Ramesh Ranganathan, CJ
1. Heard Mr. S.K. Posti, learned counsel for the revisionist, and Mr. Mohit Maulekhi, learned Brief Holder for the State.
2. This revision, under Section 55 (i) of the Uttarakhand Value Added Tax Act, 2005, is preferred by the assessee against the common order dated
31.10.2012 passed by the Commercial Tax Tribunal, Uttarakhand in Second Appeal Nos.31 & 32 of 2012 relating to the Assessment Years 2005-06
and 2006-07. The Second appeals before the Tribunal were filed against the order passed by the Joint Commissioner (Appeal)-II who, while affirming
the order in appeal passed by the Assessing Authority, held that ‘Halls’ (the products manufactured by the petitioner) was a confectionary, and
not an Ayurvedic medicine.
3. In the order under revision, the Tribunal referred to the judgment of a Division Bench of this Court in “Commissioner of Trade Tax/Commercial
Tax, Dehradun vs. M/s Perfetti Van Melle (India) Pvt. Ltd., Rishikesh; 2008 NTN (Vol.38)-211â€; the judgment of the Allahabad High Court in
“Associated Distributors Limited Vs. Commissioner of Trade Tax, 2002 UPTC 173â€; and the order of the Madras High Court in Ms/ Cadbury
India Ltd. Vs. the Assistant Commissioner (CT), (order in “Writ Petition No.21346 of 2007 dated 1.07.2009â€), and held that the items under
dispute, i.e. different flavours of ‘Halls’, could not be treated as proprietary Ayurvedic medicine so as to fall within the category of drugs,
medicine and pharmaceutical preparations etc. enumerated under Items No.41 of Schedule II (B) of the Act; and the assessee was liable to be taxed
@12.5% on every point of sale. The appeals were dismissed, and the orders passed by the Joint Commissioner (A) and Assessing Authority were
affirmed. Aggrieved thereby, the present revision petition has been filed.
4. Shri S.K. Posti, learned counsel for revision-petitioner (assessee), would submit that the subject goods ‘Halls’ were manufactured under a
drug licence issued by the Competent Authority in the State of Karnataka; a drugs licence was granted for manufacture of ‘Halls’ as an
Ayurvedic medicine; the States of Uttar Pradesh, Himachal Pradesh, Punjab & Haryana, Jammu and Kashmir and Rajasthan, have assessed
‘Halls’ as an Ayurvedic Medicine, and have subjected these goods to tax only at 4 percent; the assessment orders, passed by the assessing
authorities of the concerned States, were also placed before the Tribunal; a Division Bench of this Court, in Commissioner of Trade Tax v. M/s
Perfetti Van Melle (India) Pvt. Ltd.; 2008 NTN (Vol.38)-211, held that the mere fact that the medicine is not sold by prescription, and is sold across
the counter, would not denude it of its character of being an Ayurvedic medicine; the low quantum of active Ayurvedic ingredients in the said product
is of no consequence; and the very fact that a drugs licence was issued would suffice to hold that the subject goods are Ayurvedic medicines falling
within the ambit of Entry 41 of Schedule II (B) of the Uttarakhand VAT Act. Learned counsel would also rely on the order of the Supreme Court in
“Puma Ayurvedic Herbal (P) Ltd. vs Commissioner, Central Excise, Nagpur; (2006) 3 SCC 266â€; and the provisions of Drugs and Cosmetics
Act, 1940.
5. On the other hand Shri Mohit Maulekhi, learned counsel appearing on behalf of the State, would submit that it is only if the ingredients of the drug
are mentioned in prescribed Ayurvedic texts, can the product then be held to be an Ayurvedic medicine; no evidence was adduced by the appellant,
before any of the authorities below, to show that the ingredients, of the product ‘Halls’, have been referred to in any of the prescribed
Ayurvedic texts; mere grant of a licence under the Drugs and Cosmetics Act, 1940 alone, without anything more, would not make the product an
Ayurvedic medicine; the assessing authority has noted that the registration certificate issued in favour of the assessee, under the Central Sales Tax
Act, makes no reference of the assessee being authorized to sell any medicine; all these factors indicate that ‘Halls’ is merely a confectionary,
and not an Ayurvedic medicine; the percentage of active agents in ‘Halls’, as has been held by the Tribunal, is merely 0.33% (1/3rd of 1% of
the total product); and a bare perusal of the composition of the product, as noted in the order of the Tribunal, would show that it is a sugar candy and a
confectionary disguised as an Ayurvedic medicine.
