## **IN THE HIGH COURT OF KERALA AT ERNAKULAM**
**PRESENT:**
**THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HON'BLE MR. JUSTICE BABU MATHEW P.JOSEPH**
**MONDAY, THE 27TH DAY OF FEBRUARY 2012/8TH PHALGUNA 1933**
**OT.Rev.No. 65 of 2011 ( )**
**-------------------------**
**(AGAINST THE ORDER OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM IN TA.(VAT) 295/2009 DATED 31.03.2011.)**
**...............................................**
**REVISION PETITIONER(S)/RESPONDENT : ---------------------------------------------------------**
**M/S.VLCC HEALTH CARE LTD., ABM TOWERS, KADAVANTHARA, KOCHI.**
**BY ADVS.SRI.ANIL D. NAIR SRI.J.R.PREM NAVAZ SMT.NIVEDITA A KAMATH SRI.K.N.NARAYANA PILLAI**
**RESPONDENT(S)/APPELLANT :**
**------------------------------------------**
## **THE STATE OF KERALA,**
**BY SRI.BOBBY JOHN, SR.GOVERNMENT PLEADER**
**THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 27-02-2012, ALONG WITH OTRV. 66/2011, OTRV. 73/2011, OTRV. 74/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:**
**AMV**
## **OT.Rev.No. 65 of 2011 ( )**
## **APPENDIX**
## **PETITIONER(S) ANNEXURES :**
**ANNEXURE - A : COPY OF THE ORDER OF THE INTELLIGENCE OFFICER (IB) II, OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, KOZHIKODE DATED 17.09.2007 ISSUED TO THE PETITIONER. ANNEXURE - B : COPY OF THE ORDER OF THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, ERNAKULAM ISSUED TO THE PETITIONER. ANNEXURE - C : COPY OF THE COMMON ORDER DATED 31.03.2011 OF THE KERALA VALUE ADDED TAX APPELLAE TRIBUNAL, ERNAKULAM IN TA (VAT) 295/2009 AND 296/2009.**
## **RESPONDENTS' ANNEXURES: NIL**
## **/TRUE COPY/**
## **P.A.TO JUDGE**
## **AMV**
C.N.RAMACHANDRAN NAIR & BABU MATHEW P. JOSEPH, JJ. .................................................................... O.T.Revn.Nos.65, 66, 73 & 74 of 2011 .................................................................... Dated this the 27[th] day of February, 2012.
## J U D G M E N T
## Ramachandran Nair, J.
The connected revisions are filed both by the State as well as by the assessee challenging the orders of the Tribunal sustaining and modifying penalty levied for attempted evasion of sales tax under Section 67(1) of the KVAT Act.
2. We have heard learned Senior Government Pleader for the State and Shri.Anil D.Nair, learned counsel for the assessee.
3. The assessee is engaged in manufacture and sale of various products claiming to be good for restoring youth, rejuvenating body and improving skin colour and looks. In short, all the products are intended to improve looks particularly of females. The assessee is mainly selling the products on which sales tax is said to be collected and remitted. Simultaneously the assessee is also engaged in treatment of customers for beautification as well as for
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rejuvenation. The leaflets produced before us show that special treatments are offered by the assessee for tightening skin by use of various speciality oils, gels and creams. Objects are to remove wrinkles, prevent stretch marks caused during pregnancy, shaping and firming up of body and the like. Specific case of the assessee is that all the gels, creams and oils and other extracts used are essentially as consumables, the use of which in the course of treatment do not involve sale of goods taxable under Section 6(1)(d) or Section 8 of the KVAT Act. However, the case canvassed by the learned Government Pleader for the State is that going by assessee's own assertions in the leaflet there is at least partial absorption of the items supplied which brings out the result if at all the same happens. Learned Government Pleader has referred to the specific claim made in the published leaflet of the assessee under the heading SKIN TIGHTENING SOLUTIONS, LIME MASSAGE GEL.
