Entry Tax; State of Madhya Pradesh Vs. Marico Industries Ltd. [Supreme Court of India, 22-07-2016]

Madhya Pradesh Entry Tax Act, 1976 – Mediker which is used for anti-lice treatment is a drug because of its medicinal affect – Once it is a drug, it cannot be a shampoo – it will not invite the liability of levy of entry tax.


Revive Instant Starch – 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. 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.



(Dipak Misra) and (Prafulla C. Pant) JJ.

July 22, 2016

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)


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 tax.

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, (1980) 1 SCC 142

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; (1989) Supp. 1 SCC 131

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, (2003) 4 SCC 280

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: (a) 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 (b) ……..”

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