# HEINZ INDIA LIMITED v. THE STATE OF KERALA

- **Citation:** [2023] 6 S.C.R. 425
- **Court:** Supreme Court of India
- **Decided:** 2023-05-04
- **Case number:** Civil Appeal Nos. 23382339 of 2010
- **Bench:** S. Ravindra Bhat, Dipankar Datta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/heinz-india-limited-v-the-state-of-kerala-37196
- **Pages:** 31

## Headnote

Kerala General Sales Tax Act, 1963 - Entry 79, 127 - Tamil
Nadu General Sales Tax Act, 1959 - s. 3, Entry 20-(A) of Part C of
First Schedule; Entry 1(iii) of Part-F of First Schedule - Drugs and
Cosmetics Act, 1940 - s. 3(aaa), 3(b) - Whether medicated talcum
powder is medicine or drug, or a cosmetic, or in terms of the statutes
in question, medicated talcum powder - In the first set of appeals,
the revisional authority was of the view that the order of assessment
passed by the assessing authority (levying tax at 8% on 'Prickly
heat powder') was prejudicial to the interest of revenue by treating
it as a medicine and tax at 20% was to be applied as applicable to
"Medicated talcum powder" - Kerala High Court concurred with
the view adopted by the Revenue - In the second set of appeals, the
Madras High Court relied on the decision of the Kerala High Court
holding that medicated talcum powder includes prickly heat powder
and answered the issue in favour of the Revenue and against the
assessee - Before the Supreme Court, the Revenue contended that
in the Kerala case, that Nycil prickly heat powder is "medicated
talcum powder" since there is separate entry for medicated talcum
powder (Entry 127), it has to be classified under Entry 127 of the
first schedule to the KGST Act - In the Tamil Nadu case, it is
contended that the exclusion of products capable of being used as
cosmetics from Entry 20 in Part C, on the one hand, and the inclusion
of talcum powder, in Entry 1 of Part F, as cosmetics, read with
explanation to Entry 1, is decisive that the proper classification of
the product is as a cosmetic - Held: The court has to, as a principle,
interpret the concerned statutes, in the light of their plain words,
and having regard to their internal guides or aids - In Kerala case,
the use of the term "includes" after talcum powder, followed by
"medicated talcum powder" in the Court's opinion can lead to only
one inference, which is that the clear legislative intent was that all
kinds of talcum powders, which contained medications (irrespective
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of the proportion, or at any rate, not containing predominant
proportions) should necessarily be treated as cosmetics, falling
under Entry 127 - 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 - In the Tamil Case, the TNGST was consciously
amended to include talcum powder, whether or not medicated in the
specific entry or class of entries, enumerating cosmetics - Hence,
like in the Kerala case, the plain meaning of that taxation head or
entry had to be given, as there was no ambiguity - Consequently,
the findings recorded by the High Courts are justified.
Interpretation of Statutes - A salutary rule for fiscal legislation
interpretation is that words used in the statute must be given their
plain meaning and the court's function is not to give a strained and
unnatural meaning to the provision.
Dismissing the appeals, the Court
HELD: 1. According to the literature made available to the
court, there are medicinal ingredients in Nycil prickly powder,
which is also manufactured under a Drug License. Yet, the State
Legislature, in Entry 127, thought it fit to include, while dealing
with cosmetics, such as shampoos, "talcum Powder including
medicated talcum powder." There can be no two opinions that
talcum powder ipso facto is classifiable as a cosmetic. Yet, the
expression "including" used in Entry 127 has the effect of bringing
in [or "pulling in"] an entirely different product, which ordinarily
may not have been in the same class, i.e. medicated powder. To
rule out any am

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HEINZ INDIA LIMITED
v.