“It penetrates deep into the skin, delivering nutrients, vitamins and anti oxidants to the inner
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most layers while hydrating it and maintaining its softness.”
Learned counsel for the assessee, on the other hand, submitted that there is no finding with regard to the items used in the course of treatment and equally there is no finding that any item used up in the treatment is absorbed by the body to treat it as sale of goods. According to the assessee, the entire articles used up are consumables on which no sales tax is payable.
4. Learned Government Pleader, on the other hand, contended that it is not a pure service contract the assessee was engaged in, because the charges levied is merely attributable to valuable items used up or supplied in the course of treatment and so much so, sales tax at applicable rate is payable by the assessee.
5. After hearing both sides and on going through the Tribunal's order, what we notice is that the Tribunal was influenced by the Full Bench judgment of this Court in Enviro Chemicals v. State of Kerala, reported in 2011(1) KLT 1060,
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wherein this Court held that even chemicals used for treatment of polluted water is sale of goods involved in works contract. The assessee's counsel, on the other hand, relied on the Division Bench judgment of this Court in Microtrol Sterilization Services Pvt. Ltd., vs. State of Kerala, reported in 2009(26) VST 213, wherein the Division Bench held that sterilization of goods by exposure to ethyl oxide does not involve any sale of goods as items used completely escape from the goods sterilized.
6. In our view, law on the subject has to be considered with reference to the decisions of this Court or of the Supreme Court, only after ascertaining the factual position i.e. exact effect of treatment with the items involved. If the items used bring about the result claimed by the assessee then naturally at least active ingredients get absorbed into the body in the course of treatment, and so much so, the transaction should be treated as application of medicine in the course of treatment of a patient. On the other hand, if the items are just
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externally applied and nothing of it is absorbed by the body, then certainly there is no case for levy of tax as goods are not sold in the course of the service rendered. In fact, in the Rules providing for determination of taxable turnover, value of consumables is excluded to arrive at taxable turnover. So much so, the question that requires to be considered is whether the item used in the treatment is a consumable or not. For example, a massage is done with oil or powder partly to impart softness to the body and to prevent skin damage. On the other hand, if active ingredients are there in the cream or gel or oil applied which goes into the body whether skin deep or otherwise, the result in treatment is brought out on account of application of the item. In such cases, the items used should be taken to have been sold in the course of treatment to the party. Obviously, charges for the treatment will be linked to cost of materials used as well and so much so, there is an element of sale involved in the whole transaction.
7. Besides considering the above question, what is
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further required to be examined is whether the contract is one for sale and service as well. If a customer desires to be treated in a particular fashion with a particular quantity of an item manufactured by the assessee for a specific purpose, then it involves sale of such item used in the treatment as well as servicing by way of treatment, which may be massage or otherwise, of the customer. Therefore, we feel a detailed and comprehensive enquiry is required into the products, nature of use, it's application and affect; and thereafter only the liability for tax and penalty if any for trying to evade payment of tax, if any, engaged by the assessee arises. Since all the authorities have just proceeded to apply decisions without caring to even see the samples of the items used for the service rendered and the effect it is supposed to bring out, we feel the whole matter requires reconsideration by the original authority itself.
Accordingly, without going into the merits or the applicability of the decisions referred to above, we allow all the revision cases filed by the assessee as well as by the State by
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setting aside the orders of the Tribunal and that of the appellate authority and by remanding the matter to the Intelligence Officer to reconsider the matter along with the Assessing Officer, who are free to conduct joint inspection of the premises, collect samples as well as leaflets and proceed to examine the scope of liability under the Act and issue follow up orders by following the procedure prescribed i.e. by issuing notice to the assessee on the findings and the proposal, hear the objections and decide the matter afresh.
## (C.N.RAMACHANDRAN NAIR, JUDGE)
(BABU MATHEW P. JOSEPH, JUDGE)
jg
