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Monday, July 25, 2016

“Mediker” being a drug Starch (Revive) being not a chemical, are not liable to levy of entry tax under the Madhya Pradesh Entry Tax Act, 1976, (for short “the E.T. Act”), = Revive instant starch is used while washing the clothes. In common parlance it is not regarded and treated as a chemical or a bleaching powder. If the very substance or product would have a chemical composition, then only it would make the said substance a chemical within the meaning of Entry 55. Needless to say, the purpose and use are to be taken note of. Common parlance test has to be applied. If the revenue desired to establish it as a chemical, it was obligatory on its part to adduce the evidence. As is manifest, no evidence has been brought on record by the revenue that it is a chemical. Therefore, it can safely be concluded that it is not a chemical.


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 8656 OF 2015
                      (@ S.L.P. (C) No. 21106 of 2014)

State of Madhya Pradesh                         Appellant (s)


Marico Industries Ltd                        Respondent(s)

                               J U D G M E N T

Dipak Misra, J.

      In this appeal, by special leave, the State of Madhya Pradesh and  its
functionaries have  called  in  question  the  legal  acceptability  of  the
judgment and order dated 19.08.2013 passed by the  Division  Bench  of  High
Court of Madhya Pradesh, Indore Bench in W.P. No. 1198 of 2004  whereby  the
order dated 05.01.2004 passed by  the  Additional  Commissioner,  Commercial
Tax in Review  case   No.80/03/Ind/Entry  Tax  imposing  entry  tax  on  the
products, namely, Mediker and Starch (Revive) after declining  to  entertain
the stance of the assessee that  “Mediker”  being  a  drug  Starch  (Revive)
being not a chemical, are not liable to levy of entry tax under  the  Madhya
Pradesh Entry Tax Act, 1976, (for short “the E.T. Act”), has been  dislodged
and both the products have been held not to be within  the  ambit  of  entry

2.    The facts giving rise to the present appeal are the  respondent  is  a
manufacturer of hair oil, edible oil, Mediker and Starch (Revive) and  other
products and is a registered dealer under the Madhya Pradesh Commercial  Tax
Act, 1994,  as  well  as  a  dealer  under  the  E.T.  Act.   The  Assistant
Commissioner,  Commissioner  Tax  Division  II,  Indore  vide  order   dated
28.04.2003 imposed entry tax on Mediker treating it as a  hair  shampoo  and
“Revive Instant Starch” as  a  chemical;  and  as  the  tax  was  not  paid,
interest and penalty were also levied. Being grieved by the aforesaid  order
the  respondent-company  preferred  Review  case  No.  80/2003  before   the
Additional Commissioner, Commercial Tax, Indore.  It  was  contended  before
the said authority that the entry tax imposed on the  assessee  on  Mediker,
which is meant for anti-lice treatment, was illegal  being  not  permissible
under any of the entries mentioned in Schedule II of the E.T. Act and  there
was no material on record to treat starch  as  a  chemical.    It  was  also
urged that Mediker  is a medicine and hence, it did not attract  entry  tax.
The said submissions were repelled and tax was imposed  and  on  that  basis
penalty and interest were also levied.  Aggrieved by  the  order  passed  by
the  Additional  Commissioner,  Commercial   Tax,   Indore,   the   assessee
approached the High Court in  Writ  Petition  No.  1198  of  2004   and  the
Division Bench referring to the charging Section and the  Entries,  came  to
hold that Mediker is basically a medicinal  product  and  starch  being  not
meant for sale but used in production of  other  articles,  could  not  have
been made amenable to entry tax, more so, in the absence of its mention   in
the Schedule.  It was also held that starch is not a chemical.