THE STATE OF KERALA
(Civil Appeal No(s). 2338-2339 of 2010)
MAY 04, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Kerala General Sales Tax Act, 1963 - Entry 79, 127 - Tamil
Nadu General Sales Tax Act, 1959 - s. 3, Entry 20-(A) of Part C of
First Schedule; Entry 1(iii) of Part-F of First Schedule - Drugs and
Cosmetics Act, 1940 - s. 3(aaa), 3(b) - Whether medicated talcum
powder is medicine or drug, or a cosmetic, or in terms of the statutes
in question, medicated talcum powder - In the first set of appeals,
the revisional authority was of the view that the order of assessment
passed by the assessing authority (levying tax at 8% on 'Prickly
heat powder') was prejudicial to the interest of revenue by treating
it as a medicine and tax at 20% was to be applied as applicable to
"Medicated talcum powder" - Kerala High Court concurred with
the view adopted by the Revenue - In the second set of appeals, the
Madras High Court relied on the decision of the Kerala High Court
holding that medicated talcum powder includes prickly heat powder
and answered the issue in favour of the Revenue and against the
assessee - Before the Supreme Court, the Revenue contended that
in the Kerala case, that Nycil prickly heat powder is "medicated
talcum powder" since there is separate entry for medicated talcum
powder (Entry 127), it has to be classified under Entry 127 of the
first schedule to the KGST Act - In the Tamil Nadu case, it is
contended that the exclusion of products capable of being used as
cosmetics from Entry 20 in Part C, on the one hand, and the inclusion
of talcum powder, in Entry 1 of Part F, as cosmetics, read with
explanation to Entry 1, is decisive that the proper classification of
the product is as a cosmetic - Held: The court has to, as a principle,
interpret the concerned statutes, in the light of their plain words,
and having regard to their internal guides or aids - In Kerala case,
the use of the term "includes" after talcum powder, followed by
"medicated talcum powder" in the Court's opinion can lead to only
one inference, which is that the clear legislative intent was that all
kinds of talcum powders, which contained medications (irrespective
[2023] 6 S.C.R. 425
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of the proportion, or at any rate, not containing predominant
proportions) should necessarily be treated as cosmetics, falling
under Entry 127 - 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 - In the Tamil Case, the TNGST was consciously
amended to include talcum powder, whether or not medicated in the
specific entry or class of entries, enumerating cosmetics - Hence,
like in the Kerala case, the plain meaning of that taxation head or
entry had to be given, as there was no ambiguity - Consequently,
the findings recorded by the High Courts are justified.
Interpretation of Statutes - A salutary rule for fiscal legislation
interpretation is that words used in the statute must be given their
plain meaning and the court's function is not to give a strained and
unnatural meaning to the provision.
Dismissing the appeals, the Court
HELD: 1. According to the literature made available to the
court, there are medicinal ingredients in Nycil prickly powder,
which is also manufactured under a Drug License. Yet, the State
Legislature, in Entry 127, thought it fit to include, while dealing
with cosmetics, such as shampoos, "talcum Powder including
medicated talcum powder." There can be no two opinions that
talcum powder ipso facto is classifiable as a cosmetic. Yet, the
expression "including" used in Entry 127 has the effect of bringing
in [or "pulling in"] an entirely different product, which ordinarily
may not have been in the same class, i.e. medicated powder. To
rule out any ambiguity, the legislature specifically referred to a
sub class of medicated powders, i.e. medicated talcum powder.
Such specific entries have not come up for consideration, before
this court; as noticed, predominantly, the courts have ruled that
in the context of broad descriptions such as cosmetics or
medications, if there are medical ingredients, in a product, which
is meant as a curative or prophylactic product, it would be
classifiable as drugs or medicines. However, the specificity
employed by the legislature in this case, rules out that possibility.
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Besides, "includes" has been construed as broadening the sweep
of a provision, and at the same time restricting its amplitude to
the meanings ascribed in the statute. [Para 47][452-B-E]
2. The use of the term "includes" after talcum powder,
followed by "medicated talcum powder" in this court's opinion
can lead to only one inference, which is that the clear legislative
intent was 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 pointed
phraseology in fact concludes the issue, leaving no scope for the
court to interpret the Entry as including any class of goods, other
than such as Nycil prickly heat powder, which is a talcum powder
that is also medicated. A salutary rule for fiscal legislation
interpretation is that words used in the statute must be given
their plain meaning. The court's function is not to give a strained
and unnatural meaning to the provision. The intention of the
legislature, manifested in plain words, must be accepted. [Para
48][453-D-F]
3. 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.
The TNGST was consciously amended to include talcum powder,
whether or not medicated in the specific entry or class of entries,
enumerating cosmetics. Hence, like in the Kerala case, the plain
meaning of that taxation head or entry had to be given, as there
was no ambiguity. Consequently, the findings recorded by the
High Courts are justified. [Paras 49, 53][454-B-C; 455-F-G]
A.V. Fernandez v. State of Kerala [1957] 1 SCR 837 -
followed.
HEINZ INDIA LIMITED v. THE STATE OF KERALA
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Oblum Electrical Industries Pvt. Ltd., Hyderabad v
Collector of Customs, Bombay [1997] 3 Supp SCR 68;
Union of India (UOI) and Ors. v. Godfrey Philips India
Ltd. [1985] 3 Supp SCR 123; Hamdard (Wakf)
Laboratories v. Deputy Commissioner [2007] 5 SCR
873 - relied on.
Collector of Central Excise v. CIENS Laboratories
[2013] 14 SCR 38; Puma Ayurvedic Herbal Pvt. Ltd. v.
