HEINZ INDIA LIMITED versus THE STATE OF KERALA on 4 May 2023

[2023] 6 S.C.R. 425

HEINZ INDIA LIMITED

v.

THE STATE OF KERALA

(Civil Appeal No(s). 2338-2339 of 2010)

MAY 04, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Kerala General Sales Tax Act, 1963 – Entry 79, 127 – TamilNadu General Sales Tax Act, 1959 – s. 3, Entry 20-(A) of Part C ofFirst Schedule; Entry 1(iii) of Part-F of First Schedule – Drugs andCosmetics Act, 1940 – s. 3(aaa), 3(b) – Whether medicated talcumpowder is medicine or drug, or a cosmetic, or in terms of the statutesin question, medicated talcum powder – In the first set of appeals,the revisional authority was of the view that the order of assessmentpassed by the assessing authority (levying tax at 8% on ‘Pricklyheat powder’) was prejudicial to the interest of revenue by treatingit as a medicine and tax at 20% was to be applied as applicable to“Medicated talcum powder” – Kerala High Court concurred withthe view adopted by the Revenue – In the second set of appeals, theMadras High Court relied on the decision of the Kerala High Courtholding that medicated talcum powder includes prickly heat powderand answered the issue in favour of the Revenue and against theassessee – Before the Supreme Court, the Revenue contended thatin the Kerala case, that Nycil prickly heat powder is “medicatedtalcum powder” since there is separate entry for medicated talcumpowder (Entry 127), it has to be classified under Entry 127 of thefirst schedule to the KGST Act – In the Tamil Nadu case, it iscontended that the exclusion of products capable of being used ascosmetics from Entry 20 in Part C, on the one hand, and the inclusionof talcum powder, in Entry 1 of Part F, as cosmetics, read withexplanation to Entry 1, is decisive that the proper classification ofthe product is as a cosmetic – Held: The court has to, as a principle,interpret the concerned statutes, in the light of their plain words,and having regard to their internal guides or aids – In Kerala case,the use of the term “includes” after talcum powder, followed by“medicated talcum powder” in the Court’s opinion can lead to onlyone inference, which is that the clear legislative intent was that allkinds of talcum powders, which contained medications (irrespective

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Aof the proportion, or at any rate, not containing predominantproportions) should necessarily be treated as cosmetics, fallingunder Entry 127 – The clear legislative intent, of inserting acarefully worded entry, which was a “hybrid” one, i.e. describingan article that contained medicinal ingredients, as well as thoseused for cosmetics, and yet placing such a creature (“neither beastBnor fowl” so to say) in the category of cosmetics, ruled out altogetherany interpretive scope of classifying it as a medicinal preparation,or drug or medicine – In the Tamil Case, the TNGST was consciouslyamended to include talcum powder, whether or not medicated in thespecific entry or class of entries, enumerating cosmetics – Hence,Clike in the Kerala case, the plain meaning of that taxation head orentry had to be given, as there was no ambiguity – Consequently,the findings recorded by the High Courts are justified.

Interpretation of Statutes – A salutary rule for fiscal legislationinterpretation is that words used in the statute must be given theirDplain meaning and the court’s function is not to give a strained andunnatural meaning to the provision.

Dismissing the appeals, the Court

Conclusion

HELD: 1. According to the literature made available to thecourt, there are medicinal ingredients in Nycil prickly powder,Ewhich is also manufactured under a Drug License. Yet, the StateLegislature, in Entry 127, thought it fit to include, while dealingwith cosmetics, such as shampoos, “talcum Powder includingmedicated talcum powder.” There can be no two opinions thattalcum powder ipso facto is classifiable as a cosmetic. Yet, theFexpression “including” used in Entry 127 has the effect of bringingin [or “pulling in”] an entirely different product, which ordinarilymay not have been in the same class, i.e. medicated powder. Torule out any ambiguity, the legislature specifically referred to asub class of medicated powders, i.e. medicated talcum powder.Such specific entries have not come up for consideration, beforeGthis court; as noticed, predominantly, the courts have ruled thatin the context of broad descriptions such as cosmetics ormedications, if there are medical ingredients, in a product, whichis meant as a curative or prophylactic product, it would beclassifiable as drugs or medicines. However, the specificityHemployed by the legislature in this case, rules out that possibility.

Besides, “includes” has been construed as broadening the sweepof a provision, and at the same time restricting its amplitude tothe meanings ascribed in the statute. [Para 47][452-B-E]

2. The use of the term “includes” after talcum powder,followed by “medicated talcum powder” in this court’s opinioncan lead to only one inference, which is that the clear legislativeintent was that all kinds of talcum powders, which containedmedications (irrespective of the proportion, or at any rate, notcontaining predominant proportions) should necessarily betreated as cosmetics, falling under Entry 127. The pointedphraseology in fact concludes the issue, leaving no scope for thecourt to interpret the Entry as including any class of goods, otherthan such as Nycil prickly heat powder, which is a talcum powderthat is also medicated. A salutary rule for fiscal legislationinterpretation is that words used in the statute must be giventheir plain meaning. The court’s function is not to give a strainedand unnatural meaning to the provision. The intention of thelegislature, manifested in plain words, must be accepted. [Para48][453-D-F]

3. In the present case, the clear legislative intent, ofinserting a carefully worded entry, which was a “hybrid” one, i.e.describing an article that contained medicinal ingredients, as wellas those used for cosmetics, and yet placing such a creature(“neither beast nor fowl” so to say) in the category of cosmetics,ruled out altogether any interpretive scope of classifying it as amedicinal preparation, or drug or medicine. Therefore, this courtcannot fault the High Court for drawing the conclusion that it did.The TNGST was consciously amended to include talcum powder,whether or not medicated in the specific entry or class of entries,enumerating cosmetics. Hence, like in the Kerala case, the plainmeaning of that taxation head or entry had to be given, as therewas no ambiguity. Consequently, the findings recorded by theHigh Courts are justified. [Paras 49, 53][454-B-C; 455-F-G]

A.V. Fernandez v. State of Kerala [1957] 1 SCR 837 –followed.

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Oblum Electrical Industries Pvt. Ltd., Hyderabad vCollector of Customs, Bombay [1997] 3 Supp SCR 68;Union of India (UOI) and Ors. v. Godfrey Philips IndiaLtd. [1985] 3 Supp SCR 123; Hamdard (Wakf)Laboratories v. Deputy Commissioner [2007] 5 SCR873 – relied on.

Collector of Central Excise v. CIENS Laboratories[2013] 14 SCR 38; Puma Ayurvedic Herbal Pvt. Ltd. v.Collector of Central Excise (2006) 2 SCR 1120; PondsIndia Ltd. v. Commissioner of Trade Tax [2008] 9 SCR496; Muller & Phipps (India) Ltd v. Collector of CentralExcise [2004] 2 Supp SCR 39; B.P.L Pharmaceuticalsv. Collector of Central Excise [1995] 3 SCR 1235;Union of India v. Vicco Laboratories [2007] 12 SCR534; Commissioner of Central Excise v. Hindustan LeverLtd (2015) 10 SCC 742; Collector of Central Excise v.Wockhardt Life Sciences Ltd. (2012) 5 SCC 585;S. Sundaram Pillai v. V. R. Pattabiraman [1985] 2 SCR643; Share Medical Care v. Union of India [2007] 3SCR 44; Pappu Sweets and Biscuits v. Commr. of TradeTax, U.P [1998] 2 Suppl. SCR 119; Collector of Excisev. M/s Parle Exports (P) Ltd. [1988] 3 Suppl. SCR 933;Union of India (UOI) & Ors. v. Leukoplast PrivateLimited & Ors. [1994] 1 SCR 343; Dattatraya GovindMahajan & Ors. v. State of Maharashtra & Anr. [1977]2 SCR 790; Mrs. Zakiya Begum & Ors v. Mrs. ShanazAli & Ors. [2010] 9 SCR 692; Collector of CentralExcise v. Wood Crafts Products Ltd. (1995) 3 SCC 454: [1995] 2 SCR 797; Meghdoot Gramodyog SewaSansthan, UP. v. Commissioner of Central Excise,Lucknow [2005] 4 SCC 15; Amrutanjan Ltd. v. CollectorCentral Excise [1996] 9 SCC 413; N.D.P.Namboodripad (Dead) by LRs. v. Union of India [2007]3 SCR 769 – referred to.

B. Shah & Company v. State of Gujarat (1971) 28 STC5 (Guj) – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2338-2339 of 2010.

AFrom the Judgment and Order dated 29.09.2008 of the High Courtof Kerala at Ernakulam in STR No. 164 of 2007 and 172 of 2008.

With

Civil Appeal Nos. 6633 and 6635 of 2012.BS. K. Bagaria, Sr. Adv., E. R. Kumar, D. P. Mohanty, Ms. TanyaChaudhry, Ms. Pratyusha Priyadarshini, Kumar Ajit Singh, M/s. Parekh& Co., Ms. Charanya Lakshmikumaran, Ms. Apeksha Mehta, Ms. F.Gupta, Pranav Mundra, Advs. for the Appellant.

Pallav Sisodia, K. Radhakrishnan, Sr. Advs., C. K. Sasi, AbdullaCNaseeh V T, Ms. Meena K Poulose, Sabarish Subramanian, VishnuUnnikrishnan, Ms. Shivani Jena, Naman Dwivedi, P. Shankar, Advs. forthe Respondent.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.D

1. The issue which this court has to deal with had placed thecourts in a prickly pickle, on several occasions- whether medicated talcumpowder is medicine or drug, or a cosmetic, or in terms of the statutes inquestion, medicated talcum powder? The present appeals, by specialleave, concern two sets of appeals: one, from the State of Kerala andEthe other from the State of Tamil Nadu. The Kerala High Court, by itsjudgment[1] rejected the revisions filed by the appellant/assessee (hereafter“Heinz”) aggrieved by the Kerela Sales Tax Appellate Tribunal’s ordersholding that its product “Nycil Prickly Heat Powder” was classifiablenot under Entry 79 of the First Schedule to Kerala General Sales TaxAct, 1963 (hereafter “KGST Act”) [as “medicine” but as “MedicatedFTalcum Powder”].

2. In the second set of appeals, M/s Glaxo SmithklinePharmaceuticals Ltd (“GSK” hereafter) is aggrieved by the judgmentof the Madras High Court[2] where the court rejected its contention thatthe prickly heat powder was “medicinal formulation or preparationGready for use internally or externally for treatment or mitigation orprevention of diseases or disorders in human being or animals”[under Entry 20-(A) of Part C of First Schedule to the Tamil Nadu 1 Dated 29 September 2008 in S.T. Rev. Nos. 164/ 2007 and 172/ 2008H2 By judgment dated 01.03.2012, in Tax Case (Revision) Nos. 742/ 2006 and 301/ 2011By judgment dated 01.03.2012, in Tax Case (Revision) Nos. 742/ 2006 and 301/ 2011

2 By judgment dated 01.03.2012, in Tax Case (Revision) Nos. 742/ 2006 and 301/ 2011By judgment dated 01.03.2012, in Tax Case (Revision) Nos. 742/ 2006 and 301/ 2011

General Sales Tax Act, 1959 - hereafter “TNGST Act”] and held it to betoilet powder [under Entry 1(iii) of Part-F of First Schedule of theTNGST Act]. The High Court so held because the Explanation to thesaid entry stated that:

“Any of the items listed above even if medicated or as definedin Section 3 of the Drugs and Cosmetics Act, 1940 (CentralAct XXIII of 1940) or manufactured on the license issuedunder the said Act will fall under this item.”

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3. Heinz’s appeal from the Kerala High Court is concerned withassessment years 1999-2000 and 2000-2001. For the assessment year1999-2000, Heinz filed its annual return which was accepted by theassessing officer; the tax payable on the taxable turnover was 8%, andthe treatment on the sale of Nycil prickly heat powder was accepted tobe an item falling under Entry 79 of the First Schedule to KGST Act, byorder dated 18-11-2005. The revisional authoritywas of the view thatthe order of assessment passed by the assessing authority was prejudicialto the interest of the revenue;it initiated proceedings under Section 35 ofthe KGST Act, proposing to set aside the assessment of the assessingauthority on the premise that levy of tax at 8% on ‘Prickly heat powder’by treating it as medicine by the assessing authority was prejudicial tothe interest of the revenue and the rate of tax at 20% was to be appliedas applicable to “Medicated Talcum Powder”. Heinz objected to this.However, the revisional authorityby order dated 16-2-2006 set aside theassessment order for the assessment year 1999-2000 and remanded thematter to the assessing authority to pass fresh assessment order by levyingtax at 20%. Aggrieved, Heinz carried the matter before the AppellateTribunal, whichaffirmed the revisional order and rejected its appeal.[3]The High Court, on further revision, concurred with the classificationadopted by the revenue.

4. The Kerala High Court noticed the judgment of this court PumaAyurvedic Herbal Pvt Ltd v Collector of Central Excise[4] (hereafter“Puma Ayurvedic Herbal”);Hamdard (Wakf) Laboratories v. DeputyCommissioner[5] (hereafter “Hamdard (Wakf) Laboratories”); Ponds 3Order dated 14.11.2006 in IA No 311/2006

4 (2006) 2 SCR 1120

5 2007 (5) SCR 873

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AIndia Ltd. v. Commissioner of Trade Tax[6] (hereafter “Ponds India”);Muller & Phipps (India) Ltd v. Collector of Central Excise[7] (hereafter“Muller & Phillips (India) Ltd”) and several other decisions cited bythe parties. The court was of the opinion that the product was not ofcommon use by consumers as a daily use talcum powder, but normallyused for the “specific purpose of treating prickly heat” and its useBdiscontinued after the ailment ceased. This meant it has ingredientscontaining preventive and curative effects making it effective for thetreatment of ailments. The court observed that:

“We would definitely say that ‘Nycil Powder’ is not an ordinarytalcum powder as understood in common or commercialCparlance, but has a medicinal value and is used for treatmentof prickly heat and other skin ailments. But then, under whichentry we should classify the commodity in question. In ourview, if not for the inclusive definition under Entry 127 of thefirst schedule to the KGST Act, we would not had anyDhesitation in classifying the commodity in question as amedicine. In our view, the legislature consciously immediatelyafter the expression talcum powder, by employing theexpression ‘including’ has thought it fit to include “medicatedtalcum powder” under Entry 127 of first schedule to the Act.In view of this inclusive definition, though the nycil powderEhas all the qualities and ingredients of medicines and sincethe same is basically a talcum powder which has preventiveand curative power, the same requires to be brought underthe special entry rather than the general entry.”

5. The High Court further held that Entry 127 of the First ScheduleFimmediately after the expression talcum powder has used the word‘including’. The word includes/including, “is used in interpretationclause to enlarge the meaning of the word in the statute. When suchword is used in an interpretation clause, it must be construed ascomprehending, not only such things as they signify according toGtheir natural import, but also those things which the interpretationclause declares that they shall include.”It was, therefore held thatsince Entry 127 is a specific entry in a fiscal statute, the general entry 6 2008 (9) SCR 496H7 2004 Supp(2)SCR 39

(Entry 79) had to give way to the specific entry. The court observedthat:

“though the Nycil Prickly Heat Powder is used for the careof the skin and not cure of the skin and though it contains asmall quantity of Chlorphenesin, which has curative effect;in view of the specific entry, it has to be classified only underEntry 127 of First Schedule to the KGST Act and not underEntry 79 of the Act which speaks of medicines and drugs.

Heinz is aggrieved by these findings.

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6. GSK appeals against the judgment of the Madras High Court.They are in relation to two assessment years, i.e., 1993-94 and 1994-95.In both these cases, the assessing officer levied tax at the rate of 16 %under Entry 1(iii) of Part F of the First Schedule to the TNGST Act,rejecting the assessee’s(which was Heinz, initially) claim to levy tax atthe rate of 5 % for the first sale of Nycil prickly heat powder on theground that it is a medicine or drug under Entry 20-A of Part C of theFirst Schedule to the TNGST. The Appellate Assistant Commissioneraffirmed the view of the assessing officer.[8] Heinz approached theAppellate Tribunal, which accepted its plea, and held that the productwas a medicine or drug, and classifiable as such.[9] The revenue’s appealto the Madras High Court succeeded. Heinz’s unit was during theinterregnum, taken over by GSK.

7. The High Court, by its impugned judgment, noted that the productis subject to license under the Drugs and Cosmetics Act, 1940 [hereafter“Drugs Act”]. The court also noticed the Kerala judgment and remarkedthat the difference between the two enactments (KSGST Act andTNGST Act) is that in the latter, itis the explanation which clarifies thatany of the items even if medicated or as defined in Section 3 of theDrugs and Cosmetics Act will fall under the Entry I(iii) of Part ‘F’of the First Schedule. The Madras High Court was of the opinion thatthe wording of the two enactments did not make any difference, eventhough one had an inclusive definition and another includes theproduct,through explanation. The Madras High Court, therefore heldthat Nycil prickly heat powder “is a toilet powder”though the 8 Vide order dated 19.02.2001

9 Vide order dated 30.08.2001 in STA No 616/99

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Amanufacturer held a license under the Drugs Act and that such acircumstance fell within the mischief of the Explanation to Entry I (iii) toPart F of the First Schedule.

8. The impugned judgment of the Madras High Court relied onthe decision of the Kerala High Court which had considered medicatedBtalcum powder after going through the various definitions of “drug”,“medicine”, “cosmetic” and “talc”, and ultimately holding that medicatedtalcum powder includes prickly heat powder. The Kerela High Courthad observed that:

“34. The ingredients of Nycil powder are chlorphenesin B.P.Cone percent, zinc oxide I.P. 16 per cent, boric acid I.P. 16 percent, starch I.P. 51 per cent, talc 100 per cent. Chlorphenesinis contained in Nycil powder to the extent of only one percent and the other antiseptic medicinal agents are comprisedto the extent of 32 per cent and the rest of the materials whichgo into the making of Nycil powder are composed of starchDand talc. Nycil prickly heat powder contains chlorphenesin,a product specifically meant for treatment of skin disease.The inclusion of this medicine in the composition makes allthe difference. It is this addition of medicine which changesits basic character. Therefore, the product in question is notEmerely talcum powder in view of the presence of chlorphenesin,though in a small quantity, though the base was purified talc.

Relying upon the findings of the Kerela High Court, Madras HighCourt further observed that:

16. The Kerala High Court rejected the contention as to theFtheory of medicine and also after considering the basicingredients of prickly heat powder, came to the conclusionthat the base product is only a purified talc. We are also ofthe view that after considering the explanation to the mainentry, it is only a medicated talcum powder and it certainlyGincludes prickly heat powder also. We agree with the reasoningof the Kerala High Court and hold that the nycil prickly heatpowder is not a “drug” and it is only a medicated talcumpowder. We are also informed that M/s Heinz India Limited,the petitioner-assessee before the Kerala High Court, hadpurchased the manufacturing unit of the respondent- assessee H

before us in respect of prickly heat powder. Accordingly, weanswer the issue in favor of the Revenue and against theassessee. Even though number of judgments were cited byboth the counsel in support of their contentions, it is seenthat the Kerala High Court has considered all those judgmentsin detail under the various enactments like Central ExciseAct and the various State Sales Tax Act enactments. Therefore,it is not necessary to once again consider all those judgmentscited by both the learned counsel, since the issue is alreadysettled by the judgment of the Kerala High Court in the caseof Heinz India Limited. Under these circumstances, we setaside the orders of the Tribunal and restore the orders of theassessing authority. The tax case revisions are allowed.”

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9. On behalf of Heinz, Mr. S.K. Bagaria, learned senior counsel,argued that “Nycil” is the trade name under which the manufacturermarkets the substance known as ‘Chlorphenesin’. The Nycil powdercontains zinc oxide and boric acid and they form 32% of the total contentsof Nycil powder. The rest of the material is starch and talc. Nycil powderis devised so as to retain skin cleanliness in order to protect it againstprickly heat and infection. It also gives freshness and comfort. Itconsequently falls under Entry 79 of the first schedule to KGST Act.

10. Learned senior counsel relied on B.Shah & Company v Stateof Gujarat[10] (hereafter “Shah & Co”), and urged that Chlorphenesinis a potent antifungal, antibacterial and trichomonicidal substance of lowtoxicity. It is effective against common dermatophytes causing tinea pedis(Athelet’s foot) and other dematomycoses, epidermophyton, floccosumand the various trichophyton, species such bacteria as streptococci,staphyloccocci, coliform organisms and clostridii. Nycil is effective ineliminating pruritus ani and pruritus vulvae. Pruritus ani and pruritus vulvaeare frequently of bacterial or fungal origins, or the lesions may becomeinfected with bacterial or fungi, and Nycil is effective in eliminating suchorganisms.

11. In Shah & Co (supra), it was held thatNycilas powder orointment is recommended for the treatment of prickly heat and dhobie AB

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Aitch and active skin protection during ringworms and other fungicidalinfections. It was submitted that Nycil powder is suitable for the initialtreatment of acute mycotic infection since it is an absorbant, in additionto exercising its fungicidal action. It was argued that the ingredients ofNycil powder are Chlorphenesin B.P. 1%; Zinc Oxide I.P. 16%; BoricAcid 16% Starch I.P. 51% and Talc. Thus, about one-third (33%) of itsBingredients are medicinal products.It was pointed out that the face ofthe container, in which the product is sold, contains the followingdescription:

“Nycil contains chlorphenesin the antibacterial andantifungal agent. It actively prevents prickly heat and protectsCthe skin from sores, dhobie itch, and athlete’s foot.”

12. It was argued that under Section 3(b) of the Drugs Act, “drug”isdefined as “including all medicines used for internal or externaluse of human beings or animals intended to be used for mitigationor prevention of any disease or disorder”. “Cosmetics” under SectionD3(aaa) of the said Act means, “any article intended to be sprinkledor sprayed or introduced or otherwise applied to a human body forcleansing, beautifying, promoting attractiveness or altering theappearance”, which also includes any article intended for use as acomponent of cosmetic. To bring or classify an article under Entry 79 ofEthe First Schedule, the article must be a medicinal formulation orpreparation which is ready for use either internally or externally fortreatment or mitigation or prevention of diseases or disorders in humanbeings or animals. “Treatment” relates to diseases or disorders. Thoughmedicinal formulations or preparation,can be used internally or externally,unless such use is by way of treatment of a disease or disorder in humanFbeings or animals, it cannot be brought under the category of medicine.Clearly, in this case, Nycil powder is used to treat several dermatologicalconditions, including prickly heat. In fact, there is no medical treatmentfor that condition other than the use of Nycil.

