in eliminating pruritus ani and pruritus vulvae. Pruritus ani and pruritus vulvae are frequently of bacterial or fungal origins, or the lesions may become infected with bacterial or fungi, and Nycil is effective in eliminating such organisms. (3) Nycil in the form of powder or ointment is recommended for the treatment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a separate entry for medicated talcum powder (Entry 127). It, therefore, has to be classified under Entry 127 of the First Schedule to the KGST Act. In the Tamil Nadu case, it is contended that the exclusion of products capable of being used as cosmetics from Entry 20 in Part C, on the one hand, and the inclusion of talcum powder, in Entry 1 of Part F, as cosmetics, read with the explanation to Entry 1, is decisive that the proper classification of the product is as a cosmetic. 36. In Hindustan Lever (supra) the product, Vaseline Intensive Care Heel Guard, was held to be a medicament under Chapter 30 of Central Excise Tariff Act, 1985 ( CETA ) (Item 3003.10, as a patent or proprietary medicine). The court took note of the definition of medicament (Note 2(i) to Chapter 30) which were goods other than foods or beverages such as diabetic, or fortified foods or beverages not falling in Chapter heading 30.03 or 30.04 comprising of two or more constituents for therapeutic or prophylactic uses or unmixed products suitable for such uses. The court also noticed that patent or proprietary medicaments were drug or medicinal preparations in any form to prevent, or treat ailments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owder whether it was medicament covered under Chapter 30 CETA, or beauty and skin care item. This Court noted the previous ruling in B.P.L. Pharmaceuticals Ltd. (supra) and after noting the ingredients of the product as well as the Harmonised System of Nomenclature (HSN) concluded that as to the manner in which the goods had been treated earlier - as medicament on the basis of commercial parlance and understanding, - it had to be classified as such. This court also noticed the judgment in Collector of Central Excise v. Wood Crafts Products Ltd. (1995) 3 SCC 454 and held that Central Excise Tariffs are based on internationally accepted nomenclature in HSN; consequently, disputes relating to classification had to, as far as possible, accord with the nomenclatures in HSN. 40. The decisions relied on have substantially been on the basis of classification under the CETA. Central Excise classifications are elaborate; the General notes, and Chapter notes, together with the exclusions, [and further explanations] are developed interpretive tools. Plus, this court has striven, to the extent possible, to interpret such entries, in line with HSN classification. In the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratories (supra), the product was a cream prescribed by dermatologists to treat dry skin conditions and was also available in pharmaceutical shops in the market and not primarily intended for the protection of the skin. Its pharmaceutical ingredients showed that it was used for prophylactic and therapeutic purposes. The court noted that Heading 33.04 of CETA (dealing with beauty or make-up preparations and preparations for skin care) specifically excluded medicaments and medicinal preparations used to treat certain complaints, meant to be under Heading 30.03 (medicaments) or 30.04 (products containing pharmaceutical substances used for the medical, surgical, dental or veterinary purpose). This court held that the product is a medicament classifiable under Heading 30.03 (medicament) and not a cosmetic preparation. 44. In Wockhardt Life Sciences Ltd (supra) the products were an Iodine Cleansing Solution USP and Wokadine Surgical Scrub . This court rejected the revenue s argument that they were cosmetics, and held that products, comprising two or more constituents which were compounded together either for therapeutic or prophylactic uses, were Medicaments . The products in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47. In all the cases cited, the contest, by and large was whether the product was a cosmetic, or a drug, under Chapters 30 and 33, CETA. The phraseology of the articles grouped together, in one chapter differs from the phraseology of the other chapters, in that statute. Moreover, to avoid ambiguity, General Rules of Interpretation, besides chapter notes have been prescribed. The court went by those rules, and also adopted the common parlance test. A noteworthy feature is that the court had no occasion to consider an entry which was as specific as medicated Talcum Powder . Undeniably, talcum powder is made from talc https://www.britannica.com/science/talc (last accessed on 02 May 2023 a t 9.30 PM) , which is a common silicate material that is distinguished from almost all other minerals by its extreme softness According to the literature made available to the court, there are medicinal ingredients in Nycil prickly powder, which is also manufactured under a Drug License. Yet, the State Legislature, in Entry 127, thought it fit to include, while dealing with cosmetics, such as shampoos, talcum Powder including medicated talcum powder. There can be no two opinions that talcum po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word includes is also used to connote a specific meaning, that is, as means and includes or comprises or consists of. 48. 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 was that all kinds of talcum powders, which contained medications (irrespective of the proportion, or at any rate, not containing predominant proportions) should necessarily be treated as cosmetics, falling under Entry 127. The pointed phraseology in fact concludes the issue, leaving no scope for the court to interpret the Entry as including any class of goods, other than such as Nycil prickly heat powder, which is a talcum powder that is also medicated. A salutary rule for fiscal legislation interpretation is that words used in the statute must be given their plain meaning. The court s function is not to give a strained and unnatural meaning to the provision. The intention of the legislature, manifested in plain words, must be accepted. In the decision of A.V. Fernandez v. State of Kerala 1957 (1) SCR 837 , the Constitution Bench stated the principle of strict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear up any ambiguity in the main provision. 52. In Union of India (UOI) and Ors. vs. Godfrey Philips India Ltd. 1985 Supp (3) SCR 123 this court had to deal with an explanation that expanded the meaning of packing . The court observed that explanations are also used to widen terms: [..] The Explanation to Section 4(4)(d)(i) provides an exclusive definition of the term packing and it includes not only outer packing but also what may be called inner packing. Ordinarily bobbin, pirl, spool, reel and warp beam on which yarn is wound would not be regarded as packing of such yarn, but they are brought within the definition of packing by the Explanation. The Explanation thus extends the meaning of the word packing to cover items which would not ordinarily be regarded as forming part of packing. The Explanation then proceeds to say that packing means wrapper, container or any other thing in which the excisable goods are wrapped or contained. It is apparent from the wide language of the Explanation that every kind of container in which it can be said that the excisable goods are contained would be packing within the meaning of the Explanation and this would necessa ..... 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