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COMMISSIONER OF COMMERCIAL TAXES vs. M/S. ASWINI HOMEO PHARMACY-(GST SC Cases)

Supreme Court upholds classification of 'Aswini Homeo Hair Oil' as 'medicine' under Entry 37 of Andhra Prades…

Supreme Court upholds classification of 'Aswini Homeo Hair Oil' as 'medicine' under Entry 37 of Andhra Pradesh Sales Tax Act for 1994-95 and 1995-96.

The Supreme Court dismissed an appeal filed by the Commercial Tax Department of the State of Rajasthan against a High Court order that had ruled in favor of M/s. Aswini Homeo Pharmacy. The High Court had earlier accepted the company's claim that its product 'Aswini Homeo Hair Oil' should be classified as a 'medicine' under Entry 37 of Schedule-I of the Andhra Pradesh General Sales Tax Act, 1957 (APGST Act) and taxed at a lower rate, instead of being treated as a 'cosmetic product' attracting a higher tax rate.

Case Name:

Commissioner of Commercial Taxes Vs. M/s. Ashwini Homeo Pharmacy (GST SC Cases)

Key Takeaways:

- The Supreme Court affirmed the classification of 'Aswini Homeo Hair Oil' as a 'medicine' under Entry 37 of Schedule-I of the APGST Act for the assessment years 1994-95 and 1995-96.


- The court relied on the fact that the hair oil contained ingredients found in the Homeopathic Pharmacopoeia and that the company had a license to manufacture homeopathic medicines for external use as drugs.


- This decision clarifies the criteria for determining whether a product should be classified as a 'medicine' or a 'cosmetic product' for tax purposes under the relevant state laws.

Issue:

Should 'Aswini Homeo Hair Oil' be classified under Entry 37 of Schedule-I of the Andhra Pradesh General Sales Tax Act, 1957, as a 'medicine' and taxed at a lower rate, or should it be treated as a 'cosmetic product' and taxed at a higher rate?

Facts:

M/s. Aswini Homeo Pharmacy, a registered dealer under the APGST Act, manufactured and sold a product called 'Aswini Homeo Hair Oil.' During a survey in 2009, the Commercial Tax Officer (CTO) found that the company was charging sales tax at a lower rate of 4% by classifying the product under Entry 37 of Schedule-I (for medicines). The CTO and Deputy Commissioner held that the product should be taxed at a higher rate of 12.5% under the residuary entry, treating it as a cosmetic product. The company appealed, and the matter ultimately reached the Supreme Court.

Arguments:

The appellant (State of Rajasthan/CTO) argued that 'Aswini Homeo Hair Oil' did not fall under any specific entry in the relevant schedules of the APGST Act and should be taxed at the higher residuary rate. The respondent (M/s. Aswini Homeo Pharmacy) contended that the hair oil contained ingredients found in the Homeopathic Pharmacopoeia and that the company had a license to manufacture homeopathic medicines for external use as drugs under the Drugs and Cosmetics Act, 1940. Therefore, the product should be classified as a 'medicine' under Entry 37 and taxed at the lower rate.

Key Legal Precedents:

The Supreme Court cited the cases of M/s Annapurna Carbon Industries vs. State of Andhra Pradesh [(1976) 2 SCC 273] and Commissioner of Central Excise, Delhi vs. Insulation Electrical Private Limited [(2008) 12 SCC 45], which established the principle that "a thing is a part of the other if the other is incomplete without it" or "a thing is a part of the other if the other cannot function without it."

Judgement:

The Supreme Court dismissed the appeal filed by the State of Rajasthan (CTO). The court held that 'Aswini Homeo Hair Oil' contained ingredients found in the Homeopathic Pharmacopoeia, and the company had a license to manufacture homeopathic medicines for external use as drugs. Therefore, the product was rightly classified under Entry 37 of Schedule-I of the APGST Act as a 'medicine' and taxable at the lower rate of 4% for the assessment years 1994-95 and 1995-96. However, the court clarified that this decision would not apply to subsequent assessment years due to amendments made to the APGST Act.

FAQs:

Q1: What was the significance of the company having a license to manufacture homeopathic medicines?

A1: The license granted by the licensing authority of the State of Andhra Pradesh to manufacture homeopathic medicines for external use as drugs under the Drugs and Cosmetics Act, 1940, was a crucial factor in the court's decision to classify the product as a 'medicine' rather than a 'cosmetic product.


Q2: Can this decision be applied to other similar products or in other states?