Collector of Central Excise (2006) 2 SCR 1120; Ponds
India Ltd. v. Commissioner of Trade Tax [2008] 9 SCR
496; Muller & Phipps (India) Ltd v. Collector of Central
Excise [2004] 2 Supp SCR 39; B.P.L Pharmaceuticals
v. Collector of Central Excise [1995] 3 SCR 1235;
Union of India v. Vicco Laboratories [2007] 12 SCR
534; Commissioner of Central Excise v. Hindustan Lever
Ltd (2015) 10 SCC 742; Collector of Central Excise v.
Wockhardt Life Sciences Ltd. (2012) 5 SCC 585;
S. Sundaram Pillai v. V. R. Pattabiraman [1985] 2 SCR
643; Share Medical Care v. Union of India [2007] 3
SCR 44; Pappu Sweets and Biscuits v. Commr. of Trade
Tax, U.P [1998] 2 Suppl. SCR 119; Collector of Excise
v. M/s Parle Exports (P) Ltd. [1988] 3 Suppl. SCR 933;
Union of India (UOI) & Ors. v. Leukoplast Private
Limited & Ors. [1994] 1 SCR 343; Dattatraya Govind
Mahajan & Ors. v. State of Maharashtra & Anr. [1977]
2 SCR 790; Mrs. Zakiya Begum & Ors v. Mrs. Shanaz
Ali & Ors. [2010] 9 SCR 692; Collector of Central
Excise v. Wood Crafts Products Ltd. (1995) 3 SCC 454
: [1995] 2 SCR 797; Meghdoot Gramodyog Sewa
Sansthan, UP. v. Commissioner of Central Excise,
Lucknow [2005] 4 SCC 15; Amrutanjan Ltd. v. Collector
Central Excise [1996] 9 SCC 413; N.D.P.
Namboodripad (Dead) by LRs. v. Union of India [2007]
3 SCR 769 - referred to.
B. Shah & Company v. State of Gujarat (1971) 28 STC
5 (Guj) - referred to.
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Case Law Reference
[2006] 2 SCR 1120
referred to
para 4
[2007] 5 SCR 873
relied on
para 4
[2008] 9 SCR 496
referred to
para 4
[2004] 2 Suppl. SCR 39
referred to
para 4
[1995] 3 SCR 1235
referred to
para 15
[2007] 12 SCR 534
referred to
para 16
(2015) 10 SCC 742
referred to
para 17
(2012) 5 SCC 585
referred to
para 18
[1985] 2 SCR 643
referred to
para 20
[2007] 3 SCR 44
referred to
para 21
[1998] 2 Suppl. SCR 119
referred to
para 21
[1988] 3 Suppl. SCR 933
referred to
para 21
[2013] 14 SCR 38
relied on
para 22
[1994] 1 SCR 343
referred to
para 23
[2007] 3 SCR 769
referred to
para 26
[1977] 2 SCR 790
referred to
para 28
[2010] 9 SCR 692
referred to
para 28
[1995] 2 SCR 797
referred to
para 39
(2005) 4 SCC 15
referred to
para 41
(1996) 9 SCC 413
referred to
para 41
[2007] 3 SCR 769
referred to
para 47
[1957] 1 SCR 837
followed
para 48
[1997] 3 Suppl. SCR 68
relied on
para 51
[1985] 3 Suppl. SCR 123
relied on
para 52
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 23382339 of 2010.
HEINZ INDIA LIMITED v. THE STATE OF KERALA
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From the Judgment and Order dated 29.09.2008 of the High Court
of Kerala at Ernakulam in STR No. 164 of 2007 and 172 of 2008.
With
Civil Appeal Nos. 6633 and 6635 of 2012.
S. K. Bagaria, Sr. Adv., E. R. Kumar, D. P. Mohanty, Ms. Tanya
Chaudhry, Ms. Pratyusha Priyadarshini, Kumar Ajit Singh, M/s. Parekh
& Co., Ms. Charanya Lakshmikumaran, Ms. Apeksha Mehta, Ms. F.
Gupta, Pranav Mundra, Advs. for the Appellant.
Pallav Sisodia, K. Radhakrishnan, Sr. Advs., C. K. Sasi, Abdulla
Naseeh V T, Ms. Meena K Poulose, Sabarish Subramanian, Vishnu
Unnikrishnan, Ms. Shivani Jena, Naman Dwivedi, P. Shankar, Advs. for
the Respondent.
