IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER MONDAY, THE 29TH SEPTEMBER 2008 / 7TH ASWINA 1930 ST.Rev..No. 164 of 2007 ------------------------------- TA.311/2006 of S.T.A.T.ADDL.BENCH,ERNAKULAM .................... PETITIONER/APPELLANT/ASSESSEE : ------------------- M/S.HEINZ INDIA LTD. COCHIN BY ADV. SRI. PRASAD, SRI.A.KUMAR RESPONDENT/RESPONDENT/REVENUE: --------------------- STATE OF KERALA, REPRESENTED BY SECRETARY MINISTRY OF FINANCE. BY SR. GOVERNMENT PLEADER SRI. MOHAMMED RAFIQ THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 03/09/2008 ALONG WITH STRV.No.172/2008, THE COURT ON 29/09/2008 PASSED THE FOLLOWING: H.L. DATTU, C.J. & A.K. BASHEER, J. ------------------------------------- S.T.Rev. Nos.164 of 2007 and 172 of 2008 ------------------------------------ Dated this, the 29th day of September, 2008 ORDER H.L. DATTU, C.J. Since the facts and the legal issues are common in these two revision petitions, they are clubbed, heard and disposed of by this common order. 2. The petitioner is a dealer registered both under Kerala General Sales Tax Act and Central Sales Tax Act. The petitioner is engaged in the manufacture of 'Nycil Prickly Heat Powder'. According to the petitioner, the said product is manufactured under a Drug Licence issued under the provisions of the Drugs and Cosmetics Act. The product is also covered by the Drugs (Price Control) Order, 1970 and price of the product is regulated, approved and is capable of being fixed by the government and the product is stored under a Drug licence. The petitioner further states, that, the key factor which distinguishes the product, “Nycil Prickly Heat Powder” from Talcum Powder is the constituent Chlorphenesin I.P., base zinc oxide I.P., Starch I.P., and Talcum Purified I.P.. The content of Chlorphenesin is maintained at 1%, since this was established as the optimum concentration effective against fungal infection. The other ingredients like zinc oxide, starch and talc are used as ST.Rev.Nos.164/07 & - 2 - 172/08 a base for dispersing Medicament Chlorphenesin. Chlorphenesin is the local anti fungal agent and used in tropical preparations for the treatment of beautification and smoothening the human skin. In fact, the presence of starch in the preparation makes the powder coarse and rough in texture for the purpose of effective adherence to the skin affected by indications like prickly heat, sores, dhobi itch, athlete foot etc. 4. These cases relate to the assessment years 1999-2000 and 2002-2001. For the assessment year 1999-2000, the assessee had filed its annual return and in that had conceded the tax payable on the taxable turnover at 8%, treating the sale of Nycil Prickly Heat Powder as an item falling under Entry 79 of the First Schedule to KGST Act. The assessing authority had completed the assessment by accepting the returns filed, by its order dated 18.11.2005. 5. The Deputy Commissioner, being of the view, that the order of assessment passed by the assessing authority is prejudicial to the interest of the revenue had initiated the proceedings under Section 35 of the Act, proposing to set aside the assessment of the assessing authority on the premise that levy of tax at 8% on 'Prickly Heat Powder' by treating the same as medicine by the assessing authority is prejudicial to the interest of the Revenue and the rate of tax at 20% has to be applied as applicable to ST.Rev.Nos.164/07 & - 3 - 172/08 “Medicated Talcum Powder”. Though this was objected to by the assessee, the Deputy Commissioner by his order dated 16.2.2006 has set aside the assessment order for the assessment year 1999-2000 and has remanded the matter to the assessing authority to pass fresh assessment order by levying tax at 20%. 6. The assessee had carried the mater before the Appellate Tribunal, being aggrieved by the order passed by the revisional authority dated 18.2.2006. The Tribunal by its order dated 14.11.2006 has rejected the appeal and thereby has confirmed the order passed by the revisional authority. We will refer to the reasons and conclusions reached by the Tribunal while discussing the legal issue canvassed by the assessee's learned counsel. 7. The correctness or otherwise of the order passed by the Tribunal is called in question by the assessee in S.T.Rev. Case No.164 of 2007. 8. For the assessment year 2000-2001, the assessing authority has completed the assessment proceedings by treating the product in question as “Medicated Talcum Powder” and has levied tax at 20% as an item falling under Entry 127 of First Schedule to KGST Act. The assessment order so passed is confirmed both by the first appellate authority ST.Rev.Nos.164/07 & - 4 - 172/08 and the Appellate Tribunal. It is the correctness or otherwise of this order, is called in question by the assessee, in S.T.Rev. Case No.172 of 2008. 