Maharashtra's Food and Drugs Administration has cancelled the baby powder manufacturing licence of Johnson & Johnson Pvt Ltd "in the interest of public health at large."
The state government agency said the company's product, Johnson's Baby Powder, may affect the skin of newborns.
Samples of the powder did not meet standards during a laboratory test, the regulator said in a statement.
It said it took action after the Kolkata-based Central Drugs Laboratory in a report concluded "the sample does not conform to IS 5339:2004 with respect to the test for pH."
The Maharashtra FDA had issued notice to Johnson and Johnson and ordered the company to recall stocks from the market.
The firm "didn't accept the report" and challenged it in court for sending it to the Central Drugs Laboratory, the FDA said.
A statement from Johnson & Johnson Pvt Ltd is awaited.
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