3.    Criticising the order passed  by  the  High  Court,  Mr.  C.D.  Singh,
learned counsel appearing for the  State  would  contend  that  Mediker,  in
common parlance, is considered as shampoo and not as a medicine  because  it
is nowhere mentioned in the label of the product that after removal  of  the
lice, it cannot be used again or cannot be used as other shampoos  for  hair
wash.  Relying on  the  decision  in  Deputy  Commissioner  v.  G.S.  Pai[1]
learned counsel for the State would contend that while interpreting  entries
in sales tax legislation, it is to be borne in mind that the words  used  in
the entries must not  be  construed  in  any  technical  sense  nor  from  a
scientific point of view. They should be understood in their  popular  sense
and in the sense which the people conversant with the  subject  matter  with
which the statute  is  dealing,  would  attribute  to  it.    For  the  said
purpose, learned counsel has  also  drawn  inspiration  from  United  Offset
Process  Pvt.  Ltd.  v.  Asst.  Collector  of  Customs,  Bombay  &   Ors[2].
Submission of Mr. Singh  is  that  just  because  the  product  contains  D-
Phenothrin EP and is  used  for  treating  lice,  it  cannot  be  termed  as
medicament in view of the principles stated in Sunny  Industries  Pvt.  Ltd.
v. Collector of Central  Excise,  Calcutta[3].   According  to  the  learned
counsel for the State, Mediker is  a  kind  of  shampoo  and  hence,  it  is
covered under Schedule II of the E.T. Act  which  incorporates  the  heading
“shampoo of all variant  and  forms”.   As  far  as  the  Revive  starch  is
concerned, it is urged by Mr. Singh that it is a chemical covered  by  Entry
55 of Schedule II and consequently it is chargeable to entry tax.

4.    Mr. Bagaria, learned senior counsel appearing  for  the  assessee,  in
his turn, would argue that Mediker is a product meant for curing  hair  lice
infection in hairs  and  the  product  is  marketed  as  “Mediker  anti-lice
treatment”.  It  is  urged  by  him  that  Mediker  anti-lice  treatment  is
manufactured after obtaining the drug licence under the Drugs and  Cosmetics
Act, 1940 (for short, “the 1940 Act”) wherein it has been  classified  as  a
drug falling under Section 3(b) of the 1940 Act.  It  is  contended  by  him
that that “Mediker anti-lice treatment”  satisfies  the  definition  of  the
drug and after due scrutiny,  the  drug  control  authorities  have  granted
licence for the said product as a  drug.   Mr.  Bagaria  would  submit  that
period of treatment is four weeks and shampooing is only a method  to  apply
the medicine.  In essence, the submission of learned senior counsel is  that
the medium cannot determine the nature of the product.  He has commended  us
to certain authorities of this Court as  well  as  CESTAT  which  have  been
approved by this Court to bolster his stand, and we shall refer to  them  at
the appropriate stage.  It is canvassed by  him  that  it  is  the  admitted
position that drugs are not covered under the E.T. Act and do not  find  any
mention either in the Schedule I or Schedule II and are not liable  to  levy
of entry tax. Incrementing  the  submission  learned  senior  counsel  would
contend that the revenue has charged entry tax under Entry  32  of  Schedule
II which really relates to different cosmetics, depilatories, etc. and  hair
shampoo is one of such items, but “Mediker anti-lice  treatment”  is  not  a
hair shampoo but is a medicine/drug.  As far as  the Revive  instant  starch
is  concerned,  learned  senior  counsel  has  propounded  that  starch   is
manufactured by using the Tapioca roots and  even  on  the  packets,  it  is
clearly mentioned Revive instant starch and, therefore,  by  no  stretch  of
imagination it can be treated as a chemical to be covered under Schedule  II
of the Act.   He has also addressed us with regard to the  burden  of  proof
which  rests  on  the  revenue  when  it  intends  to  classify  a   product
differently than that as claimed by the assessee and according  to  him,  it
has not been discharged in the case at hand.

5.    Section 3 of the E.T. Act deals with incidence  of  taxation.  Section
3(1)(a) reads as follows:-

“There shall be levied an entry tax:

on the entry in the course of business of a dealer  of  goods  specified  in
Schedule II, into each local area for consumption, use or sale therein; and


6.    In the case  at  hand,  we  are  concerned  with  certain  entries  in
Schedule II.  Entry 32 which has been sought  to  be  used  to  justify  the
imposition of entry tax on Mediker, reads as follows:-

“Scents, perfumes, hair tonics, hair cream, hair shampoo,  depilatories  and
cosmetics including face creams, snows, lipstics, rougue and nail polish”