6. It is not in dispute that the product ‘Halls’ is manufactured in the State of Karnataka under a drug licence issued by the Director of
Ayurvedic and Unani Services of the State of Karnataka. The Tribunal has, in its order, also held that the subject goods were sold in the State of
Uttarakhand on stock transfer; that Pudina (Menthol) and Nilgiri Tailam (Eucalyptus Oil)/ Eucalyptus Galbules) are the active agents used in the
manufacture of the said product; the active agents, in the said product, constitute merely 0.33% of the tablet; Shakara (Sucrose/Cane Sugar), Shakara
(Liquid Glucose), and Water form its base; and Nimbuka Satwam and Soya Bean Oil are used for taste.
7. Goods falling within the ambit of Entry 41 of Schedule II (b) are liable to tax at 4%. Entry 41 of Schedule II (B), of the Uttarakhand VAT Act,
reads thus:
“Drugs, medicines and pharmaceutical preparations (Alopathic, Ayurvedic, Homeopathic and Unani) including vaccines syringes and dressings,
medicated ointments produced under drug license and the light liquid paraffin of I.P. Gradeâ€.
8. While the assessee contended, before the Tribunal, that the product ‘Halls’ falls within the ambit of Entry 41, it was contended, on behalf of
the State, that it did not and, consequently, it would be liable to be subjected to tax as unclassified goods liable to tax at 12.5%.
9. The Uttarakhand VAT Act, and its Schedules, do not define an “Ayurvedic medicineâ€. Since the petitioner has manufactured the subject
goods, under a licence issued under the Drugs and Cosmetics Act, 1940, it is useful to take note of the relevant provisions of the said Act and its rules
to ascertain whether ‘Halls’ is an “Ayurvedic medicineâ€. Section 3(a) of the Drugs and Cosmetics Act, 1940 (hereinafter called “the
Actâ€) defines an Ayurvedic drug to include all medicines intended for internal or external use for or in the diagnosis, treatment, mitigation or
prevention of disease or disorder in human beings or animals, and manufactured exclusively in accordance with the formulae described in the
authoritative books of Ayurvedic system of medicine, specified in the First Schedule Section 3 (h) (1) of the Act defines “Patent or proprietary
medicinesâ€, in relation to Ayurvedic systems of medicine, to mean all formulations containing only such ingredients mentioned in the formulae
described in the authoritative books of Ayurveda systems of medicine specified in the First Schedule, but does not include a medicine which is
administered by parenteral route, and also a formulation included in the authoritative books as specified in clause (a) of Section 3 of the Act. The First
Schedule to the Act refers to various books of Ayuredic medicine under Sl. No. 1 to 54 (D) thereunder. Consequently an Ayurvedic medicine, falling
within the ambit of the Act, would include all medicines manufactured in accordance with the formulae prescribed in authoritative books of Ayurvedic
system medicines specified under Serial Nos. 1 to 54 (D) of the First Schedule to the Act.
10. The revision-petitioner has not adduced any evidence before the Tribunal to establish that the active agents of ‘Halls’ are referred to in any
of the authoritative books of the Ayurvedic system of medicine specified under Sl. Nos. 1 to 54(D) of the First Schedule to the Act. As the
petitioner’s claim that “halls†is an Ayurvedic drug is based mainly on the fact that a licence, to manufacture the said product, has been issued
in their favour under the Act, it is necessary to refer to the relevant provisions of the Act, and the Rules, which relate to the grant of a licence.
