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2020 DIGILAW 549 (KER)

State Of Kerala v. Cadbury India Ltd.

2020-06-30

K.VINOD CHANDRAN, T.R.RAVI

body2020
ORDER : K.Vinod Chandran, J. In the above revisions filed by the State we are concerned with three assessment years- 2007-08, 2009-10 and 2011-12. The issue agitated before the statutory authorities was as to whether the product of the respondent assessee called “Halls” is exigible to tax @ 4% under Schedule III or 12.5% under SRO 82/2006. The respondent- assessee before the Assessing Officer claimed that the product is an Ayurvedic medicament covered by HSN Code, which finds place as against the specific Entry under Schedule III making it exigible to reduced rate of tax @4%. The Assessing Authority however, found that by virtue of the amendments made in the year 2007, the product even if it is a medication stood excluded from Schedule III and included specifically in SRO 82/2006; exigible to tax @12.5%. 2. The Assessing Officer allegedly even against a clarification issued by the Commissioner under Section 94 of the Kerala Value Added Tax Act, 2003 (for brevity “KVAT Act”), assessed the product at the higher rate. The First Appellate Authority reversed the order on the ground of the clarification under Section 94 being in favour of the assessee's claim and also reading the Rules of Interpretation of Schedules in the Appendix to the KVAT Act. The Tribunal concurring with the First Appellate Authority found the product to be a commodity falling under Schedule III of the KVAT Act. 3. Following questions of law arise from the order of the Tribunal. 1. Is the finding of the Tribunal that the product “Halls” is a commodity falling under Entry 37(7)(e)(i) of the 3rd Schedule to the KVAT Act assessable to tax at 4%, correct and sustainable? 2. Is not the product “Halls” taxable at the rate of 12.5% during the relevant assessment year in view of the amendments made as per Kerala Finance Act 2007 in Entry 36 in Schedule III and issuance of SRO NO.119/2008? 3. Is the Clarification order No. C7- 40688/05/CT dated 16.01.2006 applicable after the period 01.04.2007 in the light of the amendment made as per Kerala Finance Act, 2007 to Entry 36 in ScheduleI III coupled with issuance of a notification including the product in SRO 82/2006? 4. 3. Is the Clarification order No. C7- 40688/05/CT dated 16.01.2006 applicable after the period 01.04.2007 in the light of the amendment made as per Kerala Finance Act, 2007 to Entry 36 in ScheduleI III coupled with issuance of a notification including the product in SRO 82/2006? 4. The learned Senior Government Pleader specifically took us through the amendments brought out in 2007 to Entry 36 of Schedule III by which, those goods notified under Clause (b) of Sub-section (1) of Section 6 (ie, SRO 82/2006) were specifically excluded. A corresponding amendment with effect from 01.04.2007 was made in SRO 82/2006 including confectioneries whether medicated or not within the said Entry. According to the learned Senior Government Pleader, the amendments made; comprehensively indicate that the product of the assessee falls under SRO 82/2006. It is also argued that even without the said amendments, the position would be the same. In Commissioner of Central Excise v. Uni Products India Ltd.[2020 SCC OnLine SC 429] it was held that the HSN Explanatory notes dealing with Interpretation of the Rules though having only a persuasive value, it provides compelling assistance insofar as resolving entry related disputes. The Explanatory Notes issued by the World Customs Organisation has been produced to point out that throat pastilles or cough drops are included under 30.04 only if the proportion of the substances having medicinal properties in each pastille or drops is such that they are, thereby, given therapeutic or prophylactic uses. It is pointed out that in fact, the subject product does not fall under HSN Code 3003.90.11 for reason of it being sold in packs on retail. If at all, it would only fall under 3004.90.11; which aspect does not have any relevance insofar as the adjudication on classification called for in the present revision. State also relies on the decision of this Court in O.T. Appeal No. 2/2018 (Talash Plastopacks v. State of Kerala judgment dated 30.08.2018). 