9. The assessee has raised identical questions of law in both these revision petitions for our consideration and consequent decision. They are:- “a. Whether the Tribunal failed to see that Sl.No.127 of the Schedule to the KGST Act should be read as whole cosmetics? b. Whether the Tribunal committed an error in law in misconstruing Sl.No.127 by failing to note that the said entry applied only if the goods in question were essentially cosmetics? c. Whether the Tribunal applied the incorrect test of placing emphasis on the percentage of chlorophenesin while failing to take note that the relevant test to be applied was whether an ingredient was an active ingredient? d. Whether the Tribunal brushed aside relevant evidence by merely observing that it was “difficult to see” how Nycil was a medicine when in fact there was abundant material to prove the same? e. Whether the Tribunal committed a grave error of law in failing to note that the burden of proof in matters involving classification was on the revenue and the revenue not having laid any evidence, the appellants had ST.Rev.Nos.164/07 & - 5 - 172/08 to succeed on the principles laid down by the Hon'ble Supreme Court reported in (1997) 2 SCC 677 in the case of Hindustan Ferodo vs. Collector of Central Excise, Bombay? f. Whether the Tribunal committed an error of law while referring to Sl.NO.127 as a specific entry? g. Whether the Tribunal committed an error of law in placing emphasis on the form in which the product was delivered? h. Whether the Tribunal committed an error of law by deciding against the petitioner by observing that Nycil fell within Sl. No.127 since Nycil could also be used as a cosmetic? i. Whether the Tribunal committed an error of law by failing to note that the Hon'ble Supreme Court in its judgment in Goodyear India Ltd. vs. Union of India reported in AIR 1997 SC 2038 applied the test of whether an ingredient was an active ingredient while refusing to go by the percentage of the ingredient? j. Whether the Tribunal committed an error of law by merely observing that the orders of the Hon'ble Delhi High Court and the Hon'ble Supreme Court in matter of classification of Nycil Prickly Heat Powder were irrelevant since they pertained to classification under Central Excise Tariff Act, 1985? k. Whether the Tribunal committed an error of law in failing to note that the Central Excise adjudication was ST.Rev.Nos.164/07 & - 6 - 172/08 to be given full faith and credit as a public act under Article 261 of the Constitution of India and was not be brushed aside? l. Whether the Tribunal committed an error of law by failing to note the judgments of the Hon'ble Supreme Court of India in Puma Ayurvedic Herbal (P) Ltd. vs. Commissioner, Central Excise, Nagpur, (2006) 145 STC 200 and Muller Phipps (India) Ltd. vs. The Collector of Central Excise, Bombay, (2004) 4 SCC 787 where prickly heat powder were held as medicaments?”. 10. The core issue that falls for our consideration and decision is, whether the Nycil Prickly Heat Powder manufactured by the petitioner is a medicine or drug coming under Entry 79 or Medicated Talcum Powder falling under Entry 127 of the First Schedule to KGST Act. 11. The controversy has to be decided with reference to entries in the Schedule to the Act. Therefore, they are extracted. 12. Entry 79 reads as under:- “Medicines and Drugs including allopathic, ayurvedic, homeopathic, sidha and unani preparations and glucose I.P.” 13. Entry 127 of the First Schedule to the Act reads as under:- ST.Rev.Nos.164/07 & - 7 - 172/08 “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”. 14. The answer to the question will turn on proper interpretation of Entry 79 and Entry 127 of First Schedule to KGST Act. 15. Entry 79 of the First Schedule speaks of Medicine and drugs including ayurvedic medicine etc. In the instant case, we are concerned only with medicine and drugs and not ayurvedic medicine. Therefore, we need to know only what is a medicine and drug? 16. The word “Medicine” is not statutorily defined and as such, the meaning given in common parlance has to be attributed to it. A medicine is a substance or preparation used in the treatment of diseases. The substance must have curative power so as to make it effective for treatment of ailments. A substance which has a curative power need not be used in the very form in which it naturally occurs. It will retain its character as a medicine even though some processing is required before it becomes fit for use by human beings or other living creatures. In