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TMI Blog2023 (5) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals: one, from the State of Kerala and the other from the State of Tamil Nadu. The Kerala High Court, by its judgment Dated 29 September 2008 in S.T. Rev. Nos. 164/ 2007 and 172/ 2008 rejected the revisions filed by the appellant/assessee (hereafter "Heinz") aggrieved by the Kerela Sales Tax Appellate Tribunal's orders holding that its product "Nycil Prickly Heat Powder" was classifiable not under Entry 79 of the First Schedule to Kerala General Sales Tax Act, 1963 (hereafter "KGST Act") [as "medicine" but as "Medicated Talcum Powder"]. 2. In the second set of appeals, M/s Glaxo Smithkline Pharmaceuticals Ltd ("GSK" hereafter) is aggrieved by the judgment of the Madras High Court By judgment dated 01.03.2012, in Tax Case (Revision) Nos. 742/ 2006 and 301/ 2011 where the court rejected its contention that the prickly heat powder was "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" [under Entry 20-(A) of Part C of First Schedule to the Tamil Nadu General Sales Tax Act, 1959 - hereafter "TNGST Act"] and held it to be toilet powder [under Entry 1(iii) of Part-F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the product was not of common use by consumers as a daily use talcum powder, but normally used for the "specific purpose of treating prickly heat" and its use discontinued after the ailment ceased. This meant it has ingredients containing preventive and curative effects making it effective for the treatment of ailments. The court observed that: "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 we should 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 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 first schedule to the Act. In view of this inclusive definition, though the nycil powder has all the qualities and ingredients of medicines and since the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and remarked that the difference between the two enactments (KSGST Act and TNGST Act) is that in the latter, it is the explanation which clarifies 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. The Madras High Court was of the opinion that the wording of the two enactments did not make any difference, even though one had an inclusive definition and another includes the product, through explanation. The Madras High Court, therefore held that Nycil prickly heat powder "is a toilet powder" though the manufacturer held a license under the Drugs Act and that such a circumstance fell within the mischief of the Explanation to Entry I (iii) to Part F of the First Schedule. 8. The impugned judgment of the Madras High Court relied on the decision of the Kerala High Court which had considered medicated talcum powder after going through the various definitions of "drug", "medicine", "cosmetic" and "talc", and ultimately holding that medicated talcum powder includes prickly heat powder. The Kerela High Court had observed that: "34. The ingredients of Nycil powder are chlorph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed." III 9. On behalf of Heinz, Mr. S.K. Bagaria, learned senior counsel, argued that "Nycil" is the trade name under which the manufacturer markets the substance known as 'Chlorphenesin'. The Nycil powder contains zinc oxide and boric acid and they form 32% of the total contents of Nycil powder. The rest of the material is starch and talc. Nycil powder is devised so as to retain skin cleanliness in order to protect it against prickly heat and infection. It also gives freshness and comfort. It consequently falls under Entry 79 of the first schedule to KGST Act. 10. Learned senior counsel relied on B.Shah & Company v State of Gujarat (1971) 28 STC 5 (Guj) (hereafter "Shah & Co"), and urged that Chlorphenesin is a potent antifungal, antibacterial and trichomonicidal substance of low toxicity. It is effective against common dermatophytes causing tinea pedis (Athelet'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Nycil prickly heat powder, which is used only to absorb sweat and moisture from the body and to keep away rashes in human beings, should be considered to be either a "drug" or "medicine" -in view of the composition, it is nothing but a medicinal preparation used as such and for the purpose for which talcum powder is used. 14. Learned senior counsel urged this court to follow the decision in Puma Ayurvedic Herbal (supra) where the assessee's claim that its various products, including herbal powders, were medicaments, was considered. The court adopted a twin test to consider whether any item is a drug, or medicament, or cosmetic. The first is whether, the item is commonly understood as a medicament i.e. the common parlance test. If a product falls in the category of medicament it will not be an item of common use. A user will use it only for treating a particular ailment and will stop its use after the ailment is cured. The approach of the consumer is crucial. The second is, whether the ingredients are described in the medical literature, as necessary for healing. 15. Learned senior counsel submitted that in B.P.L Pharmaceuticals v. Collector of Central Excise (1995) 3 SCR 1235 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 2015 (10) SCC 742 (hereafter "Hindustan Lever") and urged that merely because a particular product is substantially for the care of skin and simply because it contains subsidiary pharmaceutical or antiseptic constituents or is having subsidiary curative or prophylactic value, it would not become medicament and would still qualify as the product for the care of the skin. It was stressed that the onus is on the revenue that the classification sought by it (if it claims the product not to be a drug or medication, but a cosmetic), to discharge it with proof. 