5. Sri. Santhosh P Abraham, learned Counsel appearing for the respondent assessee specifically took us through the Rules of Interpretation to contend that when an entry is aligned with an HSN Code, the commodity should be given the same meaning as given in the Customs Tariff Act 1975. 5. Sri. Santhosh P Abraham, learned Counsel appearing for the respondent assessee specifically took us through the Rules of Interpretation to contend that when an entry is aligned with an HSN Code, the commodity should be given the same meaning as given in the Customs Tariff Act 1975. Section 6(1)(d)also is pointed out to argue that only goods which do not fall under clauses (a) or (c) of Section 6(1) can be levied tax at the higher rate by notifying a list of such goods. The learned Counsel took us through the Clarification issued by the Commissioner which affirms the stand of the assessee that the product can only be included in Schedule III, taxable at the reduced rate. The amendment, it is argued, is inconsequential insofar as a similar product having been held by this Court to be included under the III Schedule, even after the amendment as is seen from Proctor and Gamble Hygiene and Healthcare Limited v. Commissioner of Commercial Taxes.[ 2010 (3) KLT 326 ]. When a product is aligned with an HSN Code, the interpretation of items in the schedule has to be aligned to the HSN Codes and judgments based thereon as has been held in 2008 (15) VST 10 (SC) [Reckitt Benckiser (India) Ltd. v. Commissioner, Commercial Taxes]. It is asserted that the product of the assessee is a medicine and not a confectionery. Learned Counsel also relied on M/s.Cadbury India Ltd. vs. The Commissioner in Commercial Tax Revision No.06 of 2013 dated 20.02.2019 a decision of the Uttarakhand High Court. 6. Both sides produced before us literature of the assessee-Company which alternatively describes the product as a medication and a candy. We are however, not looking at such literature for the purpose of deciding the issue of classification as raised in the present revision. 7. We extract hereunder Entry 36 of Schedule III and Entry 24 of SRO No.82/2006: Schedule III -Entry 36: Drugs, Medicines and Bulk Drugs including Ayurvedic, Unani, and Homoeopathic medicine but excluding mosquito repellents and those specifically mentioned in First Schedule and those notified under clause (d) of sub-section (1) of Section 6. 7. 7. We extract hereunder Entry 36 of Schedule III and Entry 24 of SRO No.82/2006: Schedule III -Entry 36: Drugs, Medicines and Bulk Drugs including Ayurvedic, Unani, and Homoeopathic medicine but excluding mosquito repellents and those specifically mentioned in First Schedule and those notified under clause (d) of sub-section (1) of Section 6. 7. Medicaments (excluding goods of HSN headings Nos.3002, 3005 or 3006) consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale a. xxx b. xxx e. Other i. Medicaments of Ayurvedic system 3003.90.11 ii. Medicaments of Unani system 3003.90.12 iii. Medicaments of Siddha 3003.90.13 iv. Medicaments of Homoeopathic System 3003.90.14 v. Medicaments of Bio-Chemic System 3003.90.15 vi. Medicaments other than those given in sub-entries (i) to (iv) 3003.9 8. Medicaments (excluding goods of HSN heading nos.3002, 3005 of 3006) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of trasdermal administration systems) or in forms or packings for retail sale. a. xxx b. xxx h. Other i. Medicaments of Ayurvedic system 3004.90.11 ii. Medicaments of Unani system 3004.90.12 iii. Medicaments of Siddha 3004.90.13 iv. Medicaments of Homoeopathic System 3004.90.14 v. Medicaments of Bio-Chemic System 3004.90.15 vi. Medicaments other than those given in sub-entries (i) to (iv) 3004.9 SRO 82/2006 - Entry 24: Confectionery including toffee, chocolate and sweets of all kinds, ice- candy, ice-cake, ice-jelly, kulfi and frozen confectionery, frozen dessert, chewing gum, bubble gum and the like sold under brand name registered under the Trade marks Act, 1999 and similar products whether medicated or not. 1. xxx 2. xxx xxxx 5. Others 8. The underlined highlighted portion of the above extracts are the amendments brought out respectively by Kerala Finance Act, 2007 and SRO 119/2008 dated 24.01.2008; both of which were with effect from 01.04.2007. As on the