The Telangana High Court recently clarified whether six products — Himani Navratna Oil, Boroplus Antiseptic Cream, Boroplus Prickly Heat Powder, Himani Nirog Dant Manjan Lal and Sona Chandi Chhayawanprash — fall under the category of cosmetics or medicines.
A division bench comprising Justices P Sam Koshi and N Tukaramji ruled that while Himani Nirog Dant Manjan can be categorised as a cosmetic product, Himani Sona Chandi Chyawanprash, Navratna Hair Oil, Himani Gold Turmeric Ayurvedic Cream, Boroplus Antiseptic Cream and Boroplus Prickly Heat Powder fall in the category of medicines.
The court gave the verdict while hearing a case regarding classification of products as cosmetics or drugs under the Andhra Pradesh General Sales Tax (APGST) Act, 1957. The case pertained to six products manufactured by two sister companies and involved tax revision suits filed between the Sales Tax Appellate Tribunal (STAT) and the assessee (Himani Ltd) against each other.
The STAT held that three products – Navratna Oil, Gold Turmeric Ayurvedic Cream and Nirog Dant Manjanlal – are cosmetic products, while three products – Boroplus Antiseptic Cream, Boroplus Heat Rash Powder and Sona Chandi Chyawanprash – are drugs. The STAT challenged the classification of the latter three products as drugs, arguing that they fall under item 36 of the CGST and TGST Acts and are liable to GST at the rate of 20%. The assessee, on the other hand, challenged the exclusion of the first three products as drugs, arguing that if so, they would be liable to tax at the rate of 10%.
The court heard the arguments of both sides and examined the characteristics of each product. With regard to Himani Sona Chandi Chyawanprash, the court noted that it was specifically mentioned that it was made with 52 rare herbs and minerals, including gold, silver and saffron, and had various health benefits. The High Court also referred to Ayurvedic texts and texts such as Charaka Samhita and Bhava Prakasha.
The court highlighted that the petitioner obtained a license under the Drugs and Cosmetics Act, 1940 and argued that the product falls under section 37 of the First Schedule. STAT considered the ingredients of the product and the definitions of “cosmetic” and “drug” under the Act and concluded that the product is a drug and not a cosmetic. The court further clarified that section 3(aaa) of the Act defines a cosmetic as a product for external use while section 3(b) defines a drug as a substance taken or applied externally for the diagnosis, treatment, mitigation or prevention of disease or disorder. While drugs can be taken or applied externally, cosmetics can only be applied externally.
The court further mentioned the properties of Himani Boroplus antiseptic cream. The name of the product itself indicates that it is not an ordinary or cosmetic cream but an antiseptic cream with medicinal properties and is classified as a drug under Entry 35 of the First Schedule of the Act. Unlike common body creams and lotions, it is fully medicinal and not covered under Entry 36. “As reflected in the product packaging/product labelling, it is a curative and healing Ayurvedic ointment having preventive properties and is prescribed for dry skin diseases, cuts, burns, minor skin burns, wounds, cracked skin, furuncles, contagious impetigo and intertrigo,” the court noted and upheld the well-founded judgment of STAT.
Turning next to the product in question, Himani Boroplus Prickly Heat Powder, the Court observed that the product is not merely a cosmetic or toiletry product and does not fall under either (a) or (c) of Entry 37. The product meets the definition in Section 3 of the Drugs and Cosmetics Act and falls under Entry 37 of Schedule I of the APGST Act and should be taxed accordingly. The Court further observed that the product should not be classified as a “cosmetic or toiletry product” under Entry 36 as this would misrepresent its medicinal properties.
The Court further considered two products which required consideration and adjudication namely Himani Navratna Oil and Himani Gold Turmeric Ayurvedic Cream. The STAT of the impugned order had classified both the products as cosmetic products falling under Item 36 of the First Schedule to the Act. However, the learned counsel for the petitioner/assessee argued that the products were in fact medicines falling under Item 37 of the First Schedule to the Act.
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The learned counsel for the defendants/authorities argued that Himani Navratna Oil and Himani Gold Turmeric Ayurvedic Cream should be classified as cosmetic products, but in the absence of substantial evidence to support this contention, the Court concluded that the classification under STAT item 36 was erroneous.The products were held to fall under item 37 of the First Schedule of the Act.
Finally, in regards to Nirog Dant Manjan Lal, the Sales Tax Appellate Tribunal (STAT) held that it was a cosmetic product and this decision was accepted and not challenged.
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