7.    As noted earlier, submission of Mr. Singh,  learned  counsel  for  the
revenue is that the Mediker is nothing but a hair  shampoo  and,  therefore,
it squarely falls under  Entry  32.    Learned  counsel  appearing  for  the
assessee has controverted the same on many an aspect.  The  High  Court,  as
the impugned order would show, has returned certain findings  which  are  to
the effect  that  Mediker  contains  active  Permethrin  which  is  used  to
paralyse the insect lice, thereby killing it; that Mediker  is  basically  a
medicinal product, since the skin (cuticulam) of the  louse  is  similar  to
the structure of human nail it has first to  be  made  porous  so  that  the
active ingredient can penetrate and enter the louse and  paralyse  it;  that
for the purpose of treatment a wetting agent  is  needed  and  this  wetting
agent is the surface active agent used in Mediker; that  the  surface  agent
is nothing but a medium to convey the active ingredient  on  to  the  louse;
and that the period of treatment is four weeks and the product is  not  used
generally for washing the hair.

8.    We shall presently consider  the  authorities  cited  at  the  Bar  to
appreciate the actual background.   In  G.S.  Pai  (supra),  the  Court  was
considering what meaning is to be placed on  “Bullion  and  Specie”  in  the
light of the provisions of the Kerala General Sales Tax Act, 1963.  In  that
context, the Court observed that:-

“… Now there is one cardinal rule of interpretation which has always  to  be
borne in mind while interpreting entries in sales tax legislation and it  is
that the words used in the entries must be construed not  in  any  technical
sense nor from the scientific point of view  but  as  understood  in  common
parlance. We must give the words used  by  the  legislature  their  popular-
sense meaning “that sense which people conversant  with  the  subject-matter
with which  the  statute  is  dealing  would  attribute  to  it”.  The  word
“bullion” must, therefore, be interpreted  according  to  ordinary  parlance
and must be given a meaning which  people  conversant  with  this  commodity
would ascribe to it. Now it is obvious that “bullion” in its  popular  sense
cannot include ornaments or other articles of gold. “Bullion”  according  to
its plain ordinary meaning means gold or silver in  the  mass.  It  connotes
gold or silver regarded as raw material and it may be either in the form  of
raw gold or silver or ingots or bars of gold or silver. …”

      Learned counsel for the State has heavily relied on the said  passage.
 It is well settled in law that ratio of a judgment is to be appreciated  in
the factual backdrop of the case.   In  the  said  case,  as  we  find,  the
factual background was absolutely  different  and,  therefore,  we  have  no
hesitation in holding that the said authority remotely does not  assist  the
revenue for buttressing the contention that Mediker is a shampoo.

9.    In Commissioner of Central Excise, Nagpur v. Shree Baidyanath  Ayurved
Bhavan Limited[4] [Shree Baidyanath Ayurved  Bhavan  Limited-II]  the  issue
pertained to classification of “Dant Manjan Lal” (DML) manufactured  by  M/s
Baidyanath Ayurved Bhavan Limited.  The  Court  took  note  of  the  earlier
decision  in  Shree  Baidyanath  Ayurved  Bhavan  Ltd.  v.  CCE[5]    [Shree
Baidyanath Ayurved Bhavan Ltd.-I]  wherein it had been  held  that  DML  was
not known as an ayurvedic medicine and the finding of the tribunal that  DML
was toilet requisite was upheld.  During the pendency of the appeals  before
this Court, the Central Excise Tariff Act, 1985 was enacted  which  replaced
the Schedule to the Central Excise and Salt Act, 1944.   The  1985  Act,  as
the Court noticed, dealt with pharmaceutical products and there was  a  Sub-
Heading 3003.30 which provided for no excise duty leviable  on  medicaments,
including those used in ayurvedic, unani, siddha, homeopathic or  bio-chemic
system.  The Court also noticed that in 1987 the First Schedule to the  1940
Act was amended and the book Ayurveda Sara Samgraha  was  included  therein.
On 25.09.1991, the Central Board of Excise and Customs issued a circular  in
respect of DML and advised its classification as an ayurvedic medicine.  But
the said circular was withdrawn  after  the  decision  in  Shree  Baidyanath
Ayurved Bhavan Ltd.-I (supra). The  assessee  approached  the  Board  regard
being had to the amendment to decide  the  classification  of  the  product.
Thereafter the dispute arose with regard to the classification.   Mr.  Singh
has drawn our attention to paragraph 46 of the decision in Shree  Baidyanath
Ayurved Bhavan Limited-II (supra) to emphasise on the common parlance  test.
 We think it appropriate to reproduce the entire paragraph:-

