Tax Cosmetic and Medicine

Why in news?

A question of whether a product is cosmetic or medicine for tax purposes arose over the products of Johnson & Johnson.

What is the issue?

• The revenue authorities of Rajasthan imposed 12.5% VAT on two products of Johnson & Johnson, ‘Shower to Shower’, Savlon and ‘Listerine’ mouthwash.
• They maintained that these were not medicines which are entitled for a lower tax which is generally 4 or 5 %.
• The Tax Board upheld the view, against which the company appealed to the high court.

What is the company’s defence?

• It argued they have medicinal value as shown in the licence granted to it and are special products for specific purposes.
• It further submitted that similar products like Nycil, Vicks and others have been granted tax benefits by other courts.

What was the revenue authority’s rationale?

• The revenue authorities stated that the presence of a small percentage of chemicals does not make the products medicine.
• These products are available in ordinary shops and are not commonly understood as medicines.
• The court agreed with this view and dismissed the appeal of the company.
• It also dismissed the appeal of the authorities that Savlon was also a cosmetic.
• The judgment said that Savlon is an anti-septic formulation with curing properties and hence a medicine.
• This issue, as it deals with the tax matters of products sold over the counter, it cannot be decided under the central excise law.
• Ultimately it is the state law which decides the issue.

Category: Mains | GS-III | Economy

Source: The Hindu