Prickly heat powder is a cosmetic; to face higher tax: SC
Mumbai, May 7, 2023
The Supreme Court (SC) has held that medicated talcum powder Nycil, which is used to treat prickly heat, is a 'cosmetic' and not a 'medicament'.
As cosmetics are taxed at a higher rate- both under the earlier indirect tax laws and current goods and service tax (GST) provisions-this means that the ultimate consumer will pay a higher price.
This verdict comes a day after the SC passed a favourable ruling in the case of medicated homeopathic hair oil. Here, the apex court had held that Aswini Homeo Arnica Hair Oil fits the corners of the twin test perfectly-which is both the common parlance test and ingredients test. The SC in this order, reported by TOI on May 5, had also pointed out that another essential feature for a product to be classified as a medicament is whether the preparation is essentially for therapeutic or prophylactic use (medicament) or only for care (cosmetic).
"With two back-to-back SC orders on classification for indirect tax purposes, though under different tax legislations (erstwhile excise and sales tax laws), one of which is in favour of the manufacturer holding a particular hair oil to be a medicament and not a cosmetic, and the other holding prickly heat powder to be a cosmetic, the consumer sector industry is perplexed," says Harpreet Singh, indirect tax partner at KPMG-India.
"Some companies whose products can be considered as a medicament, may prefer to adopt a safer route and charge a higher tax. Under the current indirect tax regime, medicaments are subject to GST at 5% or 12% whereas cosmetics attract a higher rate of 18%," adds Singh.
"The GST council must direct the Central Board of Indirect Taxes and Customs to come out with a practical guidance note-which should also cover products that are currently lying on shelves in stores," said an industry expert.
In the prickly heat powder case, the SC dismissed appeals by Nycil's manufacturers against orders of Kerala and Madras high courts. The opening line of the order states, "The issue which this court (SC) has to deal with has placed the courts in a prickly pickle on several occasions- whether medicated talcum powder is medicine or drug, or a cosmetic, or in terms of the statutes in question, medicated talcum powder?"
The SC bench noted while Nycil contains medical ingredients, the Kerala General Sales Tax Act thought it fit to include shampoos, talcum powder and medicated talcum powder in the classification related to cosmetics. Similarly, Tamil Nadu's tax laws were amended to include talcum powder, whether medicated or not, in the classification relating to cosmetics. Thus, it held Nycil to be a cosmetic.
[The Times of India]
