On July 15, the finance ministry clarified that hand sanitisers are to be treated as a disinfectant, quite like soap, etc. The ministry press note stated that hand sanitisers attract an 18% GST rate
Covid-19 times have created their own classification issues from an indirect taxation perspective; the Central Board of Indirect Taxes, Directorate General of Goods & Service Tax Intelligence (DGGSTI) and the Economic Intelligence Bureau (EIB) as well as the ministry of Ayush are all flummoxed by this. Hand sanitisers are now manufactