IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 30TH NOVEMBER 2009 / 9TH AGRAHAYANA 1931 OT.Appl..No. 12 of 2008() ------------------------- AGAINST THE ORDER DATED 21/04/2008 IN ORDER IN C3.7789/2008 of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT (S): -------------------- PROCTOR AND GAMBLE HYGIENE AND HEALTH CARE LTD., ALUPURAM, KALAMASSERY REP. BY ITS AUTHORISED, REP. MR.P.K.RAJAN. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.P.BENNY THOMAS SRI.ANIL D. NAIR RESPONDENT(S): --------------- COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM-695001. SPECIAL GOVERNMENT PLEADER SRI.VINOD CHANDRAN THIS OTHER TAX APPLICATION HAVING BEEN FINALLY HEARD ON 30/11/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: CR P.R. RAMAN & P.R. RAMACHANDRA MENON, JJ. ----------------------------------------------- O.T.A. No. 12 of 2008 --------------------------------- Dated, this the 30th day of November, 2009 J U D G M E N T P.R.Raman, J. This is an appeal filed under Section 62 of the Kerala Value Added Tax Act, challenging an order of clarification passed by the Commissioner of Commercial Taxes, Thiruvananthapuram, dated 21.04.2008 in exercise of the power conferred on him under Section 94 of the Kerala Value Added Tax Act. The appellant is a Company incorporated under the Companies Act and engaged in the manufacture of drugs by name 'Vicks' available in oral tablet, balm and inhaler. Annexure A order was passed in an application put in by Geofrin Pettah, Margin Free Super Stockist, A.K.G. Road, Edappally, seeking for clarification as to the rate of tax of 'Vicks' brand confectionary and Balms; inter alia contending that their medicines stand included in the entry 36 of the 3rd schedule of the Kerala Value Added Tax Act. The Commissioner took the view that these items are sold over the counter in almost all retail shops and are available freely and in view of the clause 23 to the Rules of Interpretation appended to the statute, which OTA No. 12 of 2008 2 according to him, differentiated these items against classification under entry 36 of 3rd schedule. According to him Vicks tablets and Balm may contain certain added medicaments and in common parlance it is not treated as a medicine as appearing in Entry 36 of 3rd schedule. Accordingly, it was clarified that Vicks tablets are 'confectionery' falling under Entry 24(1) of SRO 82/2006 and taxable at the rate of 12.5% and that Vicks balm also taxable at the rate of 12.5% vide Entry 103 of SRO 82/2006. 2. Though the appellant is the manufacturer of the products, a clarification was sought for by the dealer. So a preliminary objection was raised as to the maintainability of the appeal at the time of admission. Subject to the right of the parties to raise their respective contention, this was admitted. We heard both sides. Section 94 of the KVAT Act, hereinafter referred to as the 'Act', empowers the Commissioner to issue clarification which reads as follows: S 94. Power of Commissioner to issue clarification:- (1) If any dispute arises, otherwise than in a proceedings before any appellate or revisional authority or in any Court or Tribunal, as to whether, for the purpose of this Act,-- (a) any person is a dealer; or (b) any transaction is a sale; or (c) any particular dealer is required to be registered; or (d) any tax is payable in respect of any sale or purchase, or if tax is payable, the point and the rate thereof; or (e) any activity carried out in any goods amounts to or results in the manufacture of goods; OTA No. 12 of 2008 3 such dispute shall be decided by the Commissioner on application by a dealer or any other person. Further, as per Section 94 (5) of the Act every order issued by the Commissioner under sub section (1) shall, subject to the provisions of Section 62, be final and binding on the applicant and all authorities subordinate to the Commissioner, including Deputy Commissioner (Appeals). Therefore, any other dealer of the same product in other parts of the State or even the appellant himself happens to raise this question before the concerned assessing officer, the said authority being bound by the statutory prescription under Section 94 (5) of the Act, cannot decide the question independently and will be bound to give effect to the order issued by the Commissioner. Thus a clarification order issued by the Commissioner under Section 94 (1) has binding effect on the authorities subordinate to the Commissioner and since the appellant is the manufacturer of the products in respect of the clarification issued, it is a 'person aggrieved' by the Order passed under Section 94(1). Now coming back to Section 62, which provides for an appeal to the High Court and it confers a right of appeal to “any person objecting to an order affecting him passed under Section 59 A”. Therefore in order that a person gets right of appeal under Section 62, he need only show that he is objecting to the order because it affects him and not necessary that he himself should have sought for a clarification. Since in the factual situation, there cannot be any OTA No. 12 of 2008 4 doubt that the appellant is affected by the order passed and impugned in this appeal, he is a person who has a right of appeal under Section 62. 