11. Section 33 EEB of the Act stipulates that no person shall manufacture, for sale or for distribution, any Ayurvedic drug except in accordance with
such standards as may be prescribed in relation to that drug. Section 333EC(c) stipulates that the State Government may, by notification in the Official
Gazette, specify, in this behalf, that no person, either by himself or by any other person on his behalf, shall manufacture, for sale or for distribution, any
Ayurvedic drug except under, and in accordance with the conditions of, a licence issued for such purpose under this Chapter by the prescribed
authority.
12. Rule 154 (1) of the Drugs and Cosmetics Rules, 1945 (hereinafter called the “Rulesâ€) stipulates that, subject to the conditions of Rule 157
being fulfilled, a licence, to manufacture for sale any Ayurvedic drug, shall be issued in Form 25D. Rule 154 (2) of the Rules stipulates that a licence,
under this Rule, shall be granted by the licensing authority after consulting such expert in Ayurvedic system of medicine, as the case may be, which
the State Government may approve in this behalf.
13. Relying on Rule 154 (2), Shri S.K. Posti, learned counsel for the revision-petitioner, would contend that, since the said Rule obligates the licensing
authority to consult an expert in Ayurvedic system of medicine as is approved by the State Government, the very fact that a licence has been issued
under Act, stipulating that ‘Halls’ is an Ayurvedic medicine, would, by itself, require the said product to be treated as an Ayurvedic medicine.
14. Reliance placed, on behalf of the petitioner, on the judgment of the Madras High Court in “M/s Cadbury India Limited vs. The Assistant
Commissioner (CT) (order in WP No. 21346 of 2007 dated 1.07.2009)†is of no avail. In the said judgment, a writ of prohibition was sought
prohibiting the respondents from assessing or levying or collecting sales tax, on the sale of ‘Halls’, of more than 4%. The Madras High Court,
taking into consideration the clarification dated 28.2.2003, and the order of the Assistant Commissioner, Central Excise, Bangalore dated 28.5.1999,
held that the product ‘Halls’ was an Ayurvedic medicine. It further held that the show cause notice issued to the assessee was inconsistent with
the circulars issued by the Commissioner of commercial taxes, Chennai dated 02.01.2004 and 16.04.2004. The order issued by the Commissioner,
Chennai can hardly be said to have any application in the State of Uttarakhand. The mere fact that the sales tax authorities in Tamil Nadu have held
the product to be an ayurvedic medicine, matters little. Placing reliance on the conclusion arrived at by Commercial Tax authorities would require this
Court to hold against the assessee since all the authorities, in the present case (the assessing authorities, the Joint Commissioner, and the Tribunal),
have held that “Halls†is not an Ayurvedic Medicine. We see no reason, therefore, to arrive at a definitive conclusion, either way, based on such
conclusions.
15. In “Naturalle Health Products (P) Limited Vs. C.C.E., (2004) 9 SCC 136â€, on which reliance is placed on behalf of the revision petitioner, the
Supreme Court observed:-
“………. From the above, it is clear that a patent Ayurvedic medicament could be one where all the ingredients find mentioned in the authoritative
text books on Ayurveda, though the formula for preparation of the medicament is not in accordance with the formula given in those text books. It is
not in dispute that all the ingredients are mentioned in the authoritative text books on Ayurveda. In fact, in the case of appellant in Civil Appeal No.
2072/1996, the products satisfy the definition in Section 3(h) of Drugs & Cosmetics Act as 'patent or proprietary' Ayurvedic medicines also. Further,
the manufacture of this medicament is being done under the Ayurvedic drug licence issued by competent authority…….â€
…….. In terms of the order passed by the CEGAT in the case of Richardson Hindustan Ltd. v. Collector of Central Excise (1988 (35) 424 (Tribunal)
which has been affirmed by this Court and similar view taken in other cases referred to supra, the following clear propositions and findings emerge:-
'(a) That the words 'Ayurvedic Medicine' not having been defined in the Central Excise and Salt Act, 1944 or the Central Excise Tariff Act, 1985, the
common parlance test would have to be resorted to find out whether a medicine is treated as an Ayurvedic medicine by the public;
(b) That it is necessary that the ingredients of Ayurvedic Medicine should be mentioned in authoritative books on Ayurvedic Medicines.'
