HIMALAYA DRUG COMPANY Vs. STATE OF KERALA

JUDGEMENT

(1.) The above 'Other Tax Appeal' is preferred challenging Annexure A4 order issued by the Authority for Clarification under Section 94 of the Kerala Value Added Tax Act, 2003. W.P.(C) No.6388 of 2018 is filed challenging Ext.P2 penalty order issued in respect of the goods with respect to which the clarification was sought, pursuant to an inspection and seizure made at the check post. W.P.(C) No.6390 of 2018 challenges Ext.P2 pre assessment notice issued in respect of the assessment year 2014-15 in respect of the very same goods.

(2.) A common question arises for consideration in these cases. The appellant, who is a manufacturer of ayurvedic products, had approached the 'Authority for Clarification' seeking clarification as to whether the specified products i.e., 1. Ayurvedic Baby Soap 2. Ayurvedic Tooth Paste 3.Ayurvedic Mouth Wash 4. Baby gift pack and 5. Ayurvedic Baby Powder manufactured by the appellant under the drug licence granted under the Drugs and Cosmetics Act, 1940 are eligible for concessional rate of tax in terms of the newly introduced Clause 27 under Entry No.36 of the IIIrd schedule to the KVAT Act, 2003. It was contended that, Entry 36 of the 3rd schedule was with regard to drugs, medicines and bulk drugs including Ayurvedic, Unani and Homeopathic medicine. It is stated that the products enumerated under Entry 36 are specific and had HSN codes indicated against each of them. Medicaments of the Ayurvedic system, with specific eight digit Harmonized System of Nomenclature (HSN for short) Codes were included in Entry 36. A new sub entry, that is Sub Entry 27, was inserted in Entry 36 of the IIIrd schedule by the Kerala Finance Act, 2012. The said sub entry read as follows:-

(3.) Learned counsel for the appellant would contend that since the sub entry itself specifically referred to Ayurvedic Cosmetics containing added medicaments and manufactured under a drug licence granted under the Drugs and Cosmetics Act, 1940, all Ayurvedic products manufactured under a Drug Licence so granted, which contained added medicaments are liable to be included under the said Sub Entry and should be granted concessional rate of tax. Specific contention of the petitioner is that, cosmetics are a genre of which toiletries are a species and that as such, all toiletries and consumer articles produced by the appellant company under a valid licence under the Drugs and Cosmetics Act, which are not drugs per se would come within the definition of cosmetics and would be entitled to concessional rate of tax. Placing reliance on the definition of Cosmetics in the Drugs and Cosmetics Act, it is contended that, all the products of the appellant for which clarification was sought under Section 94 answered the definition of 'Cosmetics' as contained in the Drugs and Cosmetics Act, and are therefore eligible for concessional rate. Section 3(aaa) of the Drugs and Cosmetics Act defines cosmetic as follows:-