A2: The decision is specific to the classification of 'Aswini Homeo Hair Oil' under the Andhra Pradesh General Sales Tax Act, 1957, for the assessment years 1994-95 and 1995-96. However, the principles established in this case regarding the classification of products as 'medicines' or 'cosmetic products' based on their ingredients and licensing may be relevant in other similar cases.


Q3: What is the impact of the court's decision on the tax liability of the company?

A3: By upholding the classification of 'Aswini Homeo Hair Oil' as a 'medicine' under Entry 37 of Schedule-I of the APGST Act, the company would be liable to pay a lower tax rate of 4% instead of the higher rate of 12.5% for the assessment years 1994-95 and 1995-96.


Q4: Can the State of Rajasthan appeal this decision further?

A4: The judgment does not mention the possibility of further appeals. However, in general, parties have the option to explore higher appellate forums if they wish to challenge a Supreme Court decision, subject to the applicable laws and procedures.



1. Heard learned counsel for the parties.


2. These appeals take exception to the judgment and order dated 10th April, 2007 passed by the High Court of Andhra Pradesh at Hyderabad in Special Appeal Nos. 8 and 10 of 2000, whereby the High Court reversed the decision of the Commissioner and restored the assessment order passed by the jurisdictional Deputy Commissioner accepting the claim(s) of the respondent that the product manufactured by the respondent by the name of ‘Aswini Homeo Hair Oil’ came under Entry 37 of Schedule-I to The Andhra Pradesh General Sales Tax Act, 1957 (for short, ‘the APGST Act’).


3. In the present appeals, we are concerned only with the assessment years 1994-1995 and 1995-1996. We need to clarify this position because Entries 36 and 37 of Schedule-I of the APGST Act have been amended after 1st August, 1996. The claim(s) in the present appeals, therefore, will have to be judged on the basis of the entries obtaining prior to 1st August, 1996.


4. It is not in dispute that the respondent, after amendment of the Entries on and from 1st August, 1996, is regularly paying sales tax in respect of the product in question with reference to Entry 36. Prior to the amendment, the same product was assessed as being covered under Entry 37. That claim of the respondent was based on the assertion that the hair oil manufactured by the respondent contains ‘Arnica Mount Q, Cantharis Q, Cinchona Q and Pilocarpine Q’ which are found in the Homeopathic Pharmacopoeia. In addition, the respondent placed emphasis on the certificate issued by the licensing authority of the State of Andhra Pradesh, certifying that the respondent was granted licence to manufacture Homeopathic medicine for external use as a drug under Section 3(b)(i) of The Drugs and Cosmetics Act, 1940 and Rule 2(d) of The Drugs and Cosmetics Rules, 1945.


5. The Commissioner had reversed the assessment order on the finding that the respondent did not produce any authority to prove or establish that the hair oil manufactured by the respondent had any curative property.


6. Notably, the Commissioner had failed to address the specific plea of the respondent that the hair oil manufactured by the respondent contains ‘Arnica Mount Q, Cantharis Q, Cinchona Q and Pilocarpine Q’ and would, therefore, qualify to be a drug within the meaning of Section 3 of The Drugs and Cosmetics Act, 1940, and if so, would be covered under Entry 37 of Schedule-I of the APGST Act; and not Entry 36 which is for general hair tonics, hair oils or hair lotions, as such. The High Court, therefore, reversed the conclusion reached by the Commissioner after noting the aforementioned contention of the respondent and, instead, held that the respondent had produced sufficient material to show that the product manufactured by the respondent was a medicine and not a cosmetic product.


7. The fact that the respondent is using the Homeopathic Pharmacopoeia referred to earlier in manufacturing of the hair oil has not been traversed by the appellant. Neither has the Commissioner dealt with that contention of the respondent nor was such a plea taken before the High Court by the appellant. Considering this, we see no reason to deviate from the conclusion reached by the High Court that the product manufactured by the respondent was rightly assessed at the relevant point of time in the assessment years 1994-1995 and 1995-1996, as covered by Entry 37 of Schedule-I of the APGST Act.


8. We once again make it amply clear that the view taken in these appeals is in the fact situation of this case and confined to the assessment years 1994-1995 and 1995-1996 only and would not apply or be of any avail to the respondent for the subsequent assessment years, in view of the amendment effected in the APGST Act.


9. The appeals are disposed of accordingly.



(A.M. KHANWILKAR)



(AJAY RASTOGI)


NEW DELH


FEBRUARY 27, 2019