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State of Madhya Pradesh v. Marico Industries Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 8656 of 2015)Decided 22 Jul 2016
Civil Appeal No. 8656 of 2015
Justice Dipak Misra · Justice Prafulla C. Pant

Background

Marico Industries manufactures "Mediker" anti-lice treatment and "Revive" instant starch. Madhya Pradesh tax authorities treated Mediker as a hair shampoo and Revive starch as a chemical, and imposed entry tax plus interest and penalty on both products. Marico challenged this before the tax authorities and then the High Court, arguing Mediker is a medicine (not a cosmetic) and Revive is a starch (not a chemical), so neither attracted entry tax. The High Court ruled in Marico's favour, and the State appealed to the Supreme Court.

Decision Breakdown

The Court applied the "common parlance test" long used in tax classification: how an ordinary consumer and the trade understand a product, not its technical composition. Reviewing the product label, ingredients (D-Phenothrin, a recognized insecticide/drug), licensing under the Drugs and Cosmetics Act, and prior Tribunal and Supreme Court rulings treating Mediker as a medicament (not a cosmetic), the Court held Mediker is a drug used to treat lice infestation, not a shampoo, so it falls outside the entry tax schedule. On Revive starch, the Court held the burden was on the tax department to prove the product was a "chemical," and since the State produced no evidence beyond a bare assertion, Revive (a tapioca-based laundry starch) could not be taxed as a chemical either. The appeal was dismissed.

Lesson Learnt

When a government tax authority wants to classify a product under a taxing category different from how it is commonly sold and used, the burden of proof is on the tax department to produce real evidence for that classification: a product's primary therapeutic or ordinary use, not just its ingredients, determines how it is taxed.

Official source (sci.gov.in)View Judgment (PDF)

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