Rajasthan HC confirms 12.5% VAT on ‘Shower to Shower’, ‘Listerine Mouthwash’, says ‘Savlon’ is drug and Taxable at a Lower Rate [Read Judgment]

A single bench of the Rajasthan High Court confirmed the levy of 12.5% of tax on Johnson & Johnsons products “Shower to Shower” and “Listerine Mouthwash”. The bench further said that classification of the product ‘savlon’ under the head “Drugs and Medicines”by the Tax Board was justifiable under the provisions of the Rajasthan VAT Act.

The assesee, M/s Johnson & Johnsons ltd, challenged the order of the Tax Board who confirmed the levy of 12.5% VAT on“Shower to Shower”, “Listerine Mouthwash” & “Listerine Cool Mint Mouthwash” and held that these productsare taxable in residuary entry at the rate of 12.5% as per Schedule-V of the RVAT Act. According to the assessee, these products are taxable as per the Entry 43 of “Drugs and Medicines” appearing in Schedule-IV of the RVAT Act.

In another appeal, the Revenue challenged the decision of the Tax board wherein it was held that the product of the assessee, “Savlon” falls within the ambit of drug and medicine despite of the fact that the assessing authority as well as appellate authority have categorically held same to be falling in residuary entry liable to be taxed at higher rate.

The single bench found the order of the Board “just and proper” and noted that the products, i.e,“Shower to Shower” and “Listerine Mouth Wash” can be used by any person irrespective of prescribing by a medical doctor for one to feel fresh and to avoid/remove body odour or to remove bad smell in body/mouth. In the opinion of the bench, “these products are freely available in the market and merely because there may be some percentage of acid or ethanol or similar ingredients, it cannot be said that they can be said to be like a medicine or even can be said to be a medicine or a drug.”

“The Apex court has time and again held that in the matters of classification, or products like this, common parlance test can be applied and in my view even by applying common parlance test, these two products, namely “Shower to Shower” and “Listerine Mouth Wash” cannot be said to be drugs or medicine. “Shower to Shower” is just like a cosmetic, may be it has some medicinal value, similar is “Listerine Mouth Wash” and by both these products one may merely feel good or fresh but these products certainly cannot be said to be medicines or remotely even drugs and these two products cannot improve any ailment, sufferance, disease of body/mouth.”

Justice Jainendra Kumar Ranka observed that though under Central Excise, courts may have come to a conclusion that similar products are drugs or medicines but insofar as Sales Tax laws or VAT provisions are concerned, prima facie, they have to be independently decided on the basis of entries prescribed in the Schedule to chargecertain rates as prescribed in Sales Tax/VAT laws.

“Taking aforesaid reasoning in my view these two products, are nothing more than cosmetics and even every cosmetic which is used to remove the body smell or odour will certainly contain some medicinal properties like acid etc. and even if the licensing authorities may grant permission to the producers / manufacturers as drug but they cannot be treated as a drug or medicine when specific entries under the Sales Tax laws are required to be looked into and considered. A minor percentage of acid/ethanol which may be available in almost all cosmetics as well, cannot justify the claim as raised by assessee that they have to be classified as drugs/medicine.” Accordingly, the rate specified by the Tax Authorities on “Shower to Shower” and “Listerine Mouth Wash” was confirmed.

Regarding the issue on “savlon”, the bench confirmed the view of the Board that it is entirely a different product and it has medicinal value for it is used when there is some cut or injury on the skin and the same is used as an antiseptic. A product which is used mainly for curing or treating ailments or diseases and contains curative ingredients, is required to be branded as a medicament.

Read the full text of the Judgment below.