The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. The issue which this court has to deal with had placed the
courts in a prickly pickle, on several occasions- whether medicated talcum
powder is medicine or drug, or a cosmetic, or in terms of the statutes in
question, medicated talcum powder? The present appeals, by special
leave, concern two sets of appeals: one, from the State of Kerala and
the other from the State of Tamil Nadu. The Kerala High Court, by its
judgment1 rejected the revisions filed by the appellant/assessee (hereafter
"Heinz") aggrieved by the Kerela Sales Tax Appellate Tribunal's orders
holding that its product "Nycil Prickly Heat Powder" was classifiable
not under Entry 79 of the First Schedule to Kerala General Sales Tax
Act, 1963 (hereafter "KGST Act") [as "medicine" but as "Medicated
Talcum Powder"].
2. In the second set of appeals, M/s Glaxo Smithkline
Pharmaceuticals Ltd ("GSK" hereafter) is aggrieved by the judgment
of the Madras High Court2 where the court rejected its contention that
the prickly heat powder was "medicinal formulation or preparation
ready for use internally or externally for treatment or mitigation or
prevention of diseases or disorders in human being or animals"
[under Entry 20-(A) of Part C of First Schedule to the Tamil Nadu
1 Dated 29 September 2008 in S.T. Rev. Nos. 164/ 2007 and 172/ 2008
2 By judgment dated 01.03.2012, in Tax Case (Revision) Nos. 742/ 2006 and 301/ 2011
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General Sales Tax Act, 1959 - hereafter "TNGST Act"] and held it to be
toilet powder [under Entry 1(iii) of Part-F of First Schedule of the
TNGST Act]. The High Court so held because the Explanation to the
said entry stated that:
"Any of the items listed above even if medicated or as defined
in Section 3 of the Drugs and Cosmetics Act, 1940 (Central
Act XXIII of 1940) or manufactured on the license issued
under the said Act will fall under this item."
I
3. Heinz's appeal from the Kerala High Court is concerned with
assessment years 1999-2000 and 2000-2001. For the assessment year
1999-2000, Heinz filed its annual return which was accepted by the
assessing officer; the tax payable on the taxable turnover was 8%, and
the treatment on the sale of Nycil prickly heat powder was accepted to
be an item falling under Entry 79 of the First Schedule to KGST Act, by
order dated 18-11-2005. The revisional authoritywas of the view that
the order of assessment passed by the assessing authority was prejudicial
to the interest of the revenue;it initiated proceedings under Section 35 of
the KGST 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 it as medicine by the assessing authority was prejudicial to
the interest of the revenue and the rate of tax at 20% was to be applied
as applicable to "Medicated Talcum Powder". Heinz objected to this.
However, the revisional authorityby order dated 16-2-2006 set aside the
assessment order for the assessment year 1999-2000 and remanded the
matter to the assessing authority to pass fresh assessment order by levying
tax at 20%. Aggrieved, Heinz carried the matter before the Appellate
Tribunal, whichaffirmed the revisional order and rejected its appeal.3
The High Court, on further revision, concurred with the classification
adopted by the revenue.
4. The Kerala High Court noticed the judgment of this court Puma
Ayurvedic Herbal Pvt Ltd v Collector of Central Excise4 (hereafter
"Puma Ayurvedic Herbal");Hamdard (Wakf) Laboratories v. Deputy
Commissioner5 (hereafter "Hamdard (Wakf) Laboratories"); Ponds
3Order dated 14.11.2006 in IA No 311/2006
4 (2006) 2 SCR 1120
5 2007 (5) SCR 873
HEINZ INDIA LIMITED v. THE STATE OF KERALA
[S. RAVINDRA BHAT, J.]
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India Ltd. v. Commissioner of Trade Tax6 (hereafter "Ponds India");
Muller & Phipps (India) Ltd v. Collector of Central Excise7 (hereafter
"Muller & Phillips (India) Ltd") and several other decisions cited by
the parties. The court was of the opinion that the product was not of
common use by consumers as a daily use talcum powder, but normally
used for the "specific purpose of treating prickly heat" and its use
discontinued after the ailment ceased. This meant it has ingredients
containing preventive and curative effects making it effective for the
treatment of ailments. The court observed that:
"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."
5. The High Court further held that Entry 127 of the First Schedule
immediately after the expression talcum powder has used the word
'including'. The word includes/including, "is used in interpretation
clause to enlarge the meaning of the word in the statute. When such
word is used in an interpretation clause, it 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."It was, therefore held that
since Entry 127 is a specific entry in a fiscal statute, the general entry
6 2008 (9) SCR 496
7 2004 Supp(2)SCR 39
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(Entry 79) had to give way to the specific entry. The court observed
that:
"though the Nycil Prickly Heat Powder is used for the care
of the skin and not cure of the skin and though it contains a
small quantity of Chlorphenesin, which has curative effect;
in view of the specific entry, it has to be classified only under
Entry 127 of First Schedule to the KGST Act and not under
Entry 79 of the Act which speaks of medicines and drugs.
Heinz is aggrieved by these findings.
