Madhya Pradesh High Court Clarifies Tax Classification of White Petroleum Jelly as a Medicament
Court Overturns Tax Appellate Board's Decision, Classifying White Petroleum Jelly as 'Drugs and Medicines' Under MP VAT Act, 2002
In a significant ruling, the Madhya Pradesh High Court has brought clarity to the tax classification of White Petroleum Jelly I.P. manufactured under a drug license, categorizing it under 'Drugs and Medicines' as per Entry 19A of Part II Schedule II of the Madhya Pradesh VAT Act, 2002. The decision, dated September 11, 2025, was delivered by a bench comprising Justices Vivek Rusia and Jai Kumar Pillai, overturning the previous judgment of the Madhya Pradesh Commercial Tax Appellate Board.
The dispute arose from differing views on whether White Petroleum Jelly I.P., produced by Hindustan Unilever Ltd., should be taxed as a drug or a cosmetic. The company maintained that the jelly, manufactured under a valid drug license and primarily used for its medicinal properties, should be classified as a drug, qualifying for a lower tax rate of 5% under the MP VAT Act. However, tax authorities argued for a higher tax rate, treating it as a cosmetic due to its common use in skincare.
The High Court bench emphasized the dominant medicinal use and statutory recognition of White Petroleum Jelly, affirming that specific entries for 'Drugs and Medicines' prevail over general or residuary entries for 'Cosmetics and Toilet Articles.' The court's decision aligns with the precedent set by the Supreme Court in the case of Ponds India Ltd. v. Commissioner of Commercial Tax, which classified non-perfumed petroleum jelly under a drug category.
Furthermore, the court ruled that Hindustan Unilever Ltd. is not liable for interest on the differential tax amount as the classification dispute resolved in favor of the appellant. The court also rejected the Madhya Pradesh Commercial Tax Appellate Board's stance, underscoring the importance of legislative amendments that have consistently treated healthcare items distinctly from cosmetics.
The ruling sets a precedent for similar tax classification disputes, reinforcing the principle that products manufactured under a drug license and recognized for their therapeutic properties should be classified under relevant medicinal entries, thereby benefiting from lower tax rates.
Bottom Line:
Classification of White Petroleum Jelly I.P. under MP VAT Act clarified - Held, White Petroleum Jelly of IP grade manufactured under a valid drug license is classifiable as 'Drugs and Medicines' under Entry 19A of Part II Schedule II of MP VAT Act, 2002 and not as a cosmetic.
Statutory provision(s): Madhya Pradesh VAT Act, 2002 Section 19A, Section 18(1)(a), Entry 19A of Part II Schedule II, Entry 41/49 of Part III Schedule II, M.P. Commercial Tax Act, 1994
