Supreme Court Partially Allows Reckitt Benckiser's Appeal on Tax Classification of Household Products

The Supreme Court of India, in its judgment dated April 10, 2023, in M/s Reckitt Benckiser (India) Ltd. vs. Commissioner of Commercial Taxes & Ors., ruled on the classification of various household products under the Kerala Value Added Tax (KVAT) Act, 2003. The Court upheld the Kerala High Court’s decision for most products but overturned its ruling on Dettol Antiseptic Liquid, classifying it as a medicament eligible for a lower tax rate.

Background of the Case

The dispute revolved around the tax classification of Reckitt Benckiser’s products:

Mortein Mosquito Mats, Coils, and Vaporizers
Mortein Insect Killer
Harpic Toilet Cleaner and Lizol Floor Cleaner
Dettol Antiseptic Liquid

The company contended that these products should be classified under the lower tax bracket (4%) applicable to insecticides and medicaments, while the Kerala Commercial Tax Department sought to classify them under higher tax brackets (12.5%).

Issues Before the Court

The primary legal issues in the case included:

Whether mosquito repellents like Mortein Coils and Vaporizers should be classified as insecticides under Entry 44(5) of the KVAT Act or as mosquito repellents under Entry 66, which attracts a higher tax rate.
Whether Dettol Antiseptic Liquid should be classified as a medicament under Entry 36(8)(h)(vi) or as a general disinfectant under the residuary category.
Whether Harpic and Lizol, despite their germ-killing properties, should be treated as disinfectants or cleaning agents.

Arguments by the Appellant (Reckitt Benckiser)

Reckitt Benckiser, represented by legal counsel, argued:

Mortein products should be classified as insecticides because they are manufactured under a license issued under the Insecticides Act.
Dettol Antiseptic Liquid should be classified as a medicament as it has therapeutic and prophylactic properties.
Harpic and Lizol should be classified as disinfectants, aligning with their categorization in other states’ VAT Acts.
Previous High Court and Supreme Court rulings on similar products supported their stance.

Arguments by the Respondents (Commercial Taxes Department)

The Kerala Commercial Taxes Department countered:

Mortein products are mosquito repellents, not insecticides, and fall under the specific entry for mosquito repellents taxable at 12.5%.
Dettol is not a medicament because it does not cure or prevent diseases; instead, it is used primarily for cleaning purposes.
Harpic and Lizol are cleaning agents and should be taxed accordingly.

Supreme Court’s Observations

The Supreme Court bench, comprising Justices M.R. Shah and Krishna Murari, made the following key observations:

“Mosquito Mats, Coils, and Vaporizers fall under the specific entry for mosquito repellents, making them taxable at 12.5%.”
“Insecticides are primarily used in agriculture, and Mortein products are not used for such purposes.”
“Dettol Antiseptic Liquid, based on its active ingredients and medical usage, qualifies as a medicament under Entry 36(8)(h)(vi) and should be taxed at 4%.”
“Harpic and Lizol are primarily used as cleaning agents and should be classified as stain removers and deodorants rather than disinfectants or insecticides.”

Final Judgment

The Supreme Court ruled:

Mortein Mats, Coils, and Vaporizers should be classified under Entry 66 and taxed at 12.5%.
Dettol Antiseptic Liquid should be classified as a medicament under Entry 36(8)(h)(vi) and taxed at 4%.
Harpic and Lizol should be classified under stain removers and cleaning agents, taxable at 12.5%.
The appeal was partially allowed in favor of Reckitt Benckiser for Dettol Antiseptic Liquid but dismissed for other products.

Implications of the Judgment

The Supreme Court’s ruling has significant implications for product classification under VAT laws:

Specific vs. General Entries: The judgment reinforces that specific entries in tax schedules override general classifications.
Definition of Medicaments: Products with therapeutic and prophylactic properties, like Dettol, may qualify as medicaments for tax purposes.
Impact on Consumer Goods Industry: Companies selling household cleaning and pest control products may face higher taxation unless they fall within exempt or lower-tax categories.

Conclusion

The Supreme Court’s ruling in M/s Reckitt Benckiser (India) Ltd. vs. Commissioner of Commercial Taxes & Ors. clarifies the classification of household products under the KVAT Act. While the Court upheld higher tax rates for Mortein and Harpic/Lizol, it provided relief to Reckitt Benckiser by recognizing Dettol Antiseptic Liquid as a medicament eligible for a lower tax rate.

Petitioner Name: M/s Reckitt Benckiser (India) Ltd..
Respondent Name: Commissioner of Commercial Taxes & Ors..
Judgment By: Justice M.R. Shah, Justice Krishna Murari.
Place Of Incident: Kerala.
Judgment Date: 10-04-2023.

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