II
6. GSK appeals against the judgment of the Madras High Court.
They are in relation to two assessment years, i.e., 1993-94 and 1994-95.
In both these cases, the assessing officer levied tax at the rate of 16 %
under Entry 1(iii) of Part F of the First Schedule to the TNGST Act,
rejecting the assessee's(which was Heinz, initially) claim to levy tax at
the rate of 5 % for the first sale of Nycil prickly heat powder on the
ground that it is a medicine or drug under Entry 20-A of Part C of the
First Schedule to the TNGST. The Appellate Assistant Commissioner
affirmed the view of the assessing officer.8 Heinz approached the
Appellate Tribunal, which accepted its plea, and held that the product
was a medicine or drug, and classifiable as such.9 The revenue's appeal
to the Madras High Court succeeded. Heinz's unit was during the
interregnum, taken over by GSK.
7. The High Court, by its impugned judgment, noted that the product
is subject to license under the Drugs and Cosmetics Act, 1940 [hereafter
"Drugs Act"]. The court also noticed the Kerala judgment and remarked
that the difference between the two enactments (KSGST Act and
TNGST Act) is that in the latter, itis the explanation which clarifies that
any of the items even if medicated or as defined in Section 3 of the
Drugs and Cosmetics Act will fall under the Entry I(iii) of Part 'F'
of the First Schedule. The Madras High Court was of the opinion that
the wording of the two enactments did not make any difference, even
though one had an inclusive definition and another includes the
product,through explanation. The Madras High Court, therefore held
that Nycil prickly heat powder "is a toilet powder"though the
8 Vide order dated 19.02.2001
9 Vide order dated 30.08.2001 in STA No 616/99
HEINZ INDIA LIMITED v. THE STATE OF KERALA
[S. RAVINDRA BHAT, J.]
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manufacturer held a license under the Drugs Act and that such a
circumstance fell within the mischief of the Explanation to Entry I (iii) to
Part F of the First Schedule.
8. The impugned judgment of the Madras High Court relied on
the decision of the Kerala High Court which had considered medicated
talcum powder after going through the various definitions of "drug",
"medicine", "cosmetic" and "talc", and ultimately holding that medicated
talcum powder includes prickly heat powder. The Kerela High Court
had observed that:
"34. The ingredients of Nycil powder are chlorphenesin B.P.
one percent, zinc oxide I.P. 16 per cent, boric acid I.P. 16 per
cent, starch I.P. 51 per cent, talc 100 per cent. Chlorphenesin
is contained in Nycil powder to the extent of only one per
cent and the other antiseptic medicinal agents are comprised
to the extent of 32 per cent and the rest of the materials which
go into the making of Nycil powder are composed of starch
and talc. Nycil prickly heat powder contains chlorphenesin,
a product specifically meant for treatment of skin disease.
The inclusion of this medicine in the composition makes all
the difference. It is this addition of medicine which changes
its basic character. Therefore, the product in question is not
merely talcum powder in view of the presence of chlorphenesin,
though in a small quantity, though the base was purified talc.
Relying upon the findings of the Kerela High Court, Madras High
Court further observed that:
16. The Kerala High Court rejected the contention as to the
theory of medicine and also after considering the basic
ingredients of prickly heat powder, came to the conclusion
that the base product is only a purified talc. We are also of
the view that after considering the explanation to the main
entry, it is only a medicated talcum powder and it certainly
includes prickly heat powder also. We agree with the reasoning
of the Kerala High Court and hold that the nycil prickly heat
powder is not a "drug" and it is only a medicated talcum
powder. We are also informed that M/s Heinz India Limited,
the petitioner-assessee before the Kerala High Court, had
purchased the manufacturing unit of the respondent- assessee
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before us in respect of prickly heat powder. Accordingly, we
answer the issue in favor of the Revenue and against the
assessee. Even though number of judgments were cited by
both the counsel in support of their contentions, it is seen
that the Kerala High Court has considered all those judgments
in detail under the various enactments like Central Excise
Act and the various State Sales Tax Act enactments. Therefore,
it is not necessary to once again consider all those judgments
cited by both the learned counsel, since the issue is already
settled by the judgment of the Kerala High Court in the case
of Heinz India Limited. Under these circumstances, we set
aside the orders of the Tribunal and restore the orders of the
assessing authority. The tax case revisions are allowed."
III
9. On behalf of Heinz, Mr. S.K. Bagaria, learned senior counsel,
argued that "Nycil" 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% of the total contents
of Nycil powder. The rest of the material is starch and talc. Nycil powder
is devised so as to retain skin cleanliness in order to protect it against
prickly heat and infection. It also gives freshness and comfort. It
consequently falls under Entry 79 of the first schedule to KGST Act.