Webster's Dictionary, 3rd Edn., medicine has been defined to mean, substance or preparation used in treating diseases; the science and art dealing with the maintenance of health and the prevention, alleviation or ST.Rev.Nos.164/07 & - 8 - 172/08 cure of disease; sometimes, the branch of this field concerned with the non-surgical treatment of disease distinguished from obstetrics and surgery. In Stedman's Medical Dictionary, the term medicine is defined to mean: a drug; (ii) the art of preventing or curing disease, the science that treats diseases in all its relations; (iii) the study and treatment of general diseases or those affecting the internal parts of the body distinguished from surgery. In Berry vs. Henderson (1870) 5 QB 296, it has been observed, the word medicine is comprehensive enough to include everything which is to be applied for the purpose of healing, whether externally or internally. In Rashra Deep Laboratory, Firozabad, [1983] 53 STC 419 (All), it was observed: “The concept of Medicine is not static. It is changing concept linked with the advancing human knowledge and its endeavour to alleviate human suffering. It is also changing with the change in social thinking of a community with a view to solve its problems. Thus viewed, the term 'medicine' cannot be confined within the traditional concept of an article, which, by itself, is enough to cure a human ailment”. 17. Now, what is a 'drug'? Even this expression is not statutorily defined. In common and commercial parlance, it is understood ST.Rev.Nos.164/07 & - 9 - 172/08 as a substance which is understood ordinarily as having a physiological action in a living body. But a substance which does not react physiologically at all is not a drug. Hence, even an ingredient in any pharmaceutical preparation which does not have any therapeutic effect on the human body at all, either beneficial or harmful, cannot be classified as a drug. 18. The assessee's contention is that the Nycil Powder is the trade name under which the manufacturer markets the substance known as 'Chlorphenesin'. The Nycil powder contains zinc oxide and boric acid and they form 32 per cent of the total contents of Nycil powder, and the rest of the material is starch and the talc. The Nycil Powder is designed to keep the skin clean so as to offer protection against prickly heat and infection besides giving comfort and freshness. Therefore, it would fall under entry 79 of first schedule to KGST Act. 19. As regards the nature, composition and property of Nycil Powder, we can do no better than to set out the composition noticed by the Gujarat High Court in the case of B.Shah and Companay vs. State of Gujarat, 28 STC 5. “Nycil Powder has the following features and attributes: (1) Chlorphenesin, being a medical substance was ST.Rev.Nos.164/07 & - 10 - 172/08 introduced as a result of original work in the British Drug House Research Laboratories. “Nycil” is the trade name under which the British Drug House product of chlorphenesin is manufactured and marketed. (2) Chlorphenesin is a potent antifungal, antibacterial and trichomonicidal substance of low toxicity. Organisms against which it is effective include the common dermatophytes causing tinea pedis (Athelet's foot) and other dematomycoses, epidermophyton, floccosum and the various trichophyton species such bacteria as streptococci, staphyloccocci, coliform organisms and clostridii. Nycil is effective in eliminating pruritus ani and pruritus vulvae. Pruritus ani and pruritus vulvae are frequently of bacterial or fungal origins, or the lesions may become infected with bacterial or fungi, and Nycil is effective in eliminating such organisms. (3). Nycil in the form of powder or ointment is recommended for the treatment of prickly heat and dhobie itch and active skin protection during ringworms and other fungicidal infections. Nycil powder is particularly suitable for the initial treatment of acute mycotic infection as it absorbs in addition to exercising its fungicidal action. (4) The ingredients of Nycial powder are as under: (i) Chlorphenesin B.P. 1% (ii) Zinc Oxide I.P. 16% (iii) Boric Acid 16% (iv) Starch I.P. 51% (v) Talc 100% ST.Rev.Nos.164/07 & - 11 - 172/08 The above composition of Nycil powder shows that it contains medicinal articles to the extent of 33 per cent. (5). On the sample bottle of Nycil powder, produced before the lower authorities, on its one side the following was found printed: “nycil for Prickly Head and Active Skin Protection”. On the other side, the following was found to have been printed: “Nycil contains chlorphenesin the antibacterial and antifungal agent. It actively prevents prickly heat and protects