Mortein Spray, Harpic & Lizol Cleaner- Not Classifiable as ‘Insecticide’ Under KVAT; Dettol A 'Medicament': Supreme Court

While observing that Entry 44(5) of the 3^rd Schedule to the Act is a general entry, the bench observed that the said products would fall under Sl.No.66 and 27(4) of Notification SRO 82/06, dated 21.01.2006, issued under the KVAT Act, which is a specific entry which covers ‘Mosquito Repellants’ and ‘stain busters/ stain removers’, respectively. The said products would thus attract a VAT of 12.5% under the said Notification.

On the issue of classification of Harpic Toilet Cleaner and Lizol Floor Cleaners, the court, by applying the dominant use test, held that the said products are essentially used as stain removers and deodorants and because they kill germs as well, they cannot be said to be insecticides classifiable under Entry 44(5).

The top court, however, ruled that ‘Dettol Antiseptic Liquid’ would continue to fall under Entry 36(8) (h) (vi) of the 3^rd Schedule to the Act, being a ‘Medicament’, attracting a tax of 4%, and would not fall under the residual entry of the said Notification.

The court reiterated that a specific entry under a taxing statute would override a residuary entry; and that resort to residuary entry is to be taken as a last measure, only when by a liberal construction the specific entry cannot cover the goods in question. Further, the burden to prove classification in a particular entry is always on the Revenue. It added that any ambiguity has to be resolved in favour of the assessee and in case of a reasonable doubt, the construction most beneficial to the assessee must be adopted.

The Commissioner of Commercial Taxes had earlier passed an order holding that the products- Mortein Insect Killer and Harpic/Lizol Cleaners- shall fall under the said Notification, issued under Section 6(1)(d) of the KVAT Act, which covers “Mosquito Repellants” and “stain busters, stain removers and all kinds of cleaning powder and liquids”, attracting a VAT of 12.5%.

It was further held by the Commissioner that ‘Dettol Antiseptic Liquid’ is classifiable under Entry 103 of the said Notification, i.e., the residual entry, on the ground that the said product is not in the nature of a medicine having therapeutic or prophylactic properties, but it is used only for cleaning purposes.

In an appeal, the Kerala High Court had upheld the order of the Commissioner.

In the appeal filed before the Supreme Court against the order of the Kerala High Court, the appellant, M/s Reckitt Benckiser (India) Ltd, submitted that even after introduction of Notification SRO 82/2006, Mortein range & Mortein Spray products continue to be classifiable as insecticides, as they are manufactured under an insecticides license issued under the Insecticides Act.

It contended that Mortein Spray kills insects, thus it cannot fall under Item No.66 of the said Notification- as contended by the revenue- since Item no.66 deals only with Mosquito repellants.

Dismissing the contentions of Reckitt Benckiser, the Court observed that the HSN Code 3808 has been deleted from Entry 44(5) w.e.f. 01.07.2006 and from 21.01.2006, the said products would fall under Sl. No.66, namely “Mosquito repellent”, which is a specific entry and subject to VAT at 12.5%.

While holding that Sl.No.66 of the said Notification, which covers “Mosquito Repellants”, is a specific entry and Entry 44(5) of the 3^rd Schedule to the Act is a general entry, the court said, “Once there is a specific entry the ‘Mosquito Repellant’, thereafter one is not required to go to the definition under another Act namely Insecticides Act.”

The court added: “Even otherwise it is required to be noted that Entry 44(5) which includes insecticides relates to products which are used in agricultural operations. All the products in the Entry are used in the agricultural field in relation to growing of agricultural products and controlling of pets, insecticides etc. which are attacking the plants. Therefore, in view of the specific Entry 66 of Notification SRO 82/06 dated 21.01.2006 the aforesaid products namely Mosquito Repellants, electric or electronic mosquito repellants, gadgets and insect repellants, devices and parts and accessories thereof are rightly classified as Mosquito repellants.”

On the issue of classification of products Harpic and Lizol, the court remarked that after the introduction of the said Notification, w.e.f. 22.01.2006, the said products would fall under Sl. No. 27(4) of the said Notification, which is a specific entry. After referring to the product description and the nature of use of the said products, the Court further remarked that they are essentially used as stain removers and deodorants. Merely because they kill germs as well, the same cannot be said to be insecticides classifiable under Entry 44(5), the court said.

The bench added: “What is required to be considered is the dominant use which is cleaning and removal of stains of floor and the toilet. Thereafter, the same shall not fall under Entry 44(5) – HSN Code No.3808 as insecticides or disinfectant. Entry 27(4) of SRO No. 82 of 2006 is with respect to stain busters, stain removers, abir, blue and all kinds of cleaning powder and liquids including floor and toilet cleaning. In that view of the matter Entry 27(4) being a specific entry the same shall be applicable and the aforesaid two products namely Harpic and Lizol shall not be classifiable under general Entry 44(5) and in any case the same cannot be classifiable under Entry 44(5) as insecticides.”

Concerning the classification of the product Dettol, the appellant, Reckitt Benckiser, argued that ‘Dettol Antiseptic Liquid’ is correctly classifiable under Entry 36(8) (h) (vi) of the 3^rd Schedule, being medicaments corresponding to HSN Code 3004.90, and thus it is subject to tax at the rate of 4%.

Perusing the active ingredients of the said product, the bench observed that it is an antiseptic having germicidal properties, which is also used in hospitals for surgical and medical use. Thus, while noting that here also the dominant use is a relevant consideration, the Apex Court concluded that it would fall under Entry 36(8) (h) (vi), as claimed by the appellant, and would not fall under the residuary entry, as claimed by the Revenue.

The Apex Court thus partly allowed the appeal, setting aside the High Court’s order on the issue of classification of Dettol.

“The impugned judgment and order passed by the High Court in so far as the products Mosquito Mats, Coils and Vaporizers and Mortein Insect Killers; Harpic Toilet Cleaner and Lizol Floor Cleaners is hereby confirmed. So far as the impugned judgment and order passed by the High Court with respect to Dettol Antiseptic Liquid is concerned, the impugned judgment and order passed by the High Court is set aside and it is held that the product Dettol would fall under Entry 36(8) (h)(vi) of Schedule III of the KVAT Act and shall be liable to be taxed at 4%.”

Case Title: M/s Reckitt Benckiser (India) Ltd. vs. Commissioner Commercial Taxes & Ors.

Citation : 2023 LiveLaw (SC) 306

Counsel for the Appellant: Siddharth Bawa, Aparna Jha

Counsel for the Respondent: C. K. Sasi, R. Sathish

Kerala VAT Act (KVAT), 2003- Entry 44(5) of 3^rd Schedule: The Apex Court has ruled that Mosquito Mats, Coils and Vaporizers, Mortein Insect Killers, Harpic Toilet Cleaner and Lizol Floor Cleaners, are not be classifiable under Entry 44(5) as ‘insecticides’, observing that Entry 44(5) is a general entry-The said products would fall under Sl.No.66 and 27(4) of Notification SRO 82/06, dated 21.01.2006, issued under the KVAT Act, which is a specific entry which covers ‘Mosquito Repellants’ and ‘stain busters/ stain removers’, respectively. The said products would thus attract a VAT of 12.5% under the said Notification, and not 4%.-Applying the dominant use test, the court held that Harpic Toilet Cleaner and Lizol Floor Cleaners are essentially used as stain removers and deodorants and because they kill germs as well, they cannot be said to be insecticides classifiable under Entry 44(5).