White Petroleum Jelly Classified As 'Drug', Not Cosmetic; Higher VAT & Entry Tax Not Leviable: Madhya Pradesh High Court

Justices Vivek Rusia and Jai Kumar Pillai stated that a White Petroleum Jelly of IP grade manufactured and sold by appellant under a valid drug licence is liable to be classified as a category of drug and medicine under Entry 19-A of Part II, Schedule II of the MP VAT Act.

It was the case of the assessee/appellant that the White Petroleum Jelly I.P., being a medicated formulation and manufactured under a valid drug license, falls squarely within the scope of Entry No. 19A, Part II, Schedule II of the MP VAT Act, which deals with “Drugs and medicines”.

Consequently, the assessee claimed a lower rate of tax @ 4% up to 31.07.2009 and @ 5% thereafter under the MP VAT Act and exemption under the Entry Tax Act on the ground that the said product falls within Schedule III (non-taxable goods) under the Entry Tax Act.

The assessing authority, however, disallowed the claim of the assessee and classified the said product as a cosmetic, thereby subjecting it to a higher rate of tax (12%) under the residuary entry in the MP VAT Act and 10% under the Entry Tax Act.

Aggrieved, the assessee preferred two first appeals before the Additional Commissioner of Commercial Tax, which were dismissed by a common order confirming the findings of the assessing authority.

Thereafter, the appellant preferred second appeals before the Commercial Tax Appellate Board again raising the plea of classification under Entry 19-A and exemption under the Entry Tax Act relying on judgment of the Apex Court in the case of Ponds India Ltd. v. Commissioner of Commercial Tax reported in (2008) 113 STJ 355 (SC) wherein the Apex Court held that White Petroleum Jelly of IP grade manufactured under a valid drug license was a drug.

The assessee/appellant submitted that the product squarely falls in the definition of a "drug" as contemplated in the statutory regime and has been recognised as such by binding judicial pronouncements, including the decision of the Apex Court in Ponds India Ltd. v. Commissioner of Commercial Tax (supra) wherein White Petroleum Jelly I.P. was expressly held to be a drug and not a cosmetic.

The department/respondent submitted that the assessee is a manufacturer of cosmetics and toilet articles and is not engaged in the manufacture of any drug or medicine, and the product in question, namely White Petroleum Jelly, IP Grade, though manufactured under a drug license, is neither prescribed by medical practitioners nor sold exclusively through medical stores.

The bench observed that white Petroleum Jelly has some ingredients for caring and protection from specific skin problems, but it is not saleable as a beauty product. It is correct that it can be purchased from any shop, especially in a general store, without a prescription from a dermatologist; therefore, the taxing authorities have concluded that it would fall within the entry relating to the cosmetic material.

In the VAT Act as well as in Entry Tax there is no such specific entry for White Petroleum Jelly; the Revenue is trying to bring such in the cosmetic and beauty product whereas, under Entry No. 19A, Part II, Schedule II of the MP VAT Act the Drugs and medicines including vaccines, syringes, medicated ointments produced under drug license and light liquid paraffin of IP grade and the White Petroleum Jelly IP having light liquid paraffin of IP grade. Hence, it is manufactured and marketed by the appellant under a valid drug and medicine licence;…, stated the bench.

The bench further opined that …..the M.P. Commercial Tax Board was not justified in following the decision of the Apex Court in the case of Ponds India Ltd. vs. CCT (supra). Accordingly, the appellant is not liable to pay interest under Section 18(1)(a) of the MP VAT Act.

In view of the above, the bench quashed the impugned order.

Case Title: M/s Hindustan Unilever Ltd. v. Commercial Taxes Department

Case Number: VALUE ADDED TAX APPEAL No. 73 of 2019

Counsel for Appellant/Assessee: Shri P.M. Choudhary with Shri Prasanna R. Bhatnagar

Counsel for Respondent/Department: Shri Bhuwan Gautam

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