10. Learned senior counsel relied on B.Shah & Company v State
of Gujarat10 (hereafter "Shah & Co"), and urged that Chlorphenesin
is a potent antifungal, antibacterial and trichomonicidal substance of low
toxicity. It is effective against 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.
11. In Shah & Co (supra), it was held thatNycilas powder or
ointment is recommended for the treatment of prickly heat and dhobie
10 (1971) 28 STC 5 (Guj)
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itch and active skin protection during ringworms and other fungicidal
infections. It was submitted that Nycil powder is suitable for the initial
treatment of acute mycotic infection since it is an absorbant, in addition
to exercising its fungicidal action. It was argued that the ingredients of
Nycil powder are Chlorphenesin B.P. 1%; Zinc Oxide I.P. 16%; Boric
Acid 16% Starch I.P. 51% and Talc. Thus, about one-third (33%) of its
ingredients are medicinal products.It was pointed out that the face of
the container, in which the product is sold, contains the following
description:
"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."
12. It was argued that under Section 3(b) of the Drugs Act, "drug"is
defined as "including all medicines used for internal or external
use of human beings or animals intended to be used for mitigation
or prevention of any disease or disorder". "Cosmetics" under Section
3(aaa) of the said Act means, "any article intended to be sprinkled
or sprayed or introduced or otherwise applied to a human body for
cleansing, beautifying, promoting attractiveness or altering the
appearance", which also includes any article intended for use as a
component of cosmetic. To bring or classify an article under Entry 79 of
the First Schedule, the article must be a medicinal formulation or
preparation which is ready for use either internally or externally for
treatment or mitigation or prevention of diseases or disorders in human
beings or animals. "Treatment" relates to diseases or disorders. Though
medicinal formulations or preparation,can be used internally or externally,
unless such use is by way of treatment of a disease or disorder in human
beings or animals, it cannot be brought under the category of medicine.
Clearly, in this case, Nycil powder is used to treat several dermatological
conditions, including prickly heat. In fact, there is no medical treatment
for that condition other than the use of Nycil.
13. It was argued that having regard to the above circumstances,
Nycil prickly heat powder, which is used only to absorb sweat and moisture
from the body and to keep away rashes in human beings, should be
considered to be either a "drug" or "medicine"-in view of the composition,
it is nothing but a medicinal preparation used as such and for the purpose
for which talcum powder is used.
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14. Learned senior counsel urged this court to follow the decision
in Puma Ayurvedic Herbal (supra) where the assessee's claim that its
various products, including herbal powders, were medicaments, was
considered. The court adopted a twin test to consider whether any item
is a drug, or medicament, or cosmetic. The first is whether, the item is
commonly understood as a medicament i.e. the common parlance test.
If a product falls in the category of medicament it will not be an item of
common use. A user will use it only for treating a particular ailment and
will stop its use after the ailment is cured. The approach of the consumer
is crucial. The second is, whether the ingredients are described in the
medical literature, as necessary for healing.
15. Learned senior counsel submitted that in B.P.L
Pharmaceuticals v. Collector of Central Excise11 (hereafter "B.P.L
Pharmaceuticals Ltd."),"Selsun Shampoo" was under consideration
for purposes of Central Excise classification. The manufacturers claimed
that the shampoo was a medicated one, meant to treat dandruff, a scalp
disease. This court took note of the preparation, label, literature, character,
common and commercial parlance and held the product was classifiable
as a medicament, asit was not an ordinary shampoo of common use but
was meant to cure a particular scalp or hair disease.After the cure, it
was not meant to be used in the ordinary course. Muller & Phipps
(India) Ltd (supra) was next relied on to urge that similar to this case,
"Johnson Prickly Heat Powder" was held to be a medicament as it
was "not an ordinary talcum powder but a powder to be used to get
rid of the problem of prickly heat".
16. In Ponds India (supra), the court had to consider whether
white or yellow petroleum jelly (non-perfumed) sold as "Vaseline" was
a "drug" or a "cosmetic". It was urged that the court took note of the
fact that the assessee was a licensee under the Drugs Act and that
cosmetics within the meaning of the provisions were not covered in the
Schedule to the exemption notification. It was pointed out that this court
had held that while interpreting an entry in a taxing statute, the court's
role is to consider the effect of the law, upon considering it from different
angles. Different tests are laid down for the interpretation of an entry in
a taxing statute namely dictionary meaning, technical meaning, users
point of view, popular meaning etc. While the purpose of a statute i.e. of
11 (1995)3 SCR 1235
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collection of tax is important, yet that itself would not mean that an
assessee would be made to pay tax although he is not liable therefor, or
to pay a higher rate of tax when he is liable to pay at a lower rate. The
court held that Vaseline was a drug, in that case. Learned senior counsel
also relied on Union of India v Vicco Laboratories12 where the claim
was that 'ViccoVajrudanti' and 'ViccoTermeric' (dental powder and
turmeric powder) were 'ayurvedic medicines'. The issue had been
decided by the Supreme Court in favour of the assessee, initially, which
was sought to be re-opened. The court held that to be impermissible, as
the goods had been declared as drugs.
