Prickly Heat Powder Is Not A ‘Medicine’ For The Purpose Of Sales Tax In Kerala & Tamil Nadu: Supreme Court

The Supreme Court Bench has held that prickly heat powders fall under the category of ‘medicated talcum powder’ and not ‘medicine’ for the purpose of sales tax under Kerala General Sales Tax Act, 1963 (“KGST Act”). Whereas, under the Tamil Nadu General Sales Tax Act, 1959 (“TNGST Act”), prickly heat powder would be taxed as a cosmetic.

The Bench comprising of Justice S. Ravindra Bhatt and Justice Dipankar Dutta while adjudicating an appeal filed in Heinz India Limited v The State of Kerala, has further held that Nycil Prickly Heat Powder being a medicated powder is to be classified under Entry 127 of First Schedule of the Kerala General Sales Tax Act, 1963 (“KGST Act”) which is a specific entry in fiscal statute, rather than under Entry 79 of the KGST Act which is a general entry. It was opined that the salutary rule for interpreting fiscal legislation is that words used in the statute must be given their plain meaning.

BACKGROUND FACTS

Heinz India Limited (“Appellant/Heinz”) is the manufacturer of Nycil Prickly Heat Powder (“Nycil Powder”). Heinz filed its annual return as per levy of 8% sales tax on the Nycil Powder by claiming that it falls under the category of medicine under Entry 79 of the First Schedule to the Kerala General Sales Tax Act, 1963 (“KGST Act”). The said Entry 79 includes, “Medicines and Drugs including allopathic, ayurvedic, homeopathic, siddha and unani preparations and glucose IP.”

However, the Revisional Authority set aside the said assessment and categorized Nycil Powder as ‘medicated talcum powder’ under Entry 127 which attracts levy of tax at 20% sales tax. The Entry 127 of KGST Act includes, “Shampoo, Talcum Powder including medicated talcum powder, Sandalwood Oil, Ramacham Oil, Cinnamon Oil, other perfurmeries and cosmetics not falling under any other entry in this Schedule”.

The Appellate Tribunal affirmed the revisional order. When the Appellant filed an appeal before the High Court of Kerala, the High Court held that the Nycil Powder was classifiable under Entry 127 of the First Schedule to KGST Act as “Medicated Talcum Powder” and not as “medicine” under Entry 79.

The Kerala High Court had held as under:

“We would definitely say that ‘Nycil Powder’ is not an ordinary talcum powder as understood in common or commercial parlance, but has a medicinal value and is used for treatment of prickly heat and other skin ailments. But then, under which entry we should classify the commodity in question. In our view, if not for the inclusive definition under Entry 127 of the first schedule to the KGST Act, we would not had any hesitation in classifying the commodity in question as a medicine. In our view, the legislature consciously immediately after the expression talcum powder, by employing the expression ‘including’ has thought it fit to include "medicated talcum powder" under Entry 127 of first schedule to the Act. In view of this inclusive definition, though the nycil powder has all the qualities and ingredients of medicines and since the same is basically a talcum powder which has preventive and curative power, the same requires to be brought under the special entry rather than the general entry.”

In a similar case, M/s Glaxo Smithkline Pharmaceuticals Ltd. (“Appellant”) also filed an appeal before the Supreme Court against the order of High Court of Madras. The High Court held that prickly heat powder is a toilet powder under Entry 1(iii) of Part-F of First Schedule of the Tamil Nadu General Sales Tax Act, 1959 (“TNGST Act”). Therefore, it attracts 16% sales tax as applicable to toilet powder and not 5% sales tax which is applicable to medicines/drugs under TNGST Act. Prickly heat powder cannot be categorized as a medicine under Entry 20-(A) of Part C of First Schedule of TNGST Act.

SUPREME COURT VERDICT

The issue before the Bench was whether a medicated talcum powder would fall under the category of medicine/drug or cosmetic for the purpose of taxation under KGST Act and TNGST Act.

Prickly heat powder is a medicated talcum powder and not medicine under KGST Act

While interpreting the term “includes” as mentioned after talcum powder followed by “medicated talcum powder” in Entry 127 of KGST Act, the Bench opined that all kinds of talcum powders, which contained medications (irrespective of the proportion, or at any rate, not containing predominant proportions) should necessarily be treated as cosmetics, falling under Entry 127.

The Bench opined that the salutary rule for interpreting fiscal legislation is that words used in the statute must be given their plain meaning. It is not for the Court to assign strained and unnatural meaning to the provisions. The intention of the legislature being conveyed in plain words must be accepted. It was held as under:

“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, or drug or medicine. Therefore, this court cannot fault the High Court for drawing the conclusion that it did.”

Prickly heat powder to be taxed as a cosmetic under TNGST Act

The Entry 20 of Part C of the TNGST Act covers medicines, while Cosmetics fall in Entry 1 of Part F of First Schedule. On the issue of whether prickly heat powder would be taxed as a cosmetic or medicine under TNGST Act, the Bench observed as follows:

“Talcum powder, lipsticks, lip salve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders, talcum powders, powder pads, etc. clearly showed that all manner of talcum powder fell within Entry, i.e. Item 1. After the amendment, with effect from 01.04.1994, the explanation was added. The explanation specifically stated that items “listed above” “even if medicated or as defined in Section 3” (of the Drugs Act) “or manufactured on the license issued under the said Act will fall under this item. The explanation included, in Item 1, Part F medicated talcum powder, regardless that the license to manufacture it, was under the Drugs Act. The pointed reference to toilet powders, baby powders, talcum powders, powder pads, along with the additional words “even if medicated” again, like in the Kerala case, is decisive.”

It was held that the TNGST Act was consciously amended to include talcum powder, whether or not medicated in the specific entry or class of entries, enumerating cosmetics. The Bench held that prickly heat powder would be taxed as a cosmetic under the TNGST Act. The appeals were dismissed.

Case Title: Heinz India Limited v The State of Kerala

Citation: 2023 LiveLaw (SC) 411

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