Govt defends 18% GST on alcohol-based sanitisers, says a lower rate could hit domestic production

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Published: July 16, 2020 6:45 AM

The initial intelligence developed by Central Economic Intelligence Bureau (CEIB) pointed out the fraud saying that many sugar mills and distilleries are mis-classifying hand sanitisers under the HSN code 3004 instead of the 3808.

“The GST rates on various items are decided by the GST Council where the central government and all the state governments together deliberate and take decisions,” it added.“The GST rates on various items are decided by the GST Council where the central government and all the state governments together deliberate and take decisions,” it added.

Reacting to criticism against 18% GST rate on alcohol-based sanitisers, the government on Wednesday said that a lower rate on the product would lead to inverted duty structure, which would put the domestic manufacturers at a disadvantage vis-a-vis importers of hand sanitisers.

Inverted duty structure refers to incidence of higher taxes on inputs than on the final products

The government further said that consumers would also eventually not benefit from the lower GST rate if domestic manufacturing suffers. “The GST rates on various items are decided by the GST Council where the central government and all the state governments together deliberate and take decisions,” it added.

Correction of inverted duty structure has been at the top of GST Council agenda for the last few meeting. In March, the Council had decided to raise the GST rate on mobile phones to 18% from 12% citing inverted duty structure, which provided an edge to imported phones. The Council has also been deliberating hiking rates on a bunch of items including textiles, footwear, fertilisers, tractors and renewable energy devices as they suffer form the same anomaly.

Inverted duty structure means that businesses cannot exhaust all the input tax credit accumulated on account of paying taxes on inputs if their output tax liability is lower. The government has estimated that it refunds Rs  20,000 crore annually to these manufacturers annually in lieu of their unutilised ITC.

Separately, as FE reported earlier, hand sanitiser manufacturing has attracted the GST investigation as some firms are found to have been using an incorrect harmonised system of nomenclature (HSN) for the product leading to a loss of at least Rs 50 crore to the exchequer since the launch of GST.

The initial intelligence developed by Central Economic Intelligence Bureau (CEIB) pointed out the fraud saying that many sugar mills and distilleries are mis-classifying hand sanitisers under the HSN code 3004 instead of the 3808. The GST rate is 12% for items under the former code and 18% for the latter.

Experts said that while mis-classification of products to avail lower rate is used by unscrupulous businesses often, the surge in sale of hand sanitisers since March due to the Covid-19 pandemic attracted profiteers in large numbers.

However, some suppliers continue to sell the product domestically at a lower rate. Items under HSN code 3004 attract 12% GST and are called ‘medicaments’ consisting of products for therapeutic or prophylactic uses to be administered in dosage. But HSN code 3808 covers items like insecticide, fungicide and disinfectants like hand sanitisers, and attract 18% GST.

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