R.M. Marketing Agencies,Raipur And Anr. vs. Commissioner Of Commercial Tax

Held

The Court held that Vasmol Yogiraj Ayurvedic Oil (Thanda Tel) is a medicinal product and should be classified under Entry 42 of Part II of Schedule II of the CG VAT Act, making it taxable at the rate applicable to drugs and medicines. The Court reasoned that the manufacturer's drug license, which explicitly labels the product as an 'Ayurvedic proprietary medicine' and details its ingredients and uses, is a strong indicator of its medicinal nature. The Court also found persuasive the order from the Government of West Bengal that classified the same product as an Ayurvedic drug. The Court addressed the State's arguments by referring to Supreme Court and High Court judgments, particularly Commissioner of Central Excise, Calcutta v. Sharma Chemical Works, which established that the burden of proof for classification lies with the revenue, and that sale across the counter or minimal medicinal content does not preclude a product from being classified as a medicament. The Court found the State's contentions regarding the product's use as hair oil and lack of prescription requirement to be unsubstantiated in light of the evidence and precedents. Consequently, the impugned orders of the Commissioner were set aside.

Facts

The petitioners, R.M. Marketing Agencies and Shreyans Kumar Sethia, challenged an order by the Commissioner of Commercial Tax, Chhattisgarh, dated July 31, 2006. This order, passed under Section 70 of the Chhattisgarh Value Added Tax Act, classified Vasmol Yogiraj Ayurvedic Oil (Thanda Tel) as falling under Part-4 of Schedule II, making it taxable at 12.5%. The petitioners had sought clarification on the tax rate for this Ayurvedic oil, manufactured by M/s Sanjog Herbs & Foods (I) Pvt. Ltd. A subsequent rectification application was also rejected by the Commissioner on June 5, 2007. The petitioners argued the product is a medicinal item, while the State contended it is a cosmetic or hair oil.

Key Issues

1. Whether Vasmol Yogiraj Ayurvedic Oil (Thanda Tel) is a drug/medicinal product or a cosmetic/hair oil for the purpose of tax classification under the Chhattisgarh Value Added Tax Act? Petitioner's Arguments: The petitioner contended that the product is a medicinal item falling under Entry 42, Part II, Schedule II of the CG VAT Act. This is evidenced by the drug license issued to the manufacturer by the Food and Drug Administration, Government of Maharashtra, which lists the ingredients, their Latin names, and text references, and explicitly names the product as an 'Ayurvedic Proprietory Medicine' with indications and uses. They also pointed to an order from the Government of West Bengal accepting the same product as an Ayurvedic drug, taxed at 4%. The petitioner argued that the product, being an Ayurvedic oil with medicinal contents based on materia medica, should be given a wide connotation as a drug. They cited various Supreme Court and High Court judgments supporting the classification of similar products as Ayurvedic medicines. Respondent's Arguments: The State counsel argued that the product is merely a simple hair oil, potentially with Ayurvedic contents, but not a drug or medicine. They asserted it does not treat any particular disease or ailment and is not prescribed as medicine. The State contended that for tax purposes, the Schedule must be strictly adhered to, and since the product is not a drug for a specific disease, it should be considered a simple Ayurvedic hair oil. They also argued that the product's availability across the counter without a prescription and its potential lack of basis in traditional Ayurvedic texts further support its classification as a cosmetic item. The State counsel argued that judgments from other statutes are not applicable and relied on decisions in Dabur India Ltd. v. Commissioner of Sales Tax, Orissa, V. C. Ramalingam & Sons v. State of Tamil Nadu, and Alpine Industries v. Collector of Central Excise.