3. True, in the matter of reckoning the period of limitation prescribed in the same section, the period of 90 days is to be reckoned from the date on which the order was served on the person, in the manner prescribed. But the fact that, the period of limitation starts from the date of service of the order cannot control the preceeding part of the Section providing for an appeal. The object behind the prescription of the period for limitation being the 'date of knowledge', in the case of a person who has not sought for any clarification, the period has to be reckoned from the date on which he came to know of the order. In this case, this appeal has been filed within 90 days from the date of knowledge of the order passed and the cause of action arose for challenging the same. Since it has been shown that the appeal has been filed within 90 days from the date of knowledge, we find that the appeal is in order and the preliminary objection is over ruled. 4. It was pointed out that a similar view was already taken by a learned Judge of this Court in P.O. Abraham Associates Vs. Commissioner, Commercial Taxes and another [128 (2002) STC 301). Though the said decision was rendered with reference to the similar provisions contained the Kerala General Sales Tax Act, the provisions as OTA No. 12 of 2008 5 contained the present Act is in pari materia, the same as Section 59 A of the Kerala Sales Tax Act in this regard. We endorse and approve the dictum laid down therein. 5. Coming to the merits of the contentions, the question is whether the decision rendered by the Commissioner in Annexure A is sustainable in the light of the provisions contained to the Kerala Value Added Tax Act and whether the interpretation given by him is in accordance with law. Entry 36 of the Kerala Value Added Tax Act reads as follows:- Drugs, Medicines and Bulk Drugs including Ayurvedic, Unani, and Homoeopathic medicine but excluding mosquito repellants and those specifically mentioned in First Schedule [and those notified under clause (d) of sub section (1) of section 6] Since the product is now classified under Entry 24 (1) of SRO 82/2006, we may refer to the said provision also. Entry 24 (1) of SRO 82/06 reads as under: 24. Confectionery including toffee, chocolate and sweets of all kinds, ice-candy, ice-cake, ice-jetty, kulfi and frozen confectionery, frozen dessert, chewing gum, bubble gum and the like sold under brand name registered under the Trade marks Act, 1999 (1) Sugar confectionery (including white chocolate), not containing cocoa a) Chewing gum, whether or not sugar-coated 1704.10.00 b) Jelly confectionery 1704.90.10 c) Boiled sweets, whether or not filled 1704.90.20 d) Toffees, caramels and similar sweets 1704.90.00 OTA No. 12 of 2008 6 6. The rate of tax applicable to Entry 24 (1) of SRO 82 is 12.5%. Admittedly, the rate of tax applicable under various entries of SRO 82 is 12.5% and if any of the goods are not specifically classified in any of the entry mentioned thereunder, the residuary article contained in Entry 103 of SRO 82/06 will take care of such items as well. The goods which are not specifically covered under any of the schedules of the Kerala Value Added Tax Act, the rate of tax applicable will be 12.5%. Therefore the point of dispute is as to whether the goods in question attract tax at the rate of 4% or 12.5% as the case may be, depending on as to whether the goods are classifiable under Entry 36 of the 3rd schedule of Kerala Value Added Tax Act and if not, whether this is an item covered by the entries contained in the SRO 82/2006 attracting Entry 103 of SRO 82/06, or any entry in the schedule to the Kerala Value Added Tax Act for which the rate applicable is 12.5%. 7. The Commissioner of Commercial Taxes, as per Annexure A order held that: 1) the product namely Vicks tablets and balm, even if it contains certain added medicaments in common parlance, it is not treated as a medicine as appearing in Entry 36 of 3rd schedule; 2) these items are sold over the counter in almost all retail shops and are available freely and 3) Clause 23 to the Rules of Interpretation appended to the statue clearly differentiates these items against classification under Entry 36 of the 3rd OTA No. 12 of 2008 7 schedule. 