commencement of the assessment year 2007-08 those goods included in SRO 82/2006 stood excluded from Entry 36 of Schedule III. There is a corresponding inclusion in SRO 82/2006, with SRO 119/2008 dated 24.01.2008 w.e.f 01.04.2007, by which residuary item 'Others' under Entry 24 was added without it being aligned with any specific HSN Code. Thus any product which has been specifically included under SRO 82/2006 stood excluded from Entry 36 of Schedule III. There is a corresponding inclusion in SRO 82/2006, with SRO 119/2008 dated 24.01.2008 w.e.f 01.04.2007, by which residuary item 'Others' under Entry 24 was added without it being aligned with any specific HSN Code. Thus any product which has been specifically included under SRO 82/2006 stood excluded from Entry 36 of Schedule III. At the risk of repetition, Entry 36 of Schedule III referring to drugs, medicines and bulk drugs, specifically excluded any goods notified under Section 6(1)(d). Simultaneously or a little later but effective from 01.04.2007, Entry 24 of SRO 82/06 included any confectionery which is medicated or not. Hence even if the subject product “Halls” is found to be a medicated one, by reason of its nature is a confectionery and stands excluded from Schedule III and is included in the notification issued under Section 6(1)(d) of the Act. 9. In this context, we also deal with the submission of the learned Senior Government Pleader that the HSN Code with respect to the subject product “Halls” is 3004.90.11. We notice that under Entry 36(7) of Schedule III, medicaments consisting of two or more constituents mixed together whether for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale are included as medicaments in ayurvedic system aligned to HSN Code 3003.90.11. Under Entry 36(8) of the Schedule III comes medicaments which are put up in measured doses or in forms or packings for retail sale. The product “Halls”, if at all a medicament, is one coming under HSN Code 3004.90.11 as a medicament of Ayurvedic system, under Entry 36(8) of Schedule III, but for its exclusion for reason of its inclusion in the list of goods notified under Section 6(1)(d). 10. But for inclusion in the notification under Section 6(1)(d) and the specific exclusion from Entry 36 of Schedule III, the product would have been categorised as an Ayurvedic medicament since the Entry has been aligned with a specific HSN Code. Very significant is the fact that Entry 24(5)-'Others' as found in SRO 82/2006 is not aligned with an HSN Code and any such medicament whether it is in measured doses or forms or packings for retail sale or otherwise sold; the same would stand included under SRO 82/2006. 11. Very significant is the fact that Entry 24(5)-'Others' as found in SRO 82/2006 is not aligned with an HSN Code and any such medicament whether it is in measured doses or forms or packings for retail sale or otherwise sold; the same would stand included under SRO 82/2006. 11. We now look at the decision of the Hon'ble Supreme Court in Reckitt Benckiser that the Interpretation of Items in the Schedule aligned to a specified HSN Code in the VAT Act has to be in the context of the description as available in the Customs Tariff Act, with the corresponding HSN Number. The Rules of Interpretation also speaks of “those commodities which are given with HSN Numbers should be given the same meaning as given in the Customs Tariff Act, 1975”. Section 6(1)(d) also speaks of inclusion in the list of specified goods, only those products which are not included in the Schedules under Clause (a) and (c) of Section 6(1). The declaration made by the Hon'ble Supreme Court is on the basis of the Rules of Interpretation as also in consonance with Section 6(1)(d). 12. Even looking at the Entries in Schedule III and SRO 82/2006 with the above principle in mind we see that Schedule III brought out under Section 6(1)(a) has specifically excluded from Entry 36, those drugs, medicines and bulk drugs notified under Clause (d) of sub-section (1) of Section 6. Simultaneously in SRO 82/2006 from 01.04.2007 there is an inclusion in Entry 24, dealing with confectioneries, 'any similar product whether medicated or not'. The product, which is the subject matter of the impugned assessment, “Halls” even if found to be a medicated product, falls for tax @12.5% being included in SRO 82/2006. 