“As a matter of fact, this Court has consistently  applied  common  parlance
test as one of the well-recognised tests to find  out  whether  the  product
falls under Chapter  30  or  Chapter  33.  In  a  recent  decision  in  Puma
Ayurvedic Herbal (P) Ltd. v. CCE[6] this Court observed  that  in  order  to
determine whether a product  is  a  cosmetic  or  medicament,  a  twin  test
(common parlance test being one of them) has found favour with  the  courts.
This is what this Court observed: (SCC pp. 269-70, para 2)
“2. … In order to determine whether a product is a cosmetic or a  medicament
a twin test has found favour with the courts. The test has approval of  this
Court also vide CCE v. Richardson Hindustan  Ltd.[7]  There  is  no  dispute
about this as even the Revenue accepts that the test  is  determinative  for
the issue involved. The tests are:
I. Whether the item is commonly understood as a medicament which  is  called
the common parlance test. For this test it will have to be seen  whether  in
common parlance the item is accepted as a medicament. If a product falls  in
the category of medicament it will not be an item  of  common  use.  A  user
will use it only for treating a particular ailment and  will  stop  its  use
after the ailment is  cured.  The  approach  of  the  consumer  towards  the
product is very material. One may buy any of the  ordinary  soaps  available
in the market. But if one  has  a  skin  problem,  he  may  have  to  buy  a
medicated soap. Such a soap will not be an ordinary  cosmetic.  It  will  be
medicament falling in Chapter 30 of the Tariff Act.
II. Are the ingredients used in the product mentioned in  the  authoritative
textbooks on ayurveda?”

      The two-Judge Bench agreed with  the  view  taken  in  Puma  Ayurvedic
Herbal (P) Ltd. (supra) and applied the common parlance  test  and  accepted
the submissions of the revenue.

10.   There can be no dispute over the proposition of law laid down  in  the
aforesaid authority.  The thrust of  the  matter  is  how  the  courts  have
treated a particular product for the purpose  of  classification  under  the
excise law and  what  status  is  to  be  given.   The  issue  of  anti-lice
treatment arose in Collector of Central Excise  v.  Pharmasia  (P)  Ltd.[8].
The tribunal reproduced the label appearing on every bottle of Mediker.  The
label is reproduced below:-


                             ANTI-LICE TREATMENT

                              DIRECTION FOR USE

      Shampoo hair with one capful of Mediker, Massage scalp for  3  minutes
Rinse, Repeat.  This  usually  eliminates  Lice.  For  best  results  repeat
shampooing 2 days later.


      The product is toxic if swallowed. Store far from  food  and  drinking
water. Keep away from children and pets. If  it  gets  into  the  eyes  wash
affected area immediately with clean water


D-Phenothrin EP 0.23% W/V

Triclosan E.P. 0.05% W/V base q.s.

MEDIKER is the registered trade mark of Richardson - Vicks Inc.

Manufactured by


Licenced Users of the Trademark

Contents 45ml Mfg. Lic No. 526/A/AP

Retail price not to exceed Rs. 9.60

 (Local Tax extra)



Expiry date 2 years from the date of  Mfg.  Batch  No.  8969  Date  of  Mfg.

11.   The tribunal, as the judgment would show, analysed many an aspect  and
opined that:-

“17. Considering the arguments advanced before us, we are convinced  that  a
person infested with lice does not get relief by merely washing his  or  her
hair with water or various types of  shampoo  which  are  available  in  the
market. The life and habits of the louse  seem  to  call  for  more  drastic
steps in orders to get rid of the lice. On the label it is claimed  that  if
the hair is shampooed with Mediker and left for 3 minutes  and  the  process
is repeated,  lice  are  eliminated.  The  label  also  shows  that  Madiker
consists of D-Phenothrin and other ingredients. The penetrating power of  D-
Phenothrin whereby it paralyses the lice was established  before  us  during
the course of hearing. The label itself immediately after the  name  of  the
product (Mediker) mentions "anti-lice treatment". These show that  "Mediker"
is a special product made for the treatment of lice.  The  submissions  made
by the learned Advocate that the anti-lice treatment is  not  subsidiary  to
the cosmetic function but is in the  main  function  is  borne  out  by  the
details given in the label and the explanations placed before us.”