We are also of the opinion that when there is no definition of any kind in the relevant taxing statute, the articles enumerated in the tariff schedules
must be construed as far as possible in their ordinary or popular sense, that is, how the common man and persons dealing with it understand it. If the
customers and the practitioners in Ayurvedic medicine, the dealers and the licensing officials treat the products in question as Ayurvedic medicines
and not as Allopathic medicines, that fact gives an indication that they are exclusively ayurvedic medicines or that they are used in Ayurvedic system
of medicine, though it is a patented medicine. This is especially so when all the ingredients used are mentioned in the authoritative books on Ayurvedic.
As rightly contended by the counsel for the appellants, the essential character of the medicine and the primary function of the medicine is derived from
the active ingredients contained therein and it has certainly a bearing on the determination of classification under the Central Excise Act. As held in
Amrutanjan case, the mere fact that the ingredients are purified or added with some preservatives does not really alter their character………….â€
[emphasis supplied]
16. Manufacture of “Halls†under an Ayurvedic Drug licence, issued by the competent authority, is one of the factors to show that the said
product is an Ayurvedic medicine. The common parlance test is yet another factor. The main criterion, to determine whether the product is an
Ayurvedic medicine, is if all the ingredients of the said product find mention in authoritative books of Ayurvedic medicine, though the formula for
preparation of the medicament is not in accordance with the formula in those text books.
17. In the light of the law declared by the Supreme Court in “Naturalle Health Products (P) Limited Vs. C.C.E., (2004) 9 SCC 136†as long as
the active agents of the product ‘Halls’ find mention in the Ayurvedic Texts, referred to in the First Schedule to the Act, it would suffice to
bring it within the ambit of an Ayurvedic medicine.
18. In “Puma Ayurvedic Herbal (P) Ltd. vs Commissioner, Central Excise, Nagpur; (2006) 3 SCC 266â€, the Supreme Court observed:-
“……. The extent or the quantity of medicament used in a particular product will also not be a relevant factor. Normally, the extent of use of
medicinal ingredients is very low because a larger use may be harmful for the human body. The medical ingredients are mixed with what is in the
trade parlance called fillers or vehicles in order to make the medicament useful. To illustrate an example of Vicks Vaporub is given in which 98% is
said to be paraffine wax, while the medicinal part i.e. Menthol is only 2%. Vicks Vaporub has been held to be medicament by this Court in CCE v.
Richardson Hindustan Ltd. 1989 (42) ELT A100. Therefore, the fact that use of medicinal element in a product was minimal does not detract from it
being classified as a medicament.
In order to be a medicinal preparation or a medicament it is not necessary that the item must be sold under a doctor's prescription. Similarly availability
of the products across the counter in shops is not relevant as it makes no difference either way……â€
[emphasis supplied]
19. The law declared by the Supreme Court, in Puma Ayurvedic Herbal (P) Ltd, is that the quantity of medicament used in a particular product is not
a relevant factor; in order to be a medicinal preparation or a medicament, it is not necessary that the item must be sold under a doctor's prescription;
and availability of the product, across the counter in shops, is also not relevant. The submission of Shri Mohit Maulekhi, learned Brief Holder for the
State, that the subject product is not sold under a prescription, and the active agents in the said product form merely 0.33% of its composition, is of no
consequence, in determining whether or not “Halls†is an Ayurvedic medicine.
20. Since both Mr. S.K. Posti, learned Counsel for the revisionist and Mr. Mohit Maulekhi, learned Brief Holder for the State place heavy reliance on
the Division Bench judgment of this Court, in ‘Commissioner of Trade Tax v. M/s Perfetti Van Melle (India) Pvt. Ltd.’, it is necessary to take
note of the law laid down therein. The relevant part of the judgment, on which learned Counsel of either side place reliance upon, reads as under: -
“……….Authoritative books of Ayurvedic and Siddha systems, are mentioned in Schedule A of First Schedule of Drugs and Cosmetic Act, 1940.