the skin from sores, dhobie itch, and athlete's foot.” The formula of Nycil powder is also printed on the container. The Tribunal has made the following pertinent observations as regards the container of the Nycil powder: “It will be noticed that the article is not called medicated or talcum powder or powder. No name is given except 'Nycil' which as stated above is only a trade name of the different products manufactured by British Drug House. The article manufactured is packed in a long and round container of plastic. It has a separate cover of plastic. The contents are also covered by a small plastic cover which contains spaces for making holes. The powder is white in colour and perfumed and in general appearance is not different from the white talcum or such other powders.” (6) The medical substances used as ingredients in the manufacture of Nycil powder are Indian Pharmaceutical or British Pharmaceutical articles for the use of which licence is necessary. Licence is also necessary under the Indian Drugs ST.Rev.Nos.164/07 & - 12 - 172/08 Control Act for manufacturing, stocking or selling Nycil powder and the licence has accordingly been issued. The Government of India, Ministry of Finance, has held and directed that Nycil powder should be assessed to duty as “P. and P.Medicines” under item No.14E of the Central Excise Tariff .”. 20. The Revenue's contention appears to be that 'Nycil Prickly Heat Powder' is Medicated Talcum Powder and since there is separate entry for the Medicated Talcum Powder, the same requires to be classified under Entry 127 of the First Schedule to KGST Act. 21. Entry 127 of the First Schedule, apart from others speaks of Talcum Powder including Medicated Talcum Powder. The word 'includes' is to indicate that the particular so defined by the use of the word 'includes' not only continues to have its ordinary meaning, its natural import, but it also includes within its ambit all those things which the definition says that it shall include. The Supreme Court in the case of Income Tax Officer, Andhra Pradesh vs. Taj Mahal Hotel, (1971) 3 SCC 550 has held, that, the word “includes” is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the Statute, and when it is used, the words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also those things ST.Rev.Nos.164/07 & - 13 - 172/08 which the interpretation clause declares that they shall include. 22. The Apex Court in Godfrey Phillips India Ltd. vs. State of U.P. [2005] 139 STC 537 has stated, the word “including” must be given some meaning. In ordinary parlance it indicates that what follows the word “including” comprises or is contained in or is part of the whole of the word preceding. The nature of the included items would not only partake of the character of the whole, but may be construed as clarificatory of the whole. The effect of inclusive definition is explained by Apex Court in Hamdard (Wakf) Laboratories vs. Deputy Commissioner (2007) 5 SCC 281, wherein the court has observed that when an interpretation clause uses the word 'includes' it is prima facie extensive. 23. An extensive definition by using the word 'includes' extends the normal and natural meaning of the word by including within its scope what would otherwise be not comprehended within it. The things so included by extending the definition are however not by way of illustrations. When a definition is an extensive one, all that it amounts is that the word carries in addition to its ordinary meaning, the extended meaning given to it by the statute. Such extended meaning cannot be further extended by saying that the extended part of the definition is merely illustrative. The following passage from Maxwell on the Interpretation of ST.Rev.Nos.164/07 & - 14 - 172/08 Statutes, 12th edn. p.270, may usefully be reproduced as setting out the principle of interpretation recognised by courts” “Sometimes it is provided that a word shall 'mean' what the definition section says it shall mean: in this case the word is restricted to the scope indicated in the definition section. Sometimes however the word “include” is used in order to enlarge the meaning of the words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending , not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. In other words, the word in respect of which “includes” is used, bears both its extended statutory meaning and its ordinary, popular and natural sense whenever that would be properly applicable”. 