Classification Of Dr.Reddy’s Senquel-AD As A Mouthwash Or A Medicament: Kerala High Court Remands The Matter Back

The Kerala High Court has remitted the issue of the classification of Dr.Reddy’s Senquel-AD as a mouthwash or a medicament for fresh consideration.

The bench of Justice A.K. Jayasankaran Nambiar and Justice Mohammed Nias C.P. has directed the authority to follow the decision of the Supreme Court in the case of Collector of Central Excise v/s CIENS Laboratories, in which it was held that if a product's primary function is "care" and not "cure," it is not a medicament. Cosmetic products are used to enhance or improve a person's appearance or beauty, whereas medicinal products are used to treat or cure some medical conditions. A product that is used mainly for curing or treating ailments or diseases and contains curative ingredients, even in small quantities, is to be branded as a medicament.

The appellant/assessee, Dr. Reddy’s Laboratories Ltd., is engaged in manufacturing and trading pharmaceutical products, Clohex, Clohex Plus, and Senquel-AD, which are being used as medicaments, with Mouthwash having prophylactic and therapeutic effects.

The assessee contends that under the Central Excise Tariff Act, all the products have been assigned HSN Code 3003.3900, treating them as medicaments.

The appellant was submitting returns under the KVAT Act, treating Clohex, Clohex Plus, and Senquel-AD as medicaments and paying tax at 4% and later 5%. Earlier, under the Kerala General Sales Tax Act, they were also treated as medicaments, and taxes were paid accordingly.

The assessing authority demanded a penalty, alleging that the products would actually come under Serial No. 92(6) of SRO 82/2006 under 'Mouthwash' and should be assigned HSN Code 3306.10.90. The dealer had wrongly included it under the group 'medicaments.'

In the circumstances, the petitioner filed an application for clarification under Section 94 of the KVAT Act, which the Court directed the authority to consider.

The authority passed an order holding that two of the products, Clohex and Clohex Plus, are to be treated as medicaments and hence would attract tax only at 5% as they are classifiable under HSN Code 3004.9099.

However, in the case of one product, namely Senquel-AD, it was held that it cannot be classified as a medicament and, therefore, will attract tax at the rate of 14.5% by virtue of entry No. 92(6) of SRO 82/2006. The appeal is against that part of the order of the clarificatory authority that did not classify Senquel-AD as a medicament.

The assessee contended that the authority erred in finding that the literature in the package described the product as a desensitising Mouthwash and that sensitivity cannot be treated as a specific disease condition and that any person can use this product for desensitising as advertised on the label. The authority found that, though the product is not used to treat any specific disease condition, it has some prophylactic or therapeutic use for general dental hygiene.

The department contended that in view of the note to Chapter 30, which deals with pharmaceutical products, the preparations of headings 3303 to 3307, even if they have therapeutic or prophylactic properties, stand excluded from Chapter 30, and on that ground, the appellant is not entitled to succeed.

"We set aside the impugned order (Order No.C3/26631/13/CT) of the authority for clarification dated 09.01.2015 and remit it to the said authority for fresh consideration, in the light of the observations made by us and in accordance with the law, with notice to the parties and within an outer time limit of three months from the date of receipt of a certified copy of this judgement," the court said.

The court held that until the authority takes a decision, the interim order granted by the Court on April 8, 2016, staying all further proceedings pursuant to it, will continue to be in force.

Case Title: Dr. Reddys Laboratories Ltd. Versus The Commissioner Of Commercial Taxes

Citation: 2023 LiveLaw (Ker) 407

Case No.: OT.Appeal No. 3 Of 2015

Date: 11/07/2023

Counsel For Appellant: P. R.Venkatesh

Counsel For Respondent: Mohammed Rafiq

Click Here To Read The Order