13. It was argued that having regard to the above circumstances,GNycil prickly heat powder, which is used only to absorb sweat and moisturefrom the body and to keep away rashes in human beings, should beconsidered to be either a “drug” or “medicine”-in view of the composition,it is nothing but a medicinal preparation used as such and for the purposefor which talcum powder is used.H

14. Learned senior counsel urged this court to follow the decisionin Puma Ayurvedic Herbal (supra) where the assessee’s claim that itsvarious products, including herbal powders, were medicaments, wasconsidered. The court adopted a twin test to consider whether any itemis a drug, or medicament, or cosmetic. The first is whether, the item iscommonly understood as a medicament i.e. the common parlance test.If a product falls in the category of medicament it will not be an item ofcommon use. A user will use it only for treating a particular ailment andwill stop its use after the ailment is cured. The approach of the consumeris crucial. The second is, whether the ingredients are described in themedical literature, as necessary for healing.

15. Learned senior counsel submitted that in B.P.LPharmaceuticals v. Collector of Central Excise[11] (hereafter “B.P.LPharmaceuticals Ltd.”),”Selsun Shampoo” was under considerationfor purposes of Central Excise classification. The manufacturers claimedthat the shampoo was a medicated one, meant to treat dandruff, a scalpdisease. This court took note of the preparation, label, literature, character,common and commercial parlance and held the product was classifiableas a medicament, asit was not an ordinary shampoo of common use butwas meant to cure a particular scalp or hair disease.After the cure, itwas not meant to be used in the ordinary course. Muller & Phipps(India) Ltd (supra) was next relied on to urge that similar to this case,“Johnson Prickly Heat Powder” was held to be a medicament as itwas “not an ordinary talcum powder but a powder to be used to getrid of the problem of prickly heat”.

16. In Ponds India (supra), the court had to consider whetherwhite or yellow petroleum jelly (non-perfumed) sold as “Vaseline” wasa “drug” or a “cosmetic”. It was urged that the court took note of thefact that the assessee was a licensee under the Drugs Act and thatcosmetics within the meaning of the provisions were not covered in theSchedule to the exemption notification. It was pointed out that this courthad held that while interpreting an entry in a taxing statute, the court’srole is to consider the effect of the law, upon considering it from differentangles. Different tests are laid down for the interpretation of an entry ina taxing statute namely dictionary meaning, technical meaning, userspoint of view, popular meaning etc. While the purpose of a statute i.e. of AB

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Acollection of tax is important, yet that itself would not mean that anassessee would be made to pay tax although he is not liable therefor, orto pay a higher rate of tax when he is liable to pay at a lower rate. Thecourt held that Vaseline was a drug, in that case. Learned senior counselalso relied on Union of India v Vicco Laboratories[12 ]where the claimwas that ‘ViccoVajrudanti’ and ‘ViccoTermeric’ (dental powder andBturmeric powder) were ‘ayurvedic medicines’. The issue had beendecided by the Supreme Court in favour of the assessee, initially, whichwas sought to be re-opened. The court held that to be impermissible, asthe goods had been declared as drugs.

17. Learned senior counsel relied heavily on Commissioner ofCCentral Excise v Hindustan Lever Ltd[13] (hereafter “HindustanLever”) and urged that merely because a particular product issubstantially for the care of skin and simply because it contains subsidiarypharmaceutical or antiseptic constituents or is having subsidiary curativeor prophylactic value, it would not become medicament and would stillDqualify as the product for the care of the skin. It was stressed that theonus is on the revenue that the classification sought by it (if it claims theproduct not to be a drug or medication, but a cosmetic), to discharge itwith proof.

18. It was urged, lastly by relying on Collector of Central ExciseEv Wockhardt Life Sciences Ltd[14]., (hereafter “Wockhardt Life SciencesLtd”) that the “common parlance test” or the “commercial usagetest” is most appropriate. Learned counsel relied on the followingobservations:

“33. There is no fixed test for classification of a taxableFcommodity. This is probably the reason why the ‘commonparlance test’ or the ‘commercial usage test’ are the mostcommon (see A. Nagaraju Bros. v. State of A.P. [1994 Supp(3) SCC 122] ). Whether a particular article will fall within aparticular tariff heading or not has to be decided on the basisof the tangible material or evidence to determine how suchGan article is understood in ‘common parlance’ or in‘commercial world’ or in ‘trade circle’ or in its popular sensemeaning. It is they who are concerned with it and it is the 12 2007 (12) SCR 53413 2015 (10) SCC 742H14 (2012) 5 SCC 585

sense in which they understand it that constitutes the definitiveindex of the legislative intention, when the statute was enacted.

19. The submissions of learned senior counsel, in Heinz weresubstantially adopted on behalf of GSK, in the Tamil Nadu case. Inaddition, Ms. CharanyaLaxmikumaran, learned counsel urged that thestatute in TGST Act is different, because in the Entry, relied on by therevenue, is dependant solely on the Explanation [to Entry I (iii) of Part Fof the First Schedule]. However, the product, by its description, purpose,and application of the common parlance test, squarely fell within Entry20A of Part C of the First Schedule, which were medical preparations,to be used internally or meant for external use or application “fortreatment of diseases or disorders”. It was underlined that theexclusion from this entry was of products capable of use as creams,hair oils, tooth pastes,tooth powders, cosmetics, toilet articles, soapsand shampoos. Learned counsel submitted that the specific mention ofone class of powders, i.e. tooth powder, and use of “cosmetic” withother expressions, clarifying that if the use of the product was only orpredominantly as cosmetic, would it not fall under Entry 20A. It wassubmitted that having regard to the literature and the essential purposeof Nycil powder, it did not fit the description as a cosmetic [which isexcluded], even if the Explanation to Entry I (iii) of Part F were takeninto account. Thus, it has to be treated as a medicine.

20. Learned counsel relied on S. Sundaram Pillai v V. R.Pattabiraman[15] and urged that the Explanation, to Entry I (iii) has to beconsidered in the context of the established rule that while a provisoexcepts something out of the enactment which would otherwise be withinits purview yet, if the text, context or purpose so require a different rulemay apply. Likewise, an explanation is to explain the meaning of wordsof the section but if the language or purpose so require, the explanationcan be so interpreted. All that the explanation did was to say that if theexclusion of cosmetic articles from Entry 20 per se did not result in itsfalling within the Entry relating to cosmetics, i.e. Entry I of Part F. Itcontinued to be essentially a medicine, for prickly heat.

