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Rajasthan High Court · body

2017 DIGILAW 164 (RAJ)

Johnson and Johnson Ltd. v. CTO Anti-Evasion

2017-01-13

J.K.RANKA

body2017
JUDGMENT : J.K. Ranka, J. 1. The petitions are admitted on the following questions of law : Petitions filed by assessee "(i) Whether, in the facts and circumstances of the case, the learned Tax Board was justified in holding that "Shower to Shower", "Listerine Mouthwash" & "Listerine Cool Mint Mouthwash" are not taxable as per the Entry 43 of "Drugs and Medicines" appearing in Schedule-IV of the RVAT Act and are taxable in residuary entry at the rate of 12.5% as per Schedule-V of the RVAT Act?" Petitions filed by Revenue "(ii) Whether in the facts and circumstances of the case the learned Tax Board was justified in law in holding that the product of respondent "Savlon" falls within the ambit of drug and medicine despite of the fact that the assessing authority as well as appellate authority have categorically held same to be falling in residuary entry liable to be taxed at higher rate. (iii) Whether in the facts and circumstances of the case the learned Tax Board was justified in law and has not acted illegally and perversely deleting the penalty u/s. 61 of the Act despite of the fact that the tax at the lesser rate was deposited contrary to the applicable rate of tax on the goods sold by the respondent assessee." 2. Heard learned counsel for the parties finally. 3. Since all these petitions involve common questions, with the consent of parties all the petitions are being decided by this common order. It relates to assessment years 2006-07 to 2009-10. 4. Brief facts noticed are that the petitioner is a Limited Company and is carrying on business of manufacture/production of cosmetics, toilet articles and medicinal goods. It is the case of petitioner that insofar as products which carry medicinal properties, are manufactured under a license issued under the Drugs & Cosmetics Act, 1940, and the issue raised in the present petitions is about three products, namely "Shower to Shower", "Listerine Mouthwash, Listerine Cool Mint Mouthwash", and one product "Savlon". While the assessee has challenged applicability of rate on two products "Shower to Shower", and "Listerine Mouthwash", as above, however, the Revenue has preferred cross appeals where the Tax Board held insofar as "Savlon", is concerned that it is a drug and the Revenue has also challenged deletion of penalty u/s. 61. 5. While the assessee has challenged applicability of rate on two products "Shower to Shower", and "Listerine Mouthwash", as above, however, the Revenue has preferred cross appeals where the Tax Board held insofar as "Savlon", is concerned that it is a drug and the Revenue has also challenged deletion of penalty u/s. 61. 5. The Assessing Officer, during a survey, taking into consideration the products after analysing the medicinal value and in particular test of common parlance, held that the three products named above, cannot be said to fall as drugs and a residuary rate is applicable and accordingly charged differential rate and held that the rate of 12.5% being the general rate or residuary rate, is required to be applied, accordingly charged differential rate on the sales recorded. The AO also levied interest u/s. 55 and also imposed penalty u/s. 61 of the Act holding that the assessee concealed the particulars and furnished inaccurate particulars by paying a lower rate of tax. 6. The matter was assailed before the Dy. Commissioner (Appeals), who was also not satisfied with the contention raised by assessee and upheld the order of AO. On a further appeal, the Tax Board, taking into consideration the material placed on record, insofar as the product "Savlon" is concerned, held that it has medicinal value as held in the case of Reckitt & Benckiser (India) Ltd. (2011) 31 Tax Update 37, which was producing "Dettol" and the same ingredients/composition being there, held that rate of 4% or 5% is applicable as against residuary rate of 12.5%. However, insofar as the two other products, namely "Shower to Shower" and "Listerine Mouthwash" are concerned, the Tax Board was also not satisfied with the contention of assessee and upheld the orders of the AO as well as DC(A). 7. The Tax Board also held that the penalty is not imposable u/s. 61 and accordingly deleted the penalty, however, insofar as interest is concerned, upheld the same. 8. Learned counsel for the petitioner contended that all the three items under challenge whether by the assessee or by the Revenue, has medicinal value and they are not ordinary products as held by the lower authorities. 