24. The following passage in G.P. Singh's Principles of Statutory Interpretation, 2nd edn. p.108, highlights as to how an inclusive definition is to be construed:- “The definition of a word in the definition section may either be restrictive of its ordinary meaning or it may be extensive of the same. when a word is defined to 'mean' such and such, the definition is prima facie restrictive and exhaustive, whereas when the word defined is declared to 'include' such and such, the definition is prima facie ST.Rev.Nos.164/07 & - 15 - 172/08 extensive. When by an amending Act, the word 'includes' was substituted for the word 'means' in a definition section, it was held that the intention was to make it more extensive. Further a definition may be in the form of 'means and includes' where again the definition is exhaustive; on the other hand, if a word is defined 'to apply to and include', the definition is understood as extensive. 25. Again on the same subject, Bindras Interpretation of Statutes, 6th edn. states: “It is a well known rule of interpretation that the word 'include' is used as a word of enlargement and ordinarily implies that something else has been given beyond the general language which precedes it: to add to the general clause a species which does not naturally belong to it.” 26. The learned counsel for the petitioner Sri.Prasad submits that the petitioner has been granted a licence to manufacture 'Nycil Prickly Heat Powder' by the drug controller as a Medicine; the definition of 'drug' and 'cosmetic' is given in the Drugs and Cosmetics Act, 1940; the said commodities are used either for cure or prevention of diseases. The learned counsel would also submit, that, the composition of the powder is also relevant to decide the issue whether the product in question is a medicine or mere powder. It was also pointed out that, both under Indian ST.Rev.Nos.164/07 & - 16 - 172/08 Pharmacopoeia and British Pharmacopoeia, the chlorphenesin is present in the talcum powder, it should be treated as medicine. The learned counsel would further submit that a 'drug' includes all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects. The learned counsel would further contend that the product is covered by the Drugs (Price Control) Order, 1970 and the product can be manufactured only under a drug licence and the price of the product is regulated and capable of being fixed by the Government of India. It is further contended that perusal of the sales chart of the commodity with reference to the turnover for a year will indicate the high volume of sale during summer season and virtually negligible during other seasons, and that only indicates the usage of the product for prickly heat or skin ailments commonly found large in summer season. The learned counsel would further contend even in common parlance 'Nycil' is known as drug to mitigate the prickly heat and itching etc. and it is not like an ordinary talcum powder. It is further contended that the product 'Nycil' is not a talcum powder and hence it cannot be considered as a medicated talcum powder. It is further submitted ST.Rev.Nos.164/07 & - 17 - 172/08 even the Central Excise Department is treating Nycil as Medicine. The learned counsel would also contend that the intention of the legislature in including Medicated talcum powder in Entry 127 of First Schedule is to classify talcum powders which are having medicinal effect. Such item is commercially identified as a talcum powder and used as a face powder or body powder for beautification. Nycil is not a talcum powder used for beautification. Lastly, it is contended that the Hon'ble Supreme Court in several decisions has held that Nycil Powder is a medicine. 27. The learned counsel for the revenue would submit that, it is well established that in interpreting entries in a taxing statute, where the primary object is to raise revenue and for that purpose, various products are differently classified, the entries are not to be understood in its scientific and technical meaning. The terms and the expressions used in the Schedules have to be understood by their popular meaning, that is the meaning attached to them by those using the product. The chemical ingredients of the product are not decisive on the question of classification of the product for levy of sales tax. 28. The learned counsel for the revenue would further submit, that, the law is well settled, that, if there are two entries - one general and the other special, the special entry should be applied for the purpose of levying tax and the general entry will give way to the special entry. In the ST.Rev.Nos.164/07 & - 18 - 172/08 present case, the legislature has included medicated talcum powder along with talcum powder. The entry when construed in its proper perspective, the talcum powder includes Medicated talcum powder and necessarily should fall under separate entry