21. Next, Share Medical Care v Union of India[16] was reliedupon, to urge that if two interpretations are possible, that favouring theassessee should be adopted. Pappu Sweets and Biscuits v. Commr. Of 15 [1985] 2 SCR 64316 2007 (3) SCR 44

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ATrade Tax, U.P[17] (hereafter “Pappu Sweets and Biscuits”) andCollector of Excise v. M/s Parle Exports (P) Ltd[18] were cited for theargument that the words used in the provision, imposing taxes or grantingexemption should be understood in the same way for which they areunderstood in ordinary parlance in the area in which the law is in forceor by the people who ordinarily deal with them.B

IV

22. Mr. Pallav Sisodia, learned senior counsel appearing on behalfof the State of Kerala, urged that the correct test to be applied is whetherthe product is capable of use as a medication. He relied on Collectorof Central Excise v CIENS Laboratories[19] (hereafter “CIENSLaboratories”) to say that this court had elaborately considered allrelevant factors, and devised the following test:

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“19. Thus, the following guiding principles emerge from theabove discussion. Firstly, when a product containsDpharmaceutical ingredients that have therapeutic orprophylactic or curative properties, the proportion of suchingredients is not invariably decisive. What is of importanceis the curative attributes of such ingredients that render theproduct a medicament and not a cosmetic. Secondly, thougha product is sold without a prescription of a medicalEpractitioner, it does not lead to the immediate conclusion thatall products that are sold over across the counter arecosmetics. There are several products that are sold over-the-counter and are yet, medicaments. Thirdly, prior toadjudicating upon whether a product is a medicament or not,FCourts have to see what the people who actually use theproduct understand the product to be. If a product’s primaryfunction is “care” and not “cure”, it is not a medicament.Cosmetic products are used in enhancing or improving aperson’s appearance or beauty, whereas medicinal productsare used to treat or cure some medical condition. A productGthat is used mainly in curing or treating ailments or diseasesand contains curative ingredients even in small quantities, isto be branded as a medicament.”

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17 1998 (Suppl)(2) SCR 119

181988 (Suppl)(3) SCR 933

H19 2013 (14) SCR 38

23. It was submitted that the expression “medicated” has greatsignificance, because it implies that a substance is filled with, or coveredin medicine, or medication. Learned counsel relied on the judgment ofthis court, in Union of India (UOI) &Ors v Leukoplast Private Limited&Ors[20 ]where the assessee’s contention that a surgical pad medicatedwith Nitrofurozone was not a patent or proprietary medicine, wasrejected. The court noted that the addition of a small quantity ofNitrofurozone after rendering the pad sterile, made it a medicine.

24. It was submitted that the intention of the legislature was toensure that the article fell within the cosmetic class of products whileclassifying it. Therefore, the expression “medicated” was used, inconjunction with “talcum powder”. When consciously the law classifiedthe goods and grouped them together as part of one entry, the court hasto give effect to their plain intendment. Thus, the inclusion of “talcumpowder” and “medicated talcum powder” under the same entry, i.e.Entry 127 was by design, to ensure that the product was not classifiedelsewhere. It was submitted that mere use of “powder” or “talcumpowder” would not have covered Nycil powder as a cosmetic, becauseit had certain ingredients that could be preventive and curative. However,pre-fixing “medicated” to “talcum powder” rendered the issue, beyonddebate.

25. It was submitted that products which are sold over the counterare sometimes hybrid in nature, such as lozenges, cough drops, whichdouble up both as curative of certain ailments, as well as sweets oreatables. Likewise, Nycil powder has dual use: it can be used as acosmetic,but has a medicinal use as well. However, the statute in thiscase, clearly requires its classification as a cosmetic, along with others,in view of the specific and unambiguous use of the term “medicatedtalcum powder”.

26. Learned counsel for the revenue relied on Hamdard (Wakf)Laboratories (supra) and N.D.P. Namboodripad (Dead) by LRs. v.Union of India[21 ]and submitted that when an interpretation clause usesthe word “includes”, it is meant to be extensive. The term ‘and includes’is intended to rope initems which would not be part of the meaning, butfor the definition the words ‘includes’ thus, means ‘comprises’ or ‘consistsof’.

201994 (1) SCR 34321 2007 (3) SCR 769

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A27. Mr. K. Radhakrishna, learned senior counsel appearing forthe revenue, in the Tamil Nadu case, contended that the history of thelegislation is a decisive factor to be taken into account, while determiningthe proper classification of a product. It was pointed out that two factorsare important: one, that the entry (entry 20, Part C of the First Schedulewhich deals with “medicines”) was amended in 1994. Before amendmentB(on 01.04.1994), the entry clearly stated that preparations or formulationsthat were “capable of being used as creams, hair oils, tooth pastes,tooth powders, cosmetics, toilet articles, soaps and shampoos” wereto be “excluded”. For the same period, cosmetics (described as scents,hair oils etc, and falling in Entry 1 of Part F of the First Schedule) includedCtalcum powder. Two, the placement of talcum powder, with lipsticks, lipsalve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders,talcum powders, powder pads, etc. clearly established that all manner oftalcum powder fell within the entry, i.e. Entry 1(iii). After amendment,with effect from 01.04.1994, the matter was placed beyond anycontroversy, by the explanation, which was added. The explanationDspecifically stated that items “listed above” “even if medicated or asdefined in Section 3”(of the Drugs Act)”or manufactured on thelicense issued under the said Act will fall under this item”. Theexplanation clearly brought within the fold of Entry 1, Part F medicatedtalcum powder, regardless that the license to manufacture it, was underEthe Drugs Act.

28. Learned senior counsel highlighted that the Madras High Court,in the impugned judgment, had considered the meaning of the expressions“drug” and “cosmetic” under the Drugs Act, and also taken note of thedictionary meanings of those terms. Learned senior counsel relied onFDattatraya Govind Mahajan &Ors v. State of Maharashtra &Anr[22]and Mrs. Zakiya Begum &Ors v. Mrs. Shanaz Ali &Ors[23] and urgedthat though a provision may be termed as an explanation, the court mustconstrue it according to its plain language, to give effect to legislativeintent. Learned senior counsel’s submission was that the impugned judgment correctly inferred and found that the product, Nycil pricklyGheat powder, on the plain terms of the statute, was a cosmetic, especiallyin view of the Explanation which particularly referred to whether theproduct “is medicated” or not, and irrespective of whether it is under alicense issued under the Drugs Act.

221977 (2) SCR 790H232010 (9) SCR 692

HEINZ INDIA LIMITED v. THE STATE OF KERALA[S. RAVINDRA BHAT, J.]

V

The Provisions: KGST Act

29. In terms of Section 5 (c) of the KGST Act, goods specified inthe First Schedule, were subject to sale at first point. The revenue allegedthat Nycil prickly heat powder, the article in question is subject to levy asa cosmetic. Heinz, on the other hand, contended that it is a drug, ormedication.

30. Entry 79 of the First schedule to the KGST Act reads asunder:

“Medicines and Drugs including allopathic, ayurvedic,homeopathic, siddha and unani preparations and glucose IP.”

31. Entry 127 of the First Schedule to the KGST Act reads thus:

“Shampoo, Talcum Powder including medicated talcumpowder, Sandalwood Oil, Ramacham Oil, Cinnamon Oil, otherperfurmeries and cosmetics not falling under any other entryin this Schedule”.

The Provisions: TNGST Act

32. In terms of Section 3 of the TNGST Act, every dealer [otherthan the dealer, casual trader or agent of a non- resident dealerreferred to in clause (ii)], whose total turnover for a year exceeds` 3 lakhs is subjected to sales tax levy.

33. GSK, the assessee, contends that the product, Nycil pricklyheat powder is a medication or drug, classifiable under Entry 20 of PartC, which reads as follows:

“Part C of the First Schedule.

“Entry 20(A)

(A) Medicines conforming to the following description:

Any medicinal formulation or preparation ready for useinternally or externally for treatment or mitigation orprevention of diseases or disorders in human being or animals(excluding products capable of being used as creams, hairoils, tooth pastes, tooth powders, cosmetics, toilet articles,soaps and shampoos), but including A

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(i) Allopathic medicine.

(ii) Other medicines and drugs including ayurvedic,homeopathic, siddha and unani preparations.

(iii) Medicinal mixtures or compounds, the components ofwhich have not already suffered tax.