8. The question as to whether 'Halls' Ayurvedic Tablets falls under Entry 25 of the 3rd schedule taxable at 4% or whether it is a confectionery taxable at the rate 12.5% came up for clarification before the same Commissioner at the instance of the manufacturer of that product namely M/s. Cadbury India (P) Limited, vide order dated 15.01.2006, a copy of which was made available to us by the learned counsel for the appellant. It is seen that the same Commissioner clarifies that, 'Halls' Ayurvedic Tablets manufactured under drug licence is a drug under Entry 36 of 3rd schedule to the Kerala Value Added Tax Act, as amended and taxable at 4%. He also finds support from the decision of this Court in State of Kerala Vs. M/s. Tips and Toes Cosmetics India Ltd. [2004 (12) KTR 253] wherein this Court held that 'Kajal' is an ayurvedic medicine and not cosmetics. He also referred to the decision of the Andhra pradesh High Court in State of Andhra Pradesh Vs. Koduri Satyanarayana & Co. [68 STC 233] where it was held that 'prickly heat powder' was a medical product and not a cosmetic and falling under Entry 37 of the First schedule to the Andhra Pradesh General Sales Tax Act. 9. The question as to whether 'Vicks Vaporub' and 'Vicks inhaler' known in common parlance as Ayurvedic medicines classifiable under Tariff Heading 3003.30 “Medicaments including those used in Ayurvedic OTA No. 12 of 2008 8 system” came for consideration before the Apex Court in an appeal arising from the decision of the CEGAT Special Bench 'C', New Delhi, the decision of the Tribunal as reported in 1989 (42) ELT A100 which is confirmed by the Apex Court in 2006 in Rittindusta Vs. Collector of Central Excise corresponding to Collector of Central Excise, Hyderabad Vs. Richardson Hindustan Ltd. [2004 (9) SCC 156]. The Apex Court merely confirmed the order of the Tribunal without any elaborate discussion. It was noticed, in common parlance, Vicks Vaporub is an Ayurvedic medicine. One of the tests laid down in Shree Baidyanath Ayurved Bhawan case is thus satisfied by Vicks Vaporab. The Tribunal referred to its previous order in the case of Shree Baidyanath Ayurved Bhawan where the product Dant Manjan Lal, where a similar issue arise for consideration. 10. The Tribunal found that there is no definition of Ayurvedic medicine in the Central Excise Tariff Act though Ayurvedic medicine is defined under Section 3(a) of the Drugs and Cosmetics Act. But that definition cannot apply for the purpose of classification of the product under the Central Excise Tariff Act and the Central Excise Salt Act. Thus in the absence of any definition contained, it proceeds to consider as to how the word was constituted in the popular sense. It was held that products satisfied the test of common parlance be known as 'Ayurvedic medicine'. This is the decision which was approved by the Supreme Court in the OTA No. 12 of 2008 9 decision cited Supra. The Apex Court held that having regard to the facts and circumstances and in view of the finding and reasoning given by the Tribunal, the matter did not call for any interference. It may be immediately noticed that the remand was only on other issues and therefore, the finding of the Tribunal that the product was an 'Ayurvedic medicine' as understood in the popular sense, has been approved by the Apex Court in the above decision. 11. In Naturalle Health Products (P) Ltd. Vs. Collector of Central Excise, Hyderabad [2003 (158) E.L.T. 257 (S.C.), the question as to whether 'Vicks Vaporub' manufactured in acordance with and under licence issued under the Drugs and Cosmetics Act, 1940 was an 'Ayurvedic medicine' came for consideration. At the relevant point of time, it was the Natural Health products Pvt. Ltd. Who manufactured the same product as now manufactured by the appellant. It was held that Ayurvedic medicine not having been defined in the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985, the common parlance test would have to be resorted to, for finding out whether a medicine is treated as an Ayurvedic medicine by the public. When there is no definition of any kind in the relevant taxing statute, the articles enumerated in the tariff schedules must be construed as far as possible in their ordinary or popular sense i.e., how the common man and persons dealing with it understand it. If the OTA No. 12 of 2008 10 customers and the practitioners in Ayurvedic medicine, the dealers and the licensing officials treat the products in question as Ayurvedic medicines and not as Allopathic medicines, that fact gives an indication that they are exclusively ayurvedic medicines or that they are used in Ayurvedic system of medicine, though it is a patented medicine. This is especially so when all