20. What is the classification and rate of tax applicable to the product "Rajhans Kayakalp Oil"?

Transaction date: 4-5-2002

Held – Covered by Entry C-II-34, rate of tax 20% + S.C. + T.O.T.

Facts in issue :

The applicant explained that the ingredients of the product were harda, behada, amla, barchi, kapur, chandan, lavang, illaychi, khus, jatasasi, kapur kachi, bhangra, peppermint, mehandi etc. The applicant enclosed certificates from various doctors and clinics which certified that the product was prescribed for treatment of patients.

Submissions of the applicant :

The applicant submitted that his product had been declared as a drug covered by Schedule Entry C-I-24(1) as it existed then and held liable to sales tax at 4% u/s. 8 of BST Act 1959.

The applicant further submitted that the product was used for treatment of physical problems like headache, migraine and mental stress. Thus, his product was a drug covered by entry
C-II-37 of the BST Act.

Views of the Department :

The Commissioner observed that the properties of the ingredients should be analysed and evaluated as to which one of entries in the schedule was more appropriate for the product.

The Commissioner analysed the entries C-II-37 for drugs and C-II-34 for cosmetics. Although there was an amendment by which medicated goods were not specifically excluded from the entry for drugs C-II-37, however, it was to be seen whether the characteristics of the product were enough to make it a drug.

The product, to be called a drug under Entry C-II-37 has to satisfy the following conditions.

It should be a medicinal formulation or preparation –

• Ready to use internally or externally on human beings, animals or birds.

• Should be meant for the diagnosis, treatment, mitigation or prevention of any disease or disorder; and

• Should be manufactured, imported into India or stocked, distributed or sold under the licence granted under the Drugs and Cosmetics Act, 1940.

While looking to the characteristics of the product it can be split into two categories, one relating to medicinal character and the other relating to cosmetics character. The base medium is coconut oil and til oil in respect of the product in question. Just because coconut oil and til oil have a few medicinal properties of their own it does not make them medicines. However, they would be cosmetics in nature as the important characteristics of them relate to hair growth, black colouring and application to skin for its improvement. The product, "Rajhans Kayakalp Oil" basically has a cosmetic character.

In the case of M/s. Emami (Himani Navratan Hair Oil)(DDQ No. DDQ-11-2001/Adm-5/25/B-1 dated 5-3-2004) it was analysed that headache, bodyache, mental stress are symptoms whereas diseases causing them are quite different. The coconut oil deals with the symptoms but it is not useful for treating any particular disease. The product does not satisfy the important condition of mitigation or treatment or prevention of the very disease or disorder in human beings. The entry C-II-34 which includes cosmetics, toilet articles, hair tonics, hair oil would therefore be the appropriate entry.

Case Laws relied upon :

88 STC 459 (Gujarat) Dandwala vs. The State of Gujarat

14 STC 813 (M.P.) Commissioner of Sales Tax vs. Shri Sadhna Aushadhalaya

9 STC 133 (Bom) C.C. Mahajan & Co. vs. State of Bombay

The applicant placed reliance on the earlier determination order in his own case dated 18-10-1985 holding the view that the product "Rajhans Kayakalp Oil" was medicine.

The Commissioner on detailed scrutiny of facts and the position of law came to a different conclusion and as required under sub-section (2A) of section 52 obtained the permission of the Government.

Held :

The Commissioner held that the product was covered by schedule Entry C-II-34 liable to sales tax @ 20% + S.C. + T.O.T.

[M/s. Rajhans Products DDQ No. DDQ-11-2002/Adm-5/30/B-5 dated 30-8-2006]

34. Prospective effect denied in the case of DDQ Order No. DDQ-11-2005/Adm-5/65/B-3 dated 10th April, 2006. An application was made for rectification of the DDQ Order. Whether prospective effect can be allowed?

Transaction date: 6-8-2006

Held – Rectification allowed. Prospective effect granted

Facts in issue :

The applicant had earlier applied for determination of the rate of tax applicable to the products 1) Deluxe Hot Tiffin, 2) Hot Casserole, 3) Hot Pot. The application was made both under the BST Act, 1959 as well as under MVAT Act, 2002 .

The determination orders passed were as follows.

1. No.DDQ-11-2005/Adm-5/17/B-1 Mumbai dated 13-3-2006 under the BST Act, 1959.

2. No. DDQ-11-2005/Adm-5/65/B-3 Mumbai dated 10-4-2006 under the MVAT Act,2002.

In both the above orders, the prayer for prospective effect was made. Under the BST Act, 1959, the liability was protected, however, under the MVAT Act, 2002, the prayer was not accepted.

Submissions of the applicant

The applicant contended that in other states the products of similar nature as his, are covered by the Schedule Entry for utensils. The trade circular of the Gujarat Sales Tax Department provides a list of items covered by the entry for utensils, one of them being, "Dabba meant for keeping food hot".

Further, the applicant argued that he had received both the orders under the BST Act and MVAT Act simultaneously which gave him no occasion to place his arguments for prospective effect under the MVAT Act.

Also, the trade parlance test would be the criteria to decide whether his products are utensils?

Over the years, the classification under the BST Act had been accepted by the department. However, his arguments have inadvertently not been considered and hence the applicant had requested to rectify the said order.

Views of the Department :

The Commissioner observed that unlike under the BST Act where specific entries relating to items like utensils, cutlery, hot casserole existed, under the MVAT Act, there was a single entry in Schedule C-33 on ferrous/ non-ferrous domestic utensils. Therefore the applicants were under the bonafide impression that all such items were subsumed under Entry C-33 of MVAT Act, 2002.

The applicant made his submissions for prospective effect in respect of application under the BST Act, 1959 and had a bonafide belief that his contentions would be understood.

Since prospective effect was granted under the BST Act 1959, the same should have been granted under the MVAT Act, 2002. Therefore, there was an apparent mistake which required rectification.

Held :

The Commissioner held that prospective effect be granted for the determination order DDQ No. DDQ-11-2005/Adm-5/65/B-3 dated 10th April, 2006.