8. Learned counsel for the petitioner contended that all the three items under challenge whether by the assessee or by the Revenue, has medicinal value and they are not ordinary products as held by the lower authorities. Learned counsel contended that the license granted by the competent authority brings out clearly that in the product "shower to shower prickly heat powder" it contain "salicylic acid", "jasad bhasma", "tankanamla", "starch & its derivatives", "perfume AL 5729", "dugdhapashana", and other ingredients which prove that these are special products for specific purposes. Learned counsel contended that a similar product by the name Nycil having the same ingredients has been considered to be a medicine/drug in the case of B. Shah & Co. Vs. State of Gujarat, [1971] 28 STC 5, and when the same ingredients or contents are available in the said product as that of Nycil, the claim of assessee is well justified and reasoned. 9. Learned counsel also contended that the product manufactured by the assessee of "Listerine Mouthwash" as also "Cool Mint Listerine Mouthwash" contains "Thymol IP", "Eucalyptol PCs", "Menthol IP", and other ingredients and all these are used for specialised purpose and are used as a medicine and not in ordinary sense. Learned counsel also contended that "vicks" which also contains ethanol as in "Listerine" has been held to be a drug. Even "Vicco Vajradanti" and "Lal Tel" have been held to be drug/medicine by the various courts. Learned counsel also contended that the authorities below are not technical persons to judge as to whether they have some medicinal value or not, rather when the drug authorities have held them to be of medicinal value as a drug/medicine, the claim deserves to be allowed. 10. Learned counsel for the petitioner contended that the finding reached insofar as "Savlon" is concerned, the Tax Board has rightly held it to be a drug and taken into consideration the antiseptic value which it has to protect against germs in cuts, abrasions, minor burns and other infective skin conditions and the same is just like "Dettol", and supported the order of Tax Board in this regard. 11. Learned counsel also relied on Naturalle Health Products (P) Ltd. Vs. Collector of Central Excise, Hyderabad, (2004) 9 SCC 136 , Commissioner of Central Excise, Calcutta Vs. Sharma Chemical Works, (2003) 5 SCC 60 , Puma Ayurvedic Herbal (P) Ltd. Vs. 11. Learned counsel also relied on Naturalle Health Products (P) Ltd. Vs. Collector of Central Excise, Hyderabad, (2004) 9 SCC 136 , Commissioner of Central Excise, Calcutta Vs. Sharma Chemical Works, (2003) 5 SCC 60 , Puma Ayurvedic Herbal (P) Ltd. Vs. Commissioner, Central Excise, Nagpur, (2006) 3 SCC 266 , Dabur India Limited Vs. Commissioner of Central Excise, Jamshedpur, (2005) 4 SCC 9 , Ponds India Ltd. (Merged with H.L. Ltd.) Vs. Commissioner of Trade Tax, Lucknow, (2008) 8 SCC 369 , Union of India & Anr Vs. Vicco Laboratories, (2007) 13 SCC 270 , Commissioner of Central Excise, Nagpur Vs. Vicco Laboratories, 2005 (179) E.L.T. 17 (S.C.), ICPA Health Products (P) Ltd. Vs. Commissioner of Central Excise, Vadodara, (2004) 4 SCC 481 , Commissioner of Central Excise Vs. Hindustan Lever Ltd., (2015) 10 SCC 742 , Commissioner of Central Excise, Mumbai IV Vs. Ciens Laboratories, Mumbai, (2013) 14 SCC 133 , Commissioner of Central Excise, Delhi Vs. Ishaan Research Lab (P) Ltd. & Ors., (2008) 13 SCC 349 , Muller and Phipps (India) Ltd. Vs. The Collector of Central Excise, Bombay-I, (2004) 4 SCC 787 , B. Shah & Co., Surat Vs. State of Gujarat, [1971] 28 STC 5, Union of India Vs. G.D. Pharmaceuticals Ltd., 1998 (100) ELT 24 (Cal.), State of Orissa Vs. Reckitt & Colman of India Ltd. [1995] 97 STC 279, Assistant Commissioner, Anti Evasion Vs. Camlin Limited & Ors., 2015 (4) RLW 3130 (Raj.), Assistant Commissioner, Commercial Taxes Department Vs. Khandelwal Drug Agencies [STR 151/2005, decided on 25.11.2016 (Raj)]. 12. Learned counsel also contended that the penalty was rightly deleted by the Tax Board and there is no case made out of imposition of penalty as all facts were available before the AO and insofar as classification is concerned, penalty u/s. 61 is not leviable or imposable and relied upon the judgments of Sree Krishna Electricals Vs. State of Tamil Nadu & Another, (2009) 11 SCC 687 , of the Apex court so also judgment of this court in the case of CTO Vs. Bambino Agro Industries Ltd. [STR 59/2010, decided on 29.9.2015]. 13. Per contra, learned counsel for the respondent vehemently contended that a minor percentage of acid or ethanol contained in the product cannot be said to be a drug or a medicine. Bambino Agro Industries Ltd. [STR 59/2010, decided on 29.9.2015]. 