(iv) Surgical dressing which expression shall include adhesiveplasters, adhesive plaster dressing, gypsona plaster of parisand bandages, velroc pop bandages, elastro crape bandages,gauze, wadding gauze, lint and cotton wool poultices andsimilar articles impregnated or coated with pharmaceuticalsubstances put up in forms or packing for surgical purposeswhich have been sterilized and conform to the acceptedstandards of the medical profession.

(v) Pharmaceutical and surgical products of plastic and rubberincluding gloves, aprons and caps.”

Cosmetics fall in Entry 1 of Part F of First Schedule:

“Part F

1 (i) Scents and perfumes in any forms excluding doop andagarbathis but including aragaja, javvadu and punugu.

(ii) Hair oils, hair creams, hair dyes, hair darkeners, hairtonics, brilliantines, pomades and vaselines and all hairapplicants other than shampoos mentioned in item 4 of theSixth Schedule.

(iii) Lipsticks, lip-salve, nail polishes, nail varnishes, nailbrushes, beauty boxes, face powders, toilet powders, babypowders, talcum powders, powder compacts, powder padsand puffs, toilet sets made of all materials (with or withoutcontents) toilet sponges, scent spray, depilatories, blemishremovers, eye liners all sorts, eye shadow, eyebrow pencils,eyelash brushes, eau de cologne, solid colognes, lavenderwater, snows, face creams, all purpose creams, cold creams,cleaning creams, make-up creams, beauty creams, beauty milk,cleaning milk, hair foods, skin tonics, complexion rouge, nailcutters, sanitary towels and napkins, astringent lotions, pre-shave and aftershave lotions and creams, moisturisers of allsorts and personal (body) deodorant.”

By amendment to the TNGST Act, in 1994, the followingexplanation was added, below Item I (iii), Part F, of the First Schedule:

“Explanation- Any of the items listed above even if medicatedor as defined in section 3 of the Drugs and Cosmetics Act,1940 (Central Act XXIII of 1940) or manufactured on thelicence issued under the said Act will fall under this item.”

VI

34. The assessees contends that the product is sold under thetrade name Nycil powder.They market the substance known as‘Chlorphenesin’. Nycil powder contains zinc oxide and boric acid. Theyconstitute 32% of the total contents of Nycil.The rest is starch and talc.Nycilpowder, it is said, is designed to keep the skin clean and offerprotection against prickly heat and infection besides giving comfort andfreshness. Therefore, it would fall under Entry 79 of the First Scheduleto the KGST Act. The nature, composition and property of Nycilpowder,was set out by the Gujarat High Court in the case of Shah & Co(supra):

“Nycil Powder has the following features and attributes:

(1) Chlorphenesin, being a medical substance was introducedas a result of original work in the British Drug House ResearchLaboratories. “Nycil” is the trade name under which the BritishDrug House product of chlorphenesin is manufactured andmarketed.

(2) Chlorphenesin is a potent antifungal, antibacterial andtrichomonicidal substance of low toxicity. Organisms againstwhich it is effective include the common dermatophytes causingtinea pedis (Athelct’s foot) and other dematomycoses,epidermophyton, floccosum and the various trichophytonspecies such bacteria as streptococci, staphyloccocci, coliformorganisms and clostridii. Nycil is effective in eliminatingpruritus ani and pruritus vulvae. Pruritus ani and pruritusvulvae are frequently of bacterial or fungal origins, or thelesions may become infected with bacterial or fungi, and Nycilis effective in eliminating such organisms.

(3) Nycil in the form of powder or ointment is recommendedfor the treatment of prickly heat and dhobie itch and activeskin protection during ringworms and other fungicidal AB

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infections. Nycil powder is particularly suitable for the initialtreatment of acute mycotic infection as it absorbs in additionto exercising its fungicidal action.

The above composition of Nycil powder shows that it containsmedicinal articles to the extent of 33 per cent.

(5) On the sample bottle of Nycil powder, produced beforethe lower au thorities, on its one side the following was foundprinted: “nycil for Prickly Head and Active Skin Protection”.On the other side, the following was found to have beenprinted: “Nycil contains chlorphenesin the antibacterial andantifungal agent. It actively prevents prickly heat and protectsthe skin from sores, dhobie itch, and athlete’s foot.” Theformula of Nycil powder is also printed on the container. TheTribunal has made the following pertinent observations asregards the container of the Nycil powder:

“It will be noticed that the article is not called medicatedor talcum powder or powder. No name is given except‘Nycil’ which as stated above is only a trade name of thedifferent products manufactured by British Drug House.The article manufactured is packed in a long and roundcontainer of plastic. It has a separate cover of plastic.The contents are also covered by a small plastic cover whichcontains spaces for making holes. The powder is white incolour and perfumed and in general appearance is notdifferent from the white talcum or such other powders.”

(6) The medical substances used as ingredients in themanufacture of Nycil powder are Indian Pharmaceutical orBritish Pharmaceutical articles for the use of which licenceis necessary. Licence is also necessary under the Indian Drugs

Control Act for manufacturing, stocking or selling Nycilpowder and the licence has accordingly been issued. TheGovernment of India, Ministry of Finance, has held anddirected that Nycil powder should be assessed to duty as “P.and P. Medicines” under item No. 14E of the Central ExciseTariff.”

35. The revenue contends- in the Kerala case, that Nycil pricklyheat powder is “medicated talcum powder” since there is a separateentry for medicated talcum powder (Entry 127). It, therefore,has to beclassified under Entry 127 of the First Schedule to the KGST Act. In theTamil Nadu case, it is contended that the exclusion of products capableof being used as cosmetics from Entry 20 in Part C, on the one hand,and the inclusion of talcum powder, in Entry 1 of Part F, as cosmetics,read with the explanation to Entry 1, is decisive that the properclassification of the product is as a cosmetic.

36. In Hindustan Lever (supra) the product, Vaseline IntensiveCare Heel Guard, was held to be a medicament under Chapter 30 ofCentral Excise Tariff Act, 1985 (“CETA”) (Item 3003.10, as a patent orproprietary medicine).The court took note of the definition of medicament(Note 2(i) to Chapter 30) which were goods “other than foods orbeverages such as diabetic, or fortified foods or beverages” notfalling in Chapter heading 30.03 or 30.04 comprising of two or moreconstituents for “therapeutic or prophylactic uses” or “unmixedproducts” suitable for such uses. The court also noticed that “patent orproprietary medicaments” were drug or medicinal preparations in anyformto prevent, or treat ailments which bears a name on the containera name “note specified in a monograph” in a pharmacopoeia,formulator or other publications or whose brand name is registered as amedicine. The court took note of a number of previous judgments,especially CIENS Laboratories (supra),Muller and Phipps (India) Ltd(supra); Puma Ayurvedic Herbal (supra) and B.P.L Pharmaceuticals(supra) and, after considering that the product in question was developedspecially to treat fungal infection, having antifungal properties, held it tobe classifiable as medicinal, meant for therapeutic use, to treat crackedheels.

37. In CIENS Laboratories(supra) too, the proper classificationof a moisturising cream – whether it was a drug, a medicament, underChapter 30, CETA, or a beauty or skin care product under Chapter 34

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Awas involved. The court concluded that having regard to the product’singredients, it was not a mere skin care product, but meant to treat skincomplaints like “fissure feet, dry scaly skin conditions, ichthyosisetc”, and that it had therapeutic or prophylactic values. The court hadfollowed B.P.L Laboratories (supra).

