Relief for HUL: Madhya Pradesh HC Rules White Petroleum Jelly I.P. is a 'Drug', Not a Cosmetic, Entitled to Lower VAT Rate [Read Order]
The Madhya Pradesh High Court ruled that White Petroleum Jelly I.P. manufactured by Hindustan Unilever Ltd. is a “drug” and not a cosmetic, entitling it to a lower VAT rate.
HUL - VAT - Taxscan
HUL - VAT - Taxscan
In a recent judgment, the Madhya Pradesh High Court held that White Petroleum Jelly I.P., manufactured by Hindustan Unilever Ltd. (HUL) under a valid drug licence, is classifiable as a “drug” and not a cosmetic under the Madhya Pradesh Value Added Tax Act, 2002, making the company eligible for a lower VAT rate.
The case arose from two VAT appeals and connected tax references filed by HUL challenging the orders of the Madhya Pradesh Commercial Tax Appellate Board, which had upheld the classification of White Petroleum Jelly I.P. as a cosmetic and subjected it to a higher tax rate.
The petitioner’s counsel argued that the product, being a non-perfumed formulation made with light liquid paraffin of I.P. grade and manufactured under a drug licence, has curative and protective properties and is used for treating skin ailments.
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The petitioner’s counsel further argued that it falls within Entry 19A, Part II, Schedule II of the MP VAT Act, which covers drugs and medicines. The counsel further relied on the Supreme Court’s rulings in Ponds India Ltd. v. CCT and Hindustan Lever Ltd. v. Commissioner of Central Excise, where similar products were treated as medicaments.
The State’s counsel argued that the product is sold over the counter, not prescribed by medical practitioners, and is commonly used as a skincare item, making it a cosmetic. It was also argued that the product’s availability without prescription and its marketing pattern support its classification under the residuary entry for cosmetics.
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The Division Bench of Justice Vivek Rusia and Justice Jai Kumar Pillai observed that the non-perfumed variant of White Petroleum Jelly I.P. is manufactured under a drug licence and possesses therapeutic and prophylactic properties.
The court explained that classification must depend on the product’s primary purpose and functional use, not merely on trade perception. Referring to the Supreme Court’s decision in Ponds India Ltd., the Court pointed out that White Petroleum Jelly I.P. is intended for curing and preventing skin ailments and not for beautification.
The court ruled that the product falls under the specific entry for drugs and medicines rather than the general entry for cosmetics. It held that the higher VAT and Entry Tax levied by the authorities were not justified.
The court quashed the impugned orders passed by the Commercial Tax Appellate Board and directed that White Petroleum Jelly I.P. be taxed under Entry 19A as a drug. The levy of interest under Section 18(1)(a) was also set aside. The appeals and tax references were allowed.
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