Said list includes book titled “Bhav Prakashâ€. Shri Sudhanshu Dhulia, learned Counsel for the respondent referred before us, item Nos. 70 and 73
of Schedule-I of book titled “Bhavprakashnighantuâ€. Written by Ganga Sahaye Pandey and Krishnachandra Chunekar. The entries in the
Schedule of said Book describe qualities of Peppermint and Pudeena (Spearmint). Our attention is also drawn to the fourth chapter of Book titled
“Dravyaguna Vijnana†Volume-II, written by prof. P.V. Sharma, in which medicinal qualities of Eucalyptus, are mentioned. On the basis of
properties mentioned of peppermint and pudeena, it is argued that the items manufactured by assessee have medicinal value and for the reason that
the chlormint preparations included the aforesaid peppermint and spearmint, as its contents. Therefore, the same are Ayurvedic medicines and not the
confectionary. On the other hand, Shri Sudhir Kumar, learned Counsel for the revisionist, argued that Haldi (turmeric), Kalimirch (black pepper), etc.
have also medicinal values and that does not make everything medicine. What makes an item medicine is formulae for the medicines in its proper dose
for the treatment of a disease or disorder.
No doubt, merely for the reason that some plant or its leaves, stem, or fruit has medicinal value does not make everything Ayurvedic medicine. But in
the present case, literature of ‘Chlormint which Herbasole’ and Happydent’ (white baking soda with mint flavour) show that the same are
manufactured under Ayurvedic medicine manufacturing license No. 157 ISM (HR). Annexure-I to the counter-affidavit filed in these revisions shows
that the Deputy Director -cum-Licensing Authority of Directorate of Ayush Haryana, has renewed the license of the respondent M/s. Perfetti Van
Melle (India) Pvt. Ltd. for manufacturing Ayurvedic/Siddha drugs. Annexure-3 to the counter-affidavit shows that the Licensing Authority and
Director of Ayurvedic, Haryana, has approved the preparations of ‘Chlormint’ and ‘Happydent’, manufactured by the
respondent/assessee under Drugs and Cosmetic Act, 1940.
It is not disputed that there are three kinds of medicines available in the market. Firstly, the medicines which can be purchased from only approved
chemist/pharmacist that too only on the prescription of the registered medical practitioner. Secondly, the medicines, which can be purchased from
approved chemist/pharmacist but not necessarily required to be prescribed by registered medical practitioner And thirdly, the medicines, which can be
purchased without prescription of any medical practitioner and can be, had not only form the shops of the approved chemists but also form other
shops. It is not disputed that even those products containing formulae of constitutes prescribed by authorised books of medicines, which are not
prescribed by doctors and not required to be purchased necessarily from the approved chemists are also medicines, provided the same are
manufactured under the drugs, license, issued under Drugs and Cosmetic Act, 1940. In the present case, the items ‘Chlormint’ and
‘Happydent’ are manufactured by the assessee/respondent under the drug license issued to it by the Directorate of Ayurvedic Medicines of
State of Haryana. As to the formulations, the quantity of ‘Chlormint with Herbasole’ and ‘Happydent’ are also mentioned in the covers
they are sold (as is apparent from annexures filed with counter-affidavit). As to the utility of ‘Chlormint with Harbasole’, as mouth fresheners
and that of 'Happdent' (white baking soda with mint flavour) to keep the teeth clean, are also not disputed. Only for the reasons these items are also
purchased by some customers for taste also, does not make them confectionary items particularly when the same are manufactured under a valid drug
license. As such, having heard learned Counsel for the parties and after going through the principle of Law laid down in M/s Puma Ayurvedic Herbal
(Pvt.) Ltd. vs. Commissioner Central Excise, Nagpur, (2006) 3 S.C.C. 266 and Naturalle Heath Products (Pvt.) Ltd. vs. Collector of Central Excise,
Hyderabad, (2004) 9 S.C.C. 136 and for the reasons discussed above, we hold that items “Chlormint with Herbasole†and “Happydentâ€
manufactured by the assessee under valid drug license are Ayurvedic medicines and Trade Tax payable on said items is 4 percent as provided in
Clause (b) of subsection (2) of Section 4 of the Uttaranchal Value Added Act, 2005………..â€
(emphasis supplied)
21. Reliance was placed, on behalf of the assessee therein, on the fourth chapter of the book ‘Dravyaguna Vijnana’ Volume-II, written by Prof.