B38. The context of B.P.L. Laboratories (supra) was again whetherthe Selenium Sulphide lotion was a medicament under Chapter 30 CETA(sub heading 3003.19) or a cosmetic (Chapter 33, sub heading 3305.90).The court rejected the revenue’s contentions, holding that the articlewas a medicament used to treat Seborrheic dermatitis (dandruff);manufactured under drug license, the drug controller had held itsCingredient, i.e., Selenium Sulphide to be in therapeutic concentration andthat it was included as a drug in the National Formulatory, USA.Thecourt resolved the issue of interpretation, having regard to the ChapterNotes and General Rules of Interpretation, as well as the language ofthe specific entries in question. Other factors, such as that it wasDmanufactured under a drug licence; the Food and Drugs Administrationhad certified it as a drug; that the Drug Controller had categoricallyopined that Selenium Sulphide present in Selsun was in a therapeuticconcentration; that the brand name “Selsun” was derived from the nameof the drug Selenium Sulfide, all weighed into the conclusion recordedby the court.E

39. In Muller & Phipps (India) Ltd (supra),the dispute was withrespect to prickly heat powder sold under the brand “Johnson’s PricklyHeat Powder” – whether it was medicament covered under Chapter 30CETA, or beauty and skin care item.This Court noted the previous rulingin B.P.L. Pharmaceuticals Ltd. (supra) and after noting the ingredientsFof the product as well as the Harmonised System of Nomenclature(HSN) concluded that as to the manner in which the goods had beentreated earlier - as medicament on the basis of commercial parlance andunderstanding, - it had to be classified as such. This court also noticedthe judgment in Collector of Central Excise v. Wood Crafts ProductsGLtd.[24] and held that Central Excise Tariffs are based on internationallyaccepted nomenclature in HSN; consequently, disputes relating toclassification had to, as far as possible, accord with the nomenclaturesin HSN.

40. The decisions relied on have substantially been on the basis ofclassification under the CETA. Central Excise classifications areelaborate; the General notes, and Chapter notes, together with theexclusions, [and further explanations] are developed interpretive tools.Plus, this court has striven, to the extent possible, to interpret such entries,in line with HSN classification. In the present case, the distinguishingfeature of both the KGST Act and TGST Act, is that neither have generalor chapter notes. This sets the statutes apart from decisions based onCETA, to a large extent. The court has to, as a principle, interpret theconcerned statutes, in the light of their plain words, and having regard totheir internal guides or aids.

41. In CIENS Laboratories (supra), the court had indicated athree-step test to determine, if a product were a medicament or not.Other tests have been indicated in different judgments. All these may besummarized as follows:

(i) When a product contains pharmaceutical ingredients withtherapeutic/ prophylactic or curative properties, the proportion ofthe ingredients is not decisive. The curative attributes of theingredients render it a medicament and not a cosmetic. (CIENSLaboratories)

(ii) A product can be sold without a prescription from a medicalpractitioner. Yet it does not lead to the conclusion that the sale ofover-the-counter products are cosmetics. Several products aresold over-the-counter and are yet, medicaments.(CIENSLaboratories)

(iii) Before adjudicating whether a product is a medicament ornot, courts have to consider what the people who use the productunderstand it to be. If a product’s primary function is “care” andnot “cure”, it is not a medicament. Cosmetic products are used inenhancing or improving a person’s appearance or beauty, whereasmedicinal products are used to treat or cure some medicalcondition. A product that is used mainly in curing or treating ailmentsor diseases and contains curative ingredients even in smallquantities, is to be branded as a medicament. (CIENSLaboratories)

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A(iv) Products cannot be classified as cosmetics solely on the basisoftheir outward packing. (Meghdoot Gramodyog SewaSansthan, UP. v. Commissioner of Central Excise, Lucknow[25])

(v) Mixing medical ingredients with other products, or preservatives,does not alter its character as a medicament (Amrutanjan Ltd. v.BCollector Central Excise[26])

(vi) That a license under the Drugs Act is necessary is not adeterminative or decisive factor always.

42. The formulation of the tests, in all the above decisions wasspecific to the products involved and the rival or competing revenueCentries (and in some cases, exemption notifications).

43. In CIENS Laboratories (supra), the product was a creamprescribed by dermatologiststotreat dry skin conditions and was alsoavailable in pharmaceutical shops in the market and not primarily intendedfor the protection of the skin. Its pharmaceutical ingredients showedDthat it was used for prophylactic and therapeutic purposes. The courtnoted that Heading 33.04 of CETA (dealing with beauty or make-uppreparations and preparations for skin care) specifically excludedmedicaments and medicinal preparations used to treat certain complaints,meant to be under Heading 30.03 (medicaments) or 30.04 (productsEcontaining pharmaceutical substances used for the medical, surgical, dentalor veterinary purpose). This court held that the product is a medicamentclassifiable under Heading 30.03 (medicament) and not a cosmeticpreparation.

44. In Wockhardt Life Sciences Ltd (supra) the products wereFan “Iodine Cleansing Solution USP” and “Wokadine SurgicalScrub”. This court rejected the revenue’s argument that they werecosmetics, and held that products, comprising two or more constituentswhich were compounded together either for therapeutic or prophylacticuses, were”Medicaments”. The products in question were primarily usedfor the external treatment of human-beings for the purpose of preventionGof disease. The court said that Medicaments are products which canbe used either for therapeutic or prophylactic usage. As theproductswerebasically and primarily used for prophylactic uses, their 25[2005] 4 SCC 15H26[1996] 9 SCC 413

classification was proper under chapter sub-heading 3402.90 and, theclassification under chapter sub-heading 3003 was not correct.

45. In Pappu Sweets and Biscuits (supra), the issue was whether“toffees” were “sweetmeats” in the context of an exemption notification.The court ruled that having regard to the object of the notification andthe application of the common parlance test, the term “sweetmeats”had to be seen in the context, as confections available in sweetmeatshops and that toffees were not products to be found in such premises,as they were produced on an industrial scale.InPuma AyurvedicHerbal,several products were considered, of which neem facial pack(Neemal), anti-pimple herbal powder (Pimplex), herbal facial pack(Herbaucare), herbal remedy for facial blemishes, hair tonic powder(Sukeshi), anti-dandruff oil (Dandika), shishurakshantelandneem tulsiwereheld to be medicinal whereas other products were cosmetic.InMuller& Phipps (India) Ltd (supra), the product was Johnson’s prickly heatpowder. The revenue contended that it was a cosmetic falling underChapter 33, CETA; the assessee contended that it was a drug ormedication, under Chapter 30. This court went by the official opinion ofthe drug administration (“when throughout the meaning given toproducts in question not only by the department itself but also byother departments like Drug Controller and the Central Sales Taxauthorities is that the product in question is a medicinal preparationshould be accepted”). Also, the HSN classification was largely influentialin the outcome of the case.

46. In Ponds India Ltd.(supra), the question was whetherpetroleum jelly, under the brand “Vaseline” was held to be a drug, as itwas used for various skin disorders, and not a cosmetic, as contendedby the state. This court noted the previous litigation history and ruledthat the consistent classification of the same product, for a number ofyears, was as a drug, and not a cosmetic, and the revenue’s conduct intrying to change the classification without any reason, was unjustified.