17. Learned senior counsel relied heavily on Commissioner of
Central Excise v Hindustan Lever Ltd13 (hereafter "Hindustan
Lever") and urged that merely because a particular product is
substantially for the care of skin and simply because it contains subsidiary
pharmaceutical or antiseptic constituents or is having subsidiary curative
or prophylactic value, it would not become medicament and would still
qualify as the product for the care of the skin. It was stressed that the
onus is on the revenue that the classification sought by it (if it claims the
product not to be a drug or medication, but a cosmetic), to discharge it
with proof.
18. It was urged, lastly by relying on Collector of Central Excise
v Wockhardt Life Sciences Ltd14., (hereafter "Wockhardt Life Sciences
Ltd") that the "common parlance test" or the "commercial usage
test" is most appropriate. Learned counsel relied on the following
observations:
"33. There is no fixed test for classification of a taxable
commodity. This is probably the reason why the 'common
parlance test' or the 'commercial usage test' are the most
common (see A. Nagaraju Bros. v. State of A.P. [1994 Supp
(3) SCC 122] ). Whether a particular article will fall within a
particular tariff heading or not has to be decided on the basis
of the tangible material or evidence to determine how such
an article is understood in 'common parlance' or in
'commercial world' or in 'trade circle' or in its popular sense
meaning. It is they who are concerned with it and it is the
12 2007 (12) SCR 534
13 2015 (10) SCC 742
14 (2012) 5 SCC 585
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sense in which they understand it that constitutes the definitive
index of the legislative intention, when the statute was enacted.
19. The submissions of learned senior counsel, in Heinz were
substantially adopted on behalf of GSK, in the Tamil Nadu case. In
addition, Ms. CharanyaLaxmikumaran, learned counsel urged that the
statute in TGST Act is different, because in the Entry, relied on by the
revenue, is dependant solely on the Explanation [to Entry I (iii) of Part F
of the First Schedule]. However, the product, by its description, purpose,
and application of the common parlance test, squarely fell within Entry
20A of Part C of the First Schedule, which were medical preparations,
to be used internally or meant for external use or application "for
treatment of diseases or disorders". It was underlined that the
exclusion from this entry was of products capable of use as creams,
hair oils, tooth pastes,tooth powders, cosmetics, toilet articles, soaps
and shampoos. Learned counsel submitted that the specific mention of
one class of powders, i.e. tooth powder, and use of "cosmetic" with
other expressions, clarifying that if the use of the product was only or
predominantly as cosmetic, would it not fall under Entry 20A. It was
submitted that having regard to the literature and the essential purpose
of Nycil powder, it did not fit the description as a cosmetic [which is
excluded], even if the Explanation to Entry I (iii) of Part F were taken
into account. Thus, it has to be treated as a medicine.
20. Learned counsel relied on S. Sundaram Pillai v V. R.
Pattabiraman15 and urged that the Explanation, to Entry I (iii) has to be
considered in the context of the established rule that while a proviso
excepts something out of the enactment which would otherwise be within
its purview yet, if the text, context or purpose so require a different rule
may apply. Likewise, an explanation is to explain the meaning of words
of the section but if the language or purpose so require, the explanation
can be so interpreted. All that the explanation did was to say that if the
exclusion of cosmetic articles from Entry 20 per se did not result in its
falling within the Entry relating to cosmetics, i.e. Entry I of Part F. It
continued to be essentially a medicine, for prickly heat.
21. Next, Share Medical Care v Union of India16 was relied
upon, to urge that if two interpretations are possible, that favouring the
assessee should be adopted. Pappu Sweets and Biscuits v. Commr. Of
15 [1985] 2 SCR 643
16 2007 (3) SCR 44
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Trade Tax, U.P17 (hereafter "Pappu Sweets and Biscuits") and
Collector of Excise v. M/s Parle Exports (P) Ltd18 were cited for the
argument that the words used in the provision, imposing taxes or granting
exemption should be understood in the same way for which they are
understood in ordinary parlance in the area in which the law is in force
or by the people who ordinarily deal with them.