13. Per contra, learned counsel for the respondent vehemently contended that a minor percentage of acid or ethanol contained in the product cannot be said to be a drug or a medicine. Learned counsel contended that the lower authorities have insofar as "Shower to Shower" and "Listerine" has in unison come to the conclusion that they contain no medicinal value or drugs and even are freely available in general stores, whereas, if they can be said to be drug/medicines, they can only be sold by a licensed trader or under the prescription of a medical Doctor. Learned counsel contended that these products can be merely termed as cosmetics and nothing more. Learned counsel also contended that even applying the test of common parlance it does not show or prove that these are to be considered as medicines or drugs. Learned counsel contended that even Savlon is not a drug and both the AO as well as DC(A) have rightly held that these are not drugs and the findings reached by the Tax Board is required to be reversed as claimed in the petition preferred by the Revenue. 14. Learned counsel for the respondent also contended that all the cases relied upon by the learned counsel for the petitioner are under Excise Act and reliance cannot be placed on the findings reached under Excise Act as they are entirely different provisions. Learned counsel also contended that various courts have held that even if some ingredients of medicinal value or use are there, it cannot be said to be a medicine and even the common parlance test does not justify that these products can be said to be drugs/medicines. 15. Learned counsel also justified imposition of penalty u/s. 61 as it is a clear cut case of evasion of tax and on the material found during the course of survey it can clearly and safely be said that the assessee is paying tax at lower rate, and contended that the penalty was rightly imposed by the AO and upheld by the DC(A) and wrongly deleted by Tax Board, which is required to be upheld. 16. I have considered the arguments advanced by the learned counsel for the parties and have perused the material on record and have gone through the judgments. 17. 16. I have considered the arguments advanced by the learned counsel for the parties and have perused the material on record and have gone through the judgments. 17. In my view the findings reached by the Tax Board is just and proper and is not required to be interfered with as the Tax Board has gone into the issue elaborately after taking into consideration the ingredients in all the three items. Insofar as "Shower to Shower" and "Listerine Mouth Wash" are concerned, in my view these two products can be used by any person irrespective of prescribing by a medical doctor for one to feel fresh and to avoid/remove body odour or to remove bad smell in body/mouth, and in my view these are products which are freely available in the market and merely because there may be some percentage of acid or ethanol or similar ingredients, it cannot be said that they can be said to be like a medicine or even can be said to be a medicine or a drug. The Apex court has time and again held that in the matters of classification, or products like this, common parlance test can be applied and in my view even by applying common parlance test, these two products, namely "Shower to Shower" and "Listerine Mouth Wash" cannot be said to be drugs or medicine. "Shower to Shower" is just like a cosmetic, may be it has some medicinal value, similar is "Listerine Mouth Wash" and by both these products one may merely feel good or fresh but these products certainly cannot be said to be medicines or remotely even drugs and these two products cannot improve any ailment, sufferance, disease of body/mouth. 18. In my view, though under Central Excise, courts may have come to a conclusion that similar products are drugs or medicines but insofar as Sales Tax laws or VAT provisions are concerned, prima facie, they have to be independently decided on the basis of entries prescribed in the Schedule to charge certain rates as prescribed in Sales Tax/VAT laws. Taking aforesaid reasoning in my view these two products, are nothing more than cosmetics and even every cosmetic which is used to remove the body smell or odour will certainly contain some medicinal properties like acid etc. Taking aforesaid reasoning in my view these two products, are nothing more than cosmetics and even every cosmetic which is used to remove the body smell or odour will certainly contain some medicinal properties like acid etc. and even if the licensing authorities may grant permission to the producers/manufacturers as drug but they cannot be treated as a drug or medicine when specific entries under the Sales Tax laws are required to be looked into and considered. A minor percentage of acid/ethanol which may be available in almost all cosmetics as well, cannot justify the claim as raised by assessee that they have to be classified as drugs/medicine. 