47. In all the cases cited, the contest, by and large was whetherthe product was a cosmetic, or a drug, under Chapters 30 and 33, CETA.The phraseology of the articles grouped together, in one chapter differsfrom the phraseology of the other chapters, in that statute. Moreover, toavoid ambiguity, General Rules of Interpretation, besides chapter noteshave been prescribed. The court went by those rules, and also adoptedthe common parlance test. A noteworthy feature is that the court had no AB

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Aoccasion to consider an entry which was as specific as “medicatedTalcum Powder”. Undeniably, talcum powder is made from talc[27], whichis a “common silicate material that is distinguished from almost allother minerals by its extreme softness” According to the literaturemade available to the court, there are medicinal ingredients in Nycilprickly powder, which is also manufactured under a Drug License. Yet,Bthe State Legislature, in Entry 127, thought it fit to include, while dealingwith cosmetics, such as shampoos, “talcum Powder includingmedicated talcum powder.” There can be no two opinions that talcumpowder ipso facto is classifiable as a cosmetic. Yet, the expression“including” used in Entry 127 has the effect of bringing in [or “pullingCin”] an entirely different product, which ordinarily may not have been inthe same class, i.e. medicated powder. To rule out any ambiguity, thelegislature specifically referred to a sub class of medicated powders, i.e.medicated talcum powder. Such specific entries have not come up forconsideration, before this court; as noticed, predominantly, the courtshave ruled that in the context of broad descriptions such as cosmetics orDmedications, if there are medical ingredients, in a product, which is meantas a curative or prophylactic product, it would be classifiable as drugs ormedicines. However, the specificity employed by the legislature in thiscase, rules out that possibility. Besides, “includes” has been construedas broadening the sweep of a provision, and at the same time restricting Eits amplitude to the meanings ascribed in the statute. This propositionwas enunciated in Hamdard (Wakf) Laboratories (supra), where itwas held that:

“34. When an interpretation clause uses the word “includes”,it is prima facie extensive. When it uses the word “means andFincludes”, it will afford an exhaustive explanation to themeaning which for the purposes of the Act must invariably beattached to the word or expression.”

The court, in Hamdard (Wakf) Laboratories relied on N.D.P.Namboodripad (Dead) by LRs. v. Union of India &Ors.[28]:

G“15. The word “includes” has different meanings in differentcontexts. Standard dictionaries assign more than one meaningto the word “include”. Webster’s Dictionary defines the word“include” as synonymous with “comprise” or “contain”.

27https://www.britannica.com/science/talc(last accessed on 02 May 2023 at 9.30 PM)H28 2007 (3) SCR769

Illustrated Oxford Dictionary defines the word “include” as:(i) comprise or reckon in as a part of a whole; (ii) treat orregard as so included. Collins Dictionary of EnglishLanguage defines the word “includes” as: (i) to have ascontents or part of the contents; be made up of or contain;(ii) to add as part of something else; put in as part of a set,group or a category; (iii) to contain as a secondary or minoringredient or element. It is no doubt true that generally whenthe word “include” is used in a definition clause, it is used asa word of enlargement, that is to make the definition extensiveand not restrictive. But the word “includes” is also used toconnote a specific meaning, that is, as “means and includes”or “comprises” or “consists of.”

48. The use of the term “includes” after talcum powder, followedby “medicated talcum powder” in this court’s opinion can lead to onlyone inference, which is that the clear legislative intent was that all kindsof talcum powders, which contained medications (irrespective of theproportion, or at any rate, not containing predominant proportions) shouldnecessarily be treated as cosmetics, falling under Entry 127.The pointedphraseology in fact concludes the issue, leaving no scope for the court tointerpret the Entry as including any class of goods, other than such asNycil prickly heat powder, which is a talcum powder that is alsomedicated. A salutary rule for fiscal legislation interpretation is that wordsused in the statute must be given their plain meaning. The court’s functionis not to give a strained and unnatural meaning to the provision. Theintention of the legislature, manifested in plain words, must be accepted.In the decision of A.V. Fernandez v. State of Kerala[29],the ConstitutionBench stated the principle of strict interpretation in construing a taxingstatute, in the following manner:

“[..] In construing fiscal statutes and in determining theliability of a subject to tax one must have regard to the strictletter of the law. If the revenue satisfies the court that thecase falls strictly within the provisions of the law, the subjectcan be taxed. If, on the other hand, the case of not coveredwithin the four corners of the provisions of the taxing statue,no tax can be imposed by inference or by analogy or by trying AB

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49. In the present case, the clear legislative intent, of inserting acarefully worded entry, which was a “hybrid” one, i.e. describing anarticle that contained medicinal ingredients, as well as those used forBcosmetics, and yet placing such a creature (“neither beast nor fowl” soto say) in the category of cosmetics, ruled out altogether any interpretivescope of classifying it as a medicinal preparation, or drug or medicine.Therefore, this court cannot fault the High Court for drawing theconclusion that it did.

C50. Turning next to the Tamil Nadu case, the legislative history ofthe entry is telling. Talcum powder, lipsticks, lip salve, nail polish, nailvarnishes, nail brushes, toilet powders, baby powders, talcum powders,powder pads, etc. clearly showed that all manner of talcum powder fellwithin Entry, i.e. Item 1. After the amendment, with effect from01.04.1994, the explanation was added. The explanation specificallyDstated that items “listed above” “even if medicated or as defined inSection 3”(of the Drugs Act)”or manufactured on the license issuedunder the said Act will fall under this item”. The explanation included,in Item 1, Part F medicated talcum powder, regardless that the license tomanufacture it, was under the Drugs Act. The pointed reference toEtoilet powders, baby powders, talcum powders, powder pads, alongwith the additional words “even if medicated” again, like in the Keralacase, is decisive.

51. In a decision of this court, Oblum Electrical Industries Pvt.Ltd., Hyderabad v Collector of Customs, Bombay[30 ]the function of anFexplanation was stated to be thus:

“It is a well settled principle of statutory construction thatthe Explanation must be read so as to harmonise with andclear up any ambiguity in the main provision.”

52. In Union of India (UOI) and Ors. vs. Godfrey Philips IndiaGLtd.[31 ]this court had to deal with an explanation that expanded themeaning of “packing”. The court observed that explanations are alsoused to widen terms:

301997 Supp (3) SCR 68H311985Supp (3) SCR123

“[..] The Explanation to Section 4(4)(d)(i) provides anexclusive definition of the term “packing” and it includes notonly outer packing but also what may be called inner packing.Ordinarily bobbin, pirl, spool, reel and warp beam on whichyarn is wound would not be regarded as packing of suchyarn, but they are brought within the definition of “packing”by the Explanation. The Explanation thus extends the meaningof the word “packing” to cover items which would notordinarily be regarded as forming part of packing. TheExplanation then proceeds to say that “packing” meanswrapper, container or any other thing in which the excisablegoods are wrapped or contained. It is apparent from the widelanguage of the Explanation that every kind of container inwhich it can be said that the excisable goods are containedwould be “packing” within the meaning of the Explanationand this would necessarily include a fortiori corrugated fibreboard containers in which the cigarettes are contained. WhenBombay Tyre International case was argued before us, it wasat one stage sought to be contended, though rather faintly,that it is only the immediate packing in which the excisablegoods are contained, that is primary packing alone, whichwould be liable to be regarded as “packing” within themeaning of the Explanation. But this argument was given upwhen it was pointed out that even secondary packing wouldbe within the terms of the Explanation, because suchsecondary packing would also constitute a wrapper or acontainer in which the excisable goods are wrapped orcontained. [..]”

53. In the present case, the TNGST was consciously amended toinclude talcum powder, whether or not medicatedin the specific entry orclass of entries, enumerating cosmetics. Hence, like in the Kerala case,the plain meaning of that taxation head or entry had to be given, as therewas no ambiguity. Consequently, the findings recorded by the High Courtsare justified.

54. For these reasons, this court is of the view that both sets ofappeals have to fail. They are dismissed, but in the circumstances, withoutorder on costs.

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C

D

E

F

G

H