P.V. Sharma, in which the medicinal qualities of Eucalyptus were mentioned, and on the basis of the properties mentioned of peppermint and pudeena,
it was argued therein that the items manufactured by the assessee had medicinal value. The Division Bench held that merely for the reason that some
plant has medicinal value does not make everything an Ayurvedic medicine. The Division Bench relied on the fact that the product therein, i.e.
‘Chlormint’, was manufactured under an Ayurvedic medicine manufacturing licence issued by the Licensing Authority in the State of Haryana.
Thereafter, the Division Bench observed that the mere fact that the said product could be purchased without prescription of any medical practitioner,
and can be had from the shops of approved chemists and from other shops also, would not denude it of the characteristics of an Ayurvedic medicine,
if the formulae of its constituents were to be found in prescribed books of Ayurvedic medicine.
22. While prescription by a doctor is not necessary for a product to be treated as an Ayurvedic medicine, would the mere fact that a licence, to
manufacture the said product, has been issued by the Licensing Authority for Ayurvedic system of medicine, suffice to treat the said product as an
Ayurvedic medicine, in the State of Uttarakhand?
23. The Tribunal has relied on the judgment of the Allahabad High Court in ‘Associated Distributors Ltd. V. Commissioner of Trade Tax’ 2002
UPTC 173 (dated 9.11.2001), wherein it was held that mere obtaining a licence under the Drugs Act, and getting clearance under the said Act, would
not entitle a person to obtain benefits under the said Act.
24. The above referred provisions of the Act do lend support to the submission, of Mr. S.K. Posti, learned Counsel for the revision petitioner, that an
Ayurvedic licence is issued to manufacture a product only after the product is, on consultation with Ayurvedic experts, held to be an Ayurvedic
medicine; and, therefore, grant of an Ayurvedic licence to manufacture “Halls†would require it to be treated as an Ayurvedic medicine. It must,
however, be borne in mind that the definition of “Ayurvedic medicineâ€, under Section 3(a) of the Act, is that its ingredients should have been
referred to in the Ayurvedic Texts, prescribed in Schedule-I of the Act.
25. While the assessee has, no doubt, been remiss in not drawing the attention of the Tribunal to the authorized texts referred to in the first schedule to
the Act, to show that the active agents of ‘Halls’ are referred to therein, the Tribunal has also failed to examine the petitioner’s contention
that the very same product ‘Halls’ has been treated as an Ayurvedic medicine in the five States of Northern India (Jammu & Kashmir, Punjab
& Haryana, Uttar Pradesh, Rajasthan and Himachal Pradesh). Though the assessee placed the relevant assessment orders before it, no finding has
been recorded by the Tribunal in this regard. The Tribunal has also not considered the finding recorded by the Assessing Authority that the Central
Sales Tax registration certificate issued to the assessee makes no reference to the import of any medicine; and therefore “Halls†is an
confectionary and not an Ayurvedic medicine.
26. We consider it appropriate, in such circumstances, to set aside the order of Tribunal, and remit the appeals back to the Tribunal for its re-
examination in accordance with law. The Tribunal shall afford, both the assessee and the revenue, another opportunity of placing fresh material before
it, including authoritative texts on Ayurvedic system of medicine, as is referred to in the First Schedule to the Act, to show that the active agents of the
subject product find mention therein. The Tribunal shall also examine whether the relevant entry in the VAT enactments of other States are in pari
materia with Entry 41 of Schedule II (b) of the Uttarakhand VAT Act; and whether the neighbouring States have, in fact, treated “Halls†as
Ayurvedic medicine, as contended by the assessee. Since the appeals relate to Assessment Years 2005-06 and 2006-07, and more than a decade has
elapsed since then, we request the Tribunal to decide the appeals with utmost expedition, and in any event not later than three months from the date of
receipt of a copy of this order.
27. The revision stands disposed of accordingly.