19. Accordingly, in my view insofar as "Shower to Shower" and "Listerine Mouth Wash" are concerned, the finding reached by all the three authorities in unison is not required to be interfered with and the claim of the petitioner is required to be rejected and accordingly the petitions insofar as the assessee is concerned, is required to be dismissed. 20. Insofar as the issue raised by the Revenue about "Savlon" is concerned, I do agree with the finding reached by the Tax Board that it is entirely a different product and it has medicinal value for it is used when there is some cut or injury on the skin and the same is used as an antiseptic. A product which is used mainly for curing or treating ailments or diseases and contains curative ingredients, is required to be branded as a medicament. 20.1 The Apex court in the case of Commissioner of Central Excise Vs. Sharma Chemical Works (supra), which was related to "Banphool Oil", after taking into consideration the tests laid down, held that the 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. Generally the percentage of dosage of the medicament will be such as can be absorbed by the human body. The main criteria for determining classification is normally the use it is put to by the customers who use it, and taking into consideration the usage of "Banphool Oil" the court held that the oil can be used for treatment of headache, eye problem, night blindness, reeling, head weak memory, hysteria, amnesia, blood pressure, insomnia etc. The main criteria for determining classification is normally the use it is put to by the customers who use it, and taking into consideration the usage of "Banphool Oil" the court held that the oil can be used for treatment of headache, eye problem, night blindness, reeling, head weak memory, hysteria, amnesia, blood pressure, insomnia etc. and the product was registered with the Drug Controller and is being manufactured under a drug license. 20.2 Another company Reckitt Benckiser (India) Ltd. which is manufacturing "Dettol" having same ingredients as that in "Savlon", the Kerala High Court in Reckitt Benckiser (India) Ltd. Vs. State of Kerala [Cr. M.C. Nos. 4997 of 2010 and 541 of 2011] vide judgment and order dt 24.3.2011, though deciding a matter relating to Criminal Misc. Case, had extensively taken into consideration the antiseptic value and has considered medical dictionary, and observed as under :- "'Disinfection' is defined as "the process of killing pathogenic organisms or of rendering them inert". The above descriptions persuades me to hold that the function of a 'Disinfectant' which is a chemical or mixture of chemicals of appropriate percentage is destruction or making inert micro organisms particularly on inanimate objects. But that does not mean that a Disinfectant could be used only on inanimate objects and the moment it could be used on animate objects also, it ceases to be a 'Disinfectant' and became an 'Antiseptic'. Its use on animate objects is only external with the same purpose -destruction or making inert micro organisms..... It includes sterilisation of instruments and general disinfection of wards and theatre, hands, face, masks, soiled hospital linen, etc (i.e., on inanimate objects). It can also be used for bathing and irrigation of abscesses and boils, not to say about its use to prevent dandruff. 'Dettol' can be used for bathing as well. It is stated (on the label) that a little Dettol added to bath water is pleasant, refreshing and deodorising. A deodorant is a substance that destroys or masks odors (smell). The mere fact that 'Dettol' can also be used for pre-operative preparation of patient's skin or as antisepsis in obstetrics and midwifery, on cuts and wounds (also bites, scratches and insect sting), all externally, and all for the purpose of destruction or making inert micro organisms in my view does not make 'Dettol' anything other than a 'Disinfectant'. .... The mere fact that 'Dettol' can also be used for pre-operative preparation of patient's skin or as antisepsis in obstetrics and midwifery, on cuts and wounds (also bites, scratches and insect sting), all externally, and all for the purpose of destruction or making inert micro organisms in my view does not make 'Dettol' anything other than a 'Disinfectant'. .... Dettol is a 'Disinfectant' used to treat inanimate objects and materials though it may also be applied to agents used to treat the skin and other body membranes and cavities (externally). Dettol contains some chemicals which are antiseptic but does not loose its character as a Disinfectant for the said reason or that it can be used to treat skin and other body membranes and cavities..." 