18. It was urged, lastly by relying on Collector of Central Excise v Wockhardt Life Sciences Ltd (2012) 5 SCC 585., (hereafter "Wockhardt Life Sciences Ltd") that the "common parlance test" or the "commercial usage test" is most appropriate. Learned counsel relied on the following observations: "33. There is no fixed test for classification of a taxable commodity. This is probably the reason why the 'common parlance test' or the 'commercial usage test' are the most common (see A. Nagaraju Bros. v. State of A.P. [1994 Supp (3) SCC 122] ). Whether a particular article will fall within a particular tariff heading or not has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Entry 20 per se did not result in its falling within the Entry relating to cosmetics, i.e. Entry I of Part F. It continued to be essentially a medicine, for prickly heat. 21. Next, Share Medical Care v Union of India 2007 (3) SCR 44 was relied upon, to urge that if two interpretations are possible, that favouring the assessee should be adopted. Pappu Sweets and Biscuits v. Commr. Of Trade Tax, U.P 1998 (Suppl) (2) SCR 119 (hereafter "Pappu Sweets and Biscuits") and Collector of Excise v. M/s Parle Exports (P) Ltd 1988 (Suppl) (3) SCR 933 were cited for the argument that the words used in the provision, imposing taxes or granting exemption should be understood in the same way for which they are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. IV 22. Mr. Pallav Sisodia, learned senior counsel appearing on behalf of the State of Kerala, urged that the correct test to be applied is whether the product is capable of use as a medication. He relied on Collector of Central Excise v CIENS Laboratories 2013 (14) SCR 38 (hereafter "CIENS Laboratories") to say that this court had elaborately considered all relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the product was not classified elsewhere. It was submitted that mere use of "powder" or "talcum powder" would not have covered Nycil powder as a cosmetic, because it had certain ingredients that could be preventive and curative. However, pre-fixing "medicated" to "talcum powder" rendered the issue, beyond debate. 25. It was submitted that products which are sold over the counter are sometimes hybrid in nature, such as lozenges, cough drops, which double up both as curative of certain ailments, as well as sweets or eatables. Likewise, Nycil powder has dual use: it can be used as a cosmetic, but has a medicinal use as well. However, the statute in this case, clearly requires its classification as a cosmetic, along with others, in view of the specific and unambiguous use of the term "medicated talcum powder". 26. Learned counsel for the revenue relied on Hamdard (Wakf) Laboratories (supra) and N.D.P. Namboodripad (Dead) by LRs. v. Union of India 2007 (3) SCR 769 and submitted that when an interpretation clause uses the word "includes", it is meant to be extensive. The term 'and includes' is intended to rope in items which would not be part of the meaning, but for the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powder, on the plain terms of the statute, was a cosmetic, especially in view of the Explanation which particularly referred to whether the product "is medicated" or not, and irrespective of whether it is under a license issued under the Drugs Act. V The Provisions: KGST Act 29. In terms of Section 5 (c) of the KGST Act, goods specified in the First Schedule, were subject to sale at first point. The revenue alleged that Nycil prickly heat powder, the article in question is subject to levy as a cosmetic. Heinz, on the other hand, contended that it is a drug, or medication. 30. Entry 79 of the First schedule to the KGST Act reads as under: "Medicines and Drugs including allopathic, ayurvedic, homeopathic, siddha and unani preparations and glucose IP." 31. Entry 127 of the First Schedule to the KGST Act reads thus: "Shampoo, Talcum Powder including medicated talcum powder, Sandalwood Oil, Ramacham Oil, Cinnamon Oil, other perfurmeries and cosmetics not falling under any other entry in this Schedule". The Provisions: TNGST Act 32. In terms of Section 3 of the TNGST Act, every dealer [other than the dealer, casual trader or agent of a non- resident dealer referred to in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning milk, hair foods, skin tonics, complexion rouge, nail cutters, sanitary towels and napkins, astringent lotions, pre-shave and aftershave lotions and creams, moisturisers of all sorts and personal (body) deodorant." By amendment to the TNGST Act, in 1994, the following explanation was added, below Item I (iii), Part F, of the First Schedule: "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." VI 34. The assessees contends that the product is sold under the trade name Nycil powder. They market the substance known as 'Chlorphenesin'. Nycil powder contains zinc oxide and boric acid. They constitute 32% of the total contents of Nycil. The rest is starch and talc. Nycil powder, it is said, is designed to keep the skin clean and offer protection against prickly heat and infection besides giving comfort and freshness. Therefore, it would fall under Entry 79 of the First Schedule to the KGST Act. The nature, composition and property of Nycil powder, was set out by the Gujarat High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent products manufactured by British Drug House. The article manufactured is packed in a long and round container of plastic. It has a separate cover of plastic. The contents are also covered by a small plastic cover which contains spaces for making holes. The powder is white in colour and perfumed and in general appearance is not different from the white talcum or such other powders." (6) The medical substances used as ingredients in the manufacture of Nycil powder are Indian Pharmaceutical or British Pharmaceutical articles for the use of which licence is necessary. Licence is also necessary under the Indian Drugs Control Act for manufacturing, stocking or selling Nycil powder and the licence has accordingly been issued. The Government of India, Ministry of Finance, has held and directed that Nycil powder should be assessed to duty as "P. and P. Medicines" under item No. 14E of the Central Excise Tariff." 