the ingredients used are mentioned in the authoritative books on Ayurveda. It was also held that the essential character of the medicine and the primary function of the medicine is derived from the active ingredients contained therein and it has certainly a bearing on the determination of classification under the Central Excise Act. 12. In the same decision, the question as to whether, when the product is sold across the counters and not under Doctors' prescription, does it by itself lead to the conclusion that it is not a medicament, was answered in the negative by referring to the earlier decision of the Apex Court in Commissioner of Central Excise, Calcutta Vs. Sharma Chemical Works [2003 (154) E.L.T. 328 (S.C.) and quoted the following passage of that decision. “It is a settled law that the onus or burden to show that a product fall within a particular Tariff Item is always on the revenue. Mere fact that a product is sold across the counters and not under a Doctor's prescription, does not by itself lead to the conclusion that it is not a medicament”. 13. In Puma Ayurvedic Herbal (P) Ltd. Vs. Commissioner of OTA No. 12 of 2008 11 Central Excise, Nagpur [2006 (196) E.L.T. 3 (S.C.), similar question arose for consideration regarding the interpretation as to whether Puma neem facial pack, Puma anti-pimple herbal powder and other relative products are Ayurvedix preparation or mere cosmetics. The Apex Court applied the 'twin test' for determination of classification of the product namely, (1) in the absence of any definition, the words should be considered as far as possible in the original popular sense how the common man and persons dealing with it understand, to be classified as Ayurvedic medicaments. In that context, it was also held that the extent of use of medical ingredients, though it may be low, because a larger use may be harmful for the human body, therefore, the fact that use of medicinal element in a product was minimal does not detract from it being classified as a medicament. 14. Placing reliance on the Note 2 of Chapter 33 of the Central Excise Tariff which is as under:- “Note 2. Heading Nos. 33.03 to 33.07 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value”. An argument was raised that even if a product has some curative OTA No. 12 of 2008 12 effect or prophylactic value, it will still be treated as a cosmetic. Repelling the contention, the Apex Court held that the word 'subsidiary' in the said note from which it follows that a subsidiary curative or prophylactic property or use will not convert a cosmetic into medicament. The subsidiary result is improvement in appearance. Once the products which fall under the relevant head are primarily beauty or make up preparations, they may incidentally help in protection against skin irritants. They may also help as a skin tonic, yet they are cosmetics because skin protection is a subsidiary benefit. 15. Now coming to Rule 23 of Rules of Interpretation and the Entry 36 of the 3rd schedule in no way help to advance the arguments that the products in question do not fall under Entry 36. Relevant rule only says that Entry 36 does not include food or beverages such as diabetic or fortified foods, food supplements, tonic beverages, aqueous distillates or aqueous solutions of essential oils suitable for medicinal use, soaps or other products containing added medicaments, and blood albumin not prepared for therapeutic or prophylactic uses. Once it is held that Vicks tablets and Balms are Ayurvedic preparations and therefore fall under Entry 36 for the reasons which have already stated above, Rule 23 of the Rules of Interpretation in no way will water down the said conclusion, nor could it be said as contrary to what has been stated earlier. OTA No. 12 of 2008 13 16. Rules of Interpretation, more in the nature of clarification of the product referred to in Rule 23 or the use are totally different as far as products in question are concerned. We do not find that Rule 23 of the aforesaid Rules of Interpretation appended to the statute will in any way tarnish these items against classification under Entry 36 of the 3rd schedule. More so, none of the reasons as stated in the Annexure A order will show that the products in question are classifiable otherwise than under Entry 36 of the 3rd schedule of the Kerala Value Added Tax Act. Accordingly, the order in Annexure A of the Commissioner of Commercial Taxes, Thiruvananthapuram in so far as the goods in question are concerned is set aside and we declare that the products namely Vicks, Vicks Vaporub and tablets are classifiable under Entry 36 of the 3rd schedule, attracting only 4% rate of tax. The Appeal is allowed. No cost. P.R. RAMAN, JUDGE P. R. RAMACHANDRA MENON, JUDGE dnc