12.   The tribunal  posed  a  question:  Can  Mediker  cure  and  prevent  a
disease?  On the basis of material on record,  the  tribunal  came  to  hold

“20. … Our perusal of these documents shows that the infestation of lice  on
the head causes several diseases and  a  product  which  is  to  treat  such
diseases has to be considered to be a medicament. Merck Index  of  Chemicals
and Drugs, Biological, Tenth Edition  describes  D-phenothrin,  its  various
isomers and its use as insecticides.  Extra  pharmacopea  (Martindale)  also
mentions phenothrin  as  being  used  in  drugs  as  insecticides.  In  this
connection  we  find  that   the   certificate   from   the   Drug   Control
Administration, Government of Andhra Pradesh dated  22-6-1987  is  relevant.
The following extract supports the case of the respondents :

"As D-phenothrin is used on human body for topical  use  and  has  medicinal
properties on scalp for antilice treatment  as  per  the  Notification  from
Drugs  Controller,  India  bearing  No.  15-95/80-DC,  dated   2-1-1982   D-
phenothrin is to be considered as a drug under the Drug  and  Cosmetic  Act,

21. A disease may affect the outside or inside of a  person's  body.  Causes
for diseases may vary; these can be micro-macro  organism,  insects,  worms,
bacteria, etc. Any preparation containing active ingredients to  remove  the
root causes, whether they are used  for  internal  consumption  or  external
application has to be considered as a  medicament.  Therefore,  we  conclude
that Mediker is a medicament. We further observe that the medicinal  use  of
the product is not its subsidiary function but is the only function.”

      Be it noted, the order passed by the tribunal was assailed in Civil
Appeal No. 3220 of 1990 and this Court had dismissed the Civil Appeal in
Collector of Central Excise, Hyderabad v. M/s Pharmsia Pvt. Ltd.[9]

13.   In Sujanil  Chemo  Industries  v.  Commissioner  of  C.  Ex.  &  Cus.,
Pune[10]     a three-Judge Bench of this Court approved the decision of  the
tribunal by holding thus:-

“6.  In this case it has fairly not been denied that the  only  use  of  the
product is for killing lice in human hair.  We  are  unable  to  accept  the
submission  that  killing  lice  does  not  amount  to  a   therapeutic   or
prophylactic use.  Any medicine or substance which treats disease  or  is  a
palliative or  curative  is  therapeutic.   Licel  cures  the  infection  or
infestation of lice in human hair.  It  is  thus  therapeutic.  It  is  also
prophylactic  inasmuch  as  it  prevents  disease  which  will  follow  from
infestation of lice.  Thus, this is a product which is used for  therapeutic
and prophylactic purposes. It would thus be a Medicament within the  meaning
of the term “Medicament” in  Note  2  of  Chapter  30.   It  therefore  gets
excluded from Chapter 38.

7.    This view has also been taken  by  us  in  the  case  of  ICPA  Health
Products (P) Ltd. v. Commissioner of  C.  Ex.,  Vadodara  reported  in  2004
(167) ELT 20.  We are also in agreement with the opinion  expressed  by  the
Tribunal in Pharmasia’s case (supra) wherein  in  respect  of  an  identical
product it has been set out that such product would fall  under  Chapter  30
under Tariff Heading 30.03.”

14.   In Puma Ayurvedic Herbal (P)  Ltd.  (supra)  the  distinction  between
“medicament” and “cosmetic” was highlighted in the following words:-

“It will be seen from the above definition of “cosmetic” that  the  cosmetic
products are meant to improve appearance of a person, that is, they  enhance
beauty, whereas a medicinal product or a medicament is meant to  treat  some
medical condition. It may happen that while treating  a  particular  medical
problem, after the problem is cured, the appearance of the person  concerned
may improve. What is to be seen is  the  primary  use  of  the  product.  To
illustrate,  a  particular  Ayurvedic  product  may  be  used  for  treating
baldness. Baldness is a medical problem. By use of the product if  a  person
is able to grow hair on his head, his ailment of baldness is cured  and  the
person’s appearance may improve. The product used for the purpose cannot  be
described as cosmetic simply because it has ultimately  led  to  improvement
in the appearance of the person. The primary role  of  the  product  was  to
grow hair on his head and cure his baldness.”

