Vestige Marketing Pvt. Ltd. Loses Appeal on Tax Classification; Tribunal's Decision to Impose Higher Tax Rate Stands
In a significant judgment, the Madras High Court has dismissed an appeal by M/s Vestige Marketing Private Limited, confirming the classification of certain products as food supplements rather than proprietary Ayurvedic medicines, thereby subjecting them to a higher tax rate under the Puducherry Value Added Tax Act, 2007. The decision was rendered by a division bench comprising Dr. G. Jayachandran and N. Mala, JJ., on 24th July 2026.
The case revolved around Vestige's attempt to classify seven products, including Spirulina, Noni, Ganoderma, Amla, Aloe Vera capsules, Neem Oil, and Flax Capsules, as Ayurvedic medicines to benefit from a lower tax rate of 5% instead of the 14.5% applicable to food supplements. The products were manufactured by licensed companies in Himachal Pradesh and Daman and Diu.
The court analyzed the Tribunal's decision, which had previously affirmed the classification as food supplements due to the absence of evidence demonstrating the therapeutic use of these products. It pointed out that the products were initially declared as food supplements for inter-state purchase under the Central Sales Tax Act, contradicting the claim of them being medicines for sales tax purposes.
The court emphasized the necessity of a drug license for classification as medicines and upheld the Tribunal's finding that without a therapeutic application, these products could not be classified as drugs. The court cited the common parlance and authoritative tests, which focus on the intended use and recognition of products in the marketplace, to affirm the Tribunal's classification.
Moreover, the court addressed several substantial questions of law, including the Tribunal's power to impose litigation costs, the necessity of drug licenses for Ayurvedic medicines, and the classification of goods under the VAT Act. It concluded that the Tribunal acted within its jurisdiction and discretion in all aspects, including the imposition of costs on Vestige for what was deemed vexatious litigation.
The judgment sets a precedent in interpreting tax laws concerning the classification of health-related products and underscores the importance of compliance with legal standards for tax benefits.
Bottom line:-
Classification of goods for tax purposes under the Puducherry Value Added Tax Act, 2007 - Food supplements cannot be classified as medicines for tax purposes solely based on their manufacturing license or claims by the dealer.
Statutory provision(s):
- Puducherry Value Added Tax Act, 2007, Section 51(2)
- Puducherry Value Added Tax Act, 2007, Section 44
- Drugs and Cosmetics Act, 1940, Section 33A, 33EEC