35. The revenue contends - in the Kerala case, that Nycil prickly heat powder is "medicated talcum powder" since there 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue's contentions, holding that the article was a medicament used to treat Seborrheic dermatitis (dandruff); manufactured under drug license, the drug controller had held its ingredient, i.e., Selenium Sulphide to be in therapeutic concentration and that it was included as a drug in the National Formulatory, USA. The court resolved the issue of interpretation, having regard to the Chapter Notes and General Rules of Interpretation, as well as the language of the specific entries in question. Other factors, such as that it was manufactured under a drug licence; the Food and Drugs Administration had certified it as a drug; that the Drug Controller had categorically opined that Selenium Sulphide present in Selsun was in a therapeutic concentration; that the brand name "Selsun" was derived from the name of the drug Selenium Sulfide, all weighed into the conclusion recorded by the court. 39. In Muller & Phipps (India) Ltd (supra), the dispute was with respect to prickly heat powder sold under the brand "Johnson's Prickly Heat Powder" - 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 Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 treating ailments or diseases and contains curative ingredients even in small quantities, is to be branded as a medicament. (CIENS Laboratories) (iv) Products cannot be classified as cosmetics solely on the basis of their outward packing. (Meghdoot Gramodyog Sewa Sansthan, UP. v. Commissioner of Central Excise, Lucknow [2005] 4 SCC 15) (v) Mixing medical ingredients with other products, or preservatives, does not alter its character as a medicament (Amrutanjan Ltd. v. Collector Central Excise [1996] 9 SCC 413) (vi) That a license under the Drugs Act is necessary is not a determinative or decisive factor always. 42. The formulation of the tests, in all the above decisions was specific to the products involved and the rival or competing revenue entries (and in some cases, exemption notifications). 43. In CIENS Laboratories (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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling under Chapter 33, CETA; the assessee contended that it was a drug or medication, under Chapter 30. This court went by the official opinion of the drug administration ("when throughout the meaning given to products in question not only by the department itself but also by other departments like Drug Controller and the Central Sales Tax authorities is that the product in question is a medicinal preparation should be accepted"). Also, the HSN classification was largely influential in the outcome of the case. 46. In Ponds India Ltd. (supra), the question was whether petroleum jelly, under the brand "Vaseline" was held to be a drug, as it was used for various skin disorders, and not a cosmetic, as contended by the state. This court noted the previous litigation history and ruled that the consistent classification of the same product, for a number of years, was as a drug, and not a cosmetic, and the revenue's conduct in trying to change the classification without any reason, was unjustified. 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Hamdard (Wakf) Laboratories relied on N.D.P. Namboodripad (Dead) by LRs. v. Union of India & Ors. 2007 (3) SCR 769 : "15. The word "includes" has different meanings in different contexts. Standard dictionaries assign more than one meaning to the word "include". Webster's Dictionary defines the word "include" as synonymous with "comprise" or "contain". Illustrated Oxford Dictionary defines the word "include" as: (i) comprise or reckon in as a part of a whole; (ii) treat or regard as so included. Collins Dictionary of English Language defines the word "includes" as: (i) to have as contents or part of the contents; be made up of or contain; (ii) to add as part of something else; put in as part of a set, group or a category; (iii) to contain as a secondary or minor ingredient or element. It is no doubt true that generally when the word "include" is used in a definition clause, it is used as a word of enlargement, that is to make the definition extensive and not restrictive. But the 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 "me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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. 51. In a decision of this court, Oblum Electrical Industries Pvt. Ltd., Hyderabad v Collector of Customs, Bombay 1997 Supp (3) SCR 68 the function of an explanation was stated to be thus: "It is a well settled principle of statutory construction that the Explanation must be read so as to harmonise with and 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 "packin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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