IV
22. Mr. Pallav Sisodia, learned senior counsel appearing on behalf
of the State of Kerala, urged that the correct test to be applied is whether
the product is capable of use as a medication. He relied on Collector
of Central Excise v CIENS Laboratories19 (hereafter "CIENS
Laboratories") to say that this court had elaborately considered all
relevant factors, and devised the following test:
"19. Thus, the following guiding principles emerge from the
above discussion. Firstly, when a product contains
pharmaceutical ingredients that have therapeutic or
prophylactic or curative properties, the proportion of such
ingredients is not invariably decisive. What is of importance
is the curative attributes of such ingredients that render the
product a medicament and not a cosmetic. Secondly, though
a product is sold without a prescription of a medical
practitioner, it does not lead to the immediate conclusion that
all products that are sold over across the counter are
cosmetics. There are several products that are sold over-thecounter and are yet, medicaments. Thirdly, prior to
adjudicating upon whether a product is a medicament or not,
Courts have to see what the people who actually use the
product understand the product to be. If a product's primary
function is "care" and not "cure", it is not a medicament.
Cosmetic products are used in enhancing or improving a
person's appearance or beauty, whereas medicinal products
are used to treat or cure some medical condition. A product
that is used mainly in curing or treating ailments or diseases
and contains curative ingredients even in small quantities, is
to be branded as a medicament."
17 1998 (Suppl)(2) SCR 119
181988 (Suppl)(3) SCR 933
19 2013 (14) SCR 38
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23. It was submitted that the expression "medicated" has great
significance, because it implies that a substance is filled with, or covered
in medicine, or medication. Learned counsel relied on the judgment of
this court, in Union of India (UOI) &Ors v Leukoplast Private Limited
&Ors20 where the assessee's contention that a surgical pad medicated
with Nitrofurozone was not a patent or proprietary medicine, was
rejected. The court noted that the addition of a small quantity of
Nitrofurozone after rendering the pad sterile, made it a medicine.
24. It was submitted that the intention of the legislature was to
ensure that the article fell within the cosmetic class of products while
classifying it. Therefore, the expression "medicated" was used, in
conjunction with "talcum powder". When consciously the law classified
the goods and grouped them together as part of one entry, the court has
to give effect to their plain intendment. Thus, the inclusion of "talcum
powder" and "medicated talcum powder" under the same entry, i.e.
Entry 127 was by design, to ensure that the product was not classified
elsewhere. It was submitted that mere use of "powder" or "talcum
powder" would not have covered Nycil powder as a cosmetic, because
it had certain ingredients that could be preventive and curative. However,
pre-fixing "medicated" to "talcum powder" rendered the issue, beyond
debate.
25. It was submitted that products which are sold over the counter
are sometimes hybrid in nature, such as lozenges, cough drops, which
double up both as curative of certain ailments, as well as sweets or
eatables. Likewise, Nycil powder has dual use: it can be used as a
cosmetic,but has a medicinal use as well. However, the statute in this
case, clearly requires its classification as a cosmetic, along with others,
in view of the specific and unambiguous use of the term "medicated
talcum powder".
26. Learned counsel for the revenue relied on Hamdard (Wakf)
Laboratories (supra) and N.D.P. Namboodripad (Dead) by LRs. v.
Union of India21 and submitted that when an interpretation clause uses
the word "includes", it is meant to be extensive. The term 'and includes'
is intended to rope in items which would not be part of the meaning, but
for the definition the words 'includes' thus, means 'comprises' or 'consists
of'.
201994 (1) SCR 343
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27. Mr. K. Radhakrishna, learned senior counsel appearing for
the revenue, in the Tamil Nadu case, contended that the history of the
legislation is a decisive factor to be taken into account, while determining
the proper classification of a product. It was pointed out that two factors
are important: one, that the entry (entry 20, Part C of the First Schedule
which deals with "medicines") was amended in 1994. Before amendment
(on 01.04.1994), the entry clearly stated that preparations or formulations
that were "capable of being used as creams, hair oils, tooth pastes,
tooth powders, cosmetics, toilet articles, soaps and shampoos" were
to be "excluded". For the same period, cosmetics (described as scents,
hair oils etc, and falling in Entry 1 of Part F of the First Schedule) included
talcum powder. Two, the placement of talcum powder, with lipsticks, lip
salve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders,
talcum powders, powder pads, etc. clearly established that all manner of
talcum powder fell within the entry, i.e. Entry 1(iii). After amendment,
with effect from 01.04.1994, the matter was placed beyond any
controversy, by the explanation, which 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 clearly brought within the fold of Entry 1, Part F medicated
talcum powder, regardless that the license to manufacture it, was under
the Drugs Act.
28. Learned senior counsel highlighted that the Madras High Court,
in the impugned judgment, had considered the meaning of the expressions
"drug" and "cosmetic" under the Drugs Act, and also taken note of the
dictionary meanings of those terms.