20.3 The Apex court in the case of IPCA Health Products & Pvt. Ltd. Vs. CCE (supra) was considering a case of Hexiperp, Hexiscrub (Surgiscrub) and Hexiaque, which also contain Chloral Hex dine Gluconate Solution BP, which is also available in "Savlon" and held it to be a medicine. 20.4 Taking into consideration the aforesaid, the finding reached by the Tax Board, in my view, is just and proper and is not required to be interfered with. 21. Insofar as the penalty is concerned, which has been raised by the Revenue, in my view the finding reached by the Tax Board is just and proper and is not required to be interfered with. Admittedly, it is a case where an issue of classification of entries is there and the issue becomes debatable once the assessee claims that it is a drug/medicine and Revenue may dispute to be falling in the general category or as a cosmetic but at-least penalty cannot be levied in such a case. Though it is a case of survey and some material was gathered by the AO during the course of survey but that by itself does not mean that the assessee has concealed the particulars so as to be visited with penalty u/s. 61. Admittedly, also the AO has disturbed only as to what proper rate should be there and has not disturbed or tinkered or found any sale to be unrecorded even after conducting survey, and it is also a finding of fact that all the relevant entries have been found to be recorded in the books of account. Admittedly, also the AO has disturbed only as to what proper rate should be there and has not disturbed or tinkered or found any sale to be unrecorded even after conducting survey, and it is also a finding of fact that all the relevant entries have been found to be recorded in the books of account. The Apex court as well as this court have in identical cases held that when there is an issue of classification and issue being debatable, the penalty is not leviable/imposable/sustainable. The judgment in the case of Sree Krishna Electricals Vs. State of Tamil Nadu & Another, (2009) 11 SCC 687 , of the Apex court so also judgment of this court in the case of CTO Vs. Bambino Agro Industries Ltd., [2016] 90 VST 22 (Raj) are sufficient to refer for non imposition of penalty. It would be appropriate to quote the relevant para of the judgment in Sree Krishna Electricals (supra) :- "7. So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's accounts books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities includes these items in the dealers' turnover disallowing the exemption penalty cannot be imposed. The penalty levied stands set aside." This court in the case of CTO Vs. Bambino Agro Industries (supra) observed as under :- "Though it is claimed on the part of the assessee that it was paying tax in accordance with the rate where the registered office of the limited company is situated, i.e., Andhra Pradesh but certainly it was the duty of the assessee to have known the exact rate of tax being applicable in the State of Rajasthan when admittedly the case falls under the Rajasthan Value Added Tax Act, 2003. Nevertheless, in my view, it is not a case where the Revenue claims that the assessee did not pay any tax or concealed the particulars of sales, rather there could be a bona fide error about classification of entry as to in which entry the goods do fall. Nevertheless, in my view, it is not a case where the Revenue claims that the assessee did not pay any tax or concealed the particulars of sales, rather there could be a bona fide error about classification of entry as to in which entry the goods do fall. In my view, merely because the rate of 12.5% may have been applicable on the items which were being manufactured/sold by the assessee and the assessee having shown 4%, in my view, at least penalty u/s. 61 may not be leviable in the instant case and on the facts noticed." 22. In view of the observations made hereinbefore, the questions raised by the assessee are answered in favour of the Revenue and against the assessee, and the questions raised by the Revenue are answered in favour of the assessee and against the Revenue. Resultantly, all the petitions, both of the assessee as well as by the Revenue, stand dismissed with no order as to costs.