13. The learned Government Pleader, also argued on the basis of the decision of the Hon'ble Supreme Court in Uni Products India Ltd., that considering the Explanatory Notes issued by the World Customs Organization the subject product of the assessee can only be considered as a 'confectionery'. The contention is that the product is no longer under Chapter 30 and is under Chapter 17. We have been shown the relevant pages of the Explanatory Notes in Volumes 1 & 2. 14. Chapter 17.04 refers to 'sugar confectionery', which is as under: “17.04 – Sugar confectionery (including white chocolate), not containing cocoa. The contention is that the product is no longer under Chapter 30 and is under Chapter 17. We have been shown the relevant pages of the Explanatory Notes in Volumes 1 & 2. 14. Chapter 17.04 refers to 'sugar confectionery', which is as under: “17.04 – Sugar confectionery (including white chocolate), not containing cocoa. xxx xxx xxx This heading covers most of the sugar preparations which are marketed in a solid or semi-solid form, generally suitable for immediate consumption and collectively referred to as sweetmeats, confectionery or candies. It includes, inter alia: xxx xxx xxx (5) Preparations put up as throat pastilles or cough drops, consisting essentially of sugars (whether or not with other foodstuffs such as gelatin, starch or flour) and flavouring agents (including substances having medicinal properties, such a benzyl alcohol, menthol, eucalyptol and tolu balsam). However, throat pastilles or cough drops which contain substances having medicinal properties, other than flavouring agents, fall in Chapter 30, provided that the proportion of those substances in each pastille or drop is such that they are thereby given therapeutic or prophylactic uses. xxx xxx xxx”. {underlining by us for emphasis} 15. The corresponding Explanatory Notes under Chapter 30 in Volume 2 has also to be referred to, the relevant portion of which is extracted hereunder: “30.04 – Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packing for retail sale. xxx xxx xxx This heading includes pastilles, tablets, drops, etc., of a kind suitable only for medicinal purposes, such as those based on sulphur, charcoal, sodium tetraborate, sodium benzoate, potassium chlorate or magnesia. However, preparations put up as throat pastilles or cough drops, consisting essentially of sugars (whether or not with other foodstuffs such as gelatin, starch or flour) and flavouring agents (including substances having medicinal properties, such as benzyl alcohol, menthol, eucalyptol and tolu balsam) fall in heading 17.04. Throat pastilles or cough drops containing substances having medicinal properties, other than flavouring agents, remain classified in this heading when put up in measured doses or in forms or packings for retail sale, provided that the proportion of those substances in each pastille or drop is such that they are thereby given therapeutic or prophylactic uses”. {underlining by us for emphasis} 16. {underlining by us for emphasis} 16. The Hon'ble Supreme Court in Uni Products India Ltd. has categorically held that the Explanatory Notes though having only persuasive value, the quality of such persuasion is very strong and assistance of the Explanatory Notes can be resorted for resolving entry related disputes. The Explanatory Notes clearly exclude the product of the assessee from Chapter 30 since mere mixture of substances having medicinal properties does not warrant inclusion thereat and it should have specific therapeutic or prophylactic properties. “Halls” does not have such properties and is also not marketed as one having such properties. The subject product as of now even in the Customs Tariff Act, does not fall under Chapter 30 and is included under Chapter 17; as discernible from the Explanatory Notes. The HSN codes to which the items under Entry 36 are aligned are those under Chapter 30 and there is no interpretation possible in the context of the items under that chapter, in the Customs Tariff Act. 17. The very same product of the assessee was subject matter of adjudication before the High Court of Madhya Pradesh in Mondelez India Foods Pvt.Ltd. vs. The Commissioner of Commercial Tax, Madhya Pradesh, Indore in VATA