15.    In  Commissioner  of  Central  Excise  v.  Wockhardt  Life   Sciences
Limited[11] the Court treated the  two  products,  namely,  povidone  iodine
cleansing solution USP and wokadine  surgical  scrub  as  medicaments  after
appreciating the facts that the products are used by the  surgeons  for  the
purpose of cleaning or degerming their hands and scrubbing  the  surface  of
the skin of the patient before that portion is  operated  upon.   Thereafter
the Court observed thus:-

“The purpose is to prevent the infection or disease. Therefore, the  product
in question can be safely classified as  a  “medicament”  which  would  fall
under Chapter Sub-Heading 3003 which is  a  specific  entry  and  not  under
Chapter Sub-Heading 3402.90 which is a residuary entry.”

16.   The aforesaid analysis makes it absolutely clear  that  Mediker  which
is used for anti-lice treatment is a drug because of its  medicinal  affect.
This position has been accepted by this  Court.   Once  it  is  a  drug,  it
cannot be a shampoo.  As  a  natural  corollary,  it  will  not  invite  the
liability of levy of entry tax.

17.   The second product is Revive instant starch. The  revenue  claimed  it
to be a chemical. An endeavour has been  made  to  put  it  under  Entry  55
Schedule II. Entry 55 Schedule II reads as follows:-

      “55. All kinds of chemicals and acids, sulpher and bleaching power.”

18.   The stand of the assessee before the authorities was that it is not  a
chemical. It is  not  sold  or  used  for  that  purpose.  It  is  a  starch
manufactured by using Tapioca roots. The revenue, per  contra,  without  any
material brought on record, put it in the category of a chemical.  In  Union
of India v. Garware Nylons Ltd.[12] it has been  held  that  the  burden  of
proof is on the taxing authorities to show that the particular case or  item
in question   is  taxable  in  the  manner  claimed  by  them.   Elucidating
further, the  Court  has  held  that  there  should  be  material  to  enter
appropriate finding in that regard and the material may be  either  oral  or
documents and it is for the taxing authority to lay evidence in that  behalf
even before the first adjudicating authority. Revive instant starch is  used
while washing the clothes.  In  common  parlance  it  is  not  regarded  and
treated as a chemical or a  bleaching  powder.  If  the  very  substance  or
product would have a chemical composition, then only it would make the  said
substance a chemical within the meaning of Entry 55. Needless  to  say,  the
purpose and use are to be taken note of. Common  parlance  test  has  to  be
applied. If the revenue desired to  establish  it  as  a  chemical,  it  was
obligatory on its part to adduce the evidence. As is manifest,  no  evidence
has  been  brought  on  record  by  the  revenue  that  it  is  a  chemical.
Therefore, it can safely be concluded that it is not a chemical.

19.   In view of the aforesaid analysis, the inevitable conclusion  is  that
the appeal is devoid of any substance and  deserves  to  be  dismissed  and,
accordingly, we so direct.  However, in the facts and circumstances  of  the
case, there shall be no order as to costs.

                                        (Dipak Misra)

New Delhi.                        …………………………..J.
July 22, 2016                           (Prafulla C. Pant)

      [2]  (1980) 1 SCC 142
[3]   [4]  (1989) Supp. 1 SCC 131
[5]   [6]  (2003) 4 SCC 280

      [8] (2009) 12 SCC 419

      [10] (1996) 9 SCC 402

      [12] (2006) 3 SCC 266

      [14] (2004) 9 SCC 156

      [16] 1990 (47) E.L.T. 658 (Tribunal)

      [18] 1996 (83) ELT A178 (SC)

      [20] 2005 (181) ELT 206 (SC)

      [22] (2012) 5 SCC 585

      [24] (1996) 10 SCC 413

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