The Supreme Court has declared that medicated prickly heat talcum powder ‘Nycil’ is a cosmetic and does not fall under the category of medicines or drugs, making its manufacturer Heinz India Ltd liable to pay a higher rate of tax.
Heinz India Ltd had challenged the 20% sales tax rate imposed by the Kerala government on Nycil, while Glaxo Smithkline Pharmaceuticals had moved the court against Tamil Nadu’s decision to charge 16% sales tax on the same product.
Heinz India Ltd, the manufacturer of ‘Nycil Prickly Heat Powder,’ has been held responsible for paying a higher rate of tax by the Supreme Court. The court had stated that the medicated powder is a cosmetic and does not fall under the category of medicines or drugs.
The Kerala and Madras High Courts’ decisions were upheld by the two-judge Bench of Justices S Ravindra Bhatt and Dipankar Datta.
The issue which the Apex Court had to deal with was whether medicated talcum powder is medicine or drug, or a cosmetic, or in terms of the statutes in question, medicated talcum powder.
The Supreme Court Bench noted that the issue had placed the courts in a “prickly pickle, on several occasions”.
The present appeals, by special leave, concern two sets of appeals: one, from the State of Kerala and the other from the State of Tamil Nadu. The Kerala High Court, by its judgement rejected the revisions filed by the appellant/assessee-Heinz aggrieved by the Kerala 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”].
The second set of appeals were preferred by M/s Glaxo Smithkline Pharmaceuticals Ltd (GSK) aggrieved by the judgement of the Madras High Court 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”.
S K Bagaria, on behalf of the appellant submitted that, “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.”
He also relied on Muller & Phipps (India) Ltd 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”.
In Ponds India, 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 apex court take 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, by the appellant representative.
He also placed reliance on a bunch of other decisions and reiterated the medicinal and other effects that make ‘Nycil’ different and much more than an ordinary cosmetic product.
The revenue contended 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.
Further, in the Tamil Nadu case, it was 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 would be as a cosmetic.
The Bench observed that “In the present case, the clear legislative intent, of inserting a carefully worded entry, which was a “hybrid” one, i.e. describing an article that contained medicinal ingredients, as well as those used for cosmetics, and yet placing such a creature (“neither beast nor fowl” so to say) in the category of cosmetics, ruled out altogether any interpretive scope of classifying it as a medicinal preparation, drug or medicine. Therefore, this court cannot fault the High Court for drawing the conclusion that it did.”
The Two-Judge Bench referred to the Tamil Nadu General Sales Tax Act, which explicitly included talcum powder, medicated or otherwise, in the list of cosmetics. The court emphasised that all kinds of talcum powders containing medication, regardless of the amount or proportion, should be considered cosmetics, leaving no room for interpretation.
In result, The appeals filed by Heinz India Ltd and Glaxo Smithkline Pharmaceuticals against the Kerala and Tamil Nadu governments’ respective decisions to charge higher sales tax rates for Nycil were dismissed by the court.
This ruling by the Supreme Court is expected to have significant implications for the manufacturers of medicated talcum powders, who may now face higher tax rates due to their products’ classification as cosmetics.
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