No.24/2018 dated 26.09.2018. The learned Judges found that the Registration Certificate issued under the Drugs and Cosmetics Act, 1940, for the very same product, itself stipulates that the product is a candy. It was categorically held that the registration under the Drugs and Cosmetics Act “will not be determinative of the fact that the cough drops 'Halls' are the drugs which attract tax in terms of Entry 19A of Part II of Schedule II of the Act” (sic). Entry 19A of the Madhya Pradesh VAT Act, 2002 is as follows: “Schedule II [see section 9] Part II S.No. of u/s.9(%) Description of goods Rate tax 19A. Drugs and medicines including 5 vaccines, syringes, dressings, medicated ointments produced under drug licence and light liquid paraffin of IP grade”. 18. The decision of the Uttarakhand High Court in M/s.Cadbury India Ltd. vs. The Commissioner in Commercial Tax Revision No.06 of 2013 dated 20.02.2019 merely remitted the appeals back to the Tribunal for consideration of whether the active products in 'Halls' are those referred to in authoritative texts of Ayurveda. There cannot be any authoritative pronouncement ferreted out from the aforesaid decision in aid of the assessee. There cannot be any authoritative pronouncement ferreted out from the aforesaid decision in aid of the assessee. Nor is the said enquiry, with due respect, according to us, very relevant as found by us herein above, especially on the exclusion of all medicaments included in the notification under Section 6(1)(d) from Entry 36 of Schedule III. 19. The last but not the least of the arguments, put forth by the asssessee is of the Clarification issued by the Commissioner and the decision in Proctor and Gamble Hygiene and Healthcare Limited. We cannot but notice that the cited decision is of a co-ordinate Bench of this Court and we are bound by the same. However, we find that the decision only noticed the amendment brought out to Entry 36 of Schedule III, which by itself could not have removed the product from Schedule III, wherein it was aligned to a HSN code. The amendment by the Finance Act 2007 added the words and 'those notified under clause (d) of sub-s.(1) of S.6' to Entry 36 excluding that from Entry 36 Schedule III. This Exclusion which by itself could not have removed a medicated throat pastille from Schedule III, without a corresponding inclusion in SRO 82/2006. We say this without reference to the Explanatory Notes and the authoritative pronouncement of the Hon'ble Supreme Court with respect to the persuasive nature of the same in classification; which also was not before the Court in Proctor and Gamble Hygiene and Healthcare Limited. The cited decision of the Division Bench with respect to a similar product, 'Vicks', was dated 30.11.2009; without noticing the inclusion by SRO 119/2008 dated 01.04.2008 the words 'and similar products whether medicated or not' along with the residuary item 'Others' without a HSN code, in Entry 24 under SRO 82/2006. This inclusion went un-noticed by the Division Bench and we find, with all the respect at our command, the decision to be per-incuriam. There the challenge was against an Order of Clarification issued under Section 94, finding 'Vicks' to be taxable at the higher rate, being covered under Entry 24 of SRO 82/2006. The Division Bench also relied on the Clarification issued under Section 94, in the case of 'Halls', the product relevant to the instant revision. There the challenge was against an Order of Clarification issued under Section 94, finding 'Vicks' to be taxable at the higher rate, being covered under Entry 24 of SRO 82/2006. The Division Bench also relied on the Clarification issued under Section 94, in the case of 'Halls', the product relevant to the instant revision. We do not find any application for the said Clarification dated 15.01.2006, issued by the Commissioner under Section 94 of the KVAT Act, since it related to period prior to the amendments made by the Finance Act of 2007 and SRO 119/2008; which amendments were with retrospective effect from 01.04.2007. The reasoning above answers the questions of law in favour of the revenue and against the assessee; setting aside the orders of the appellate authorities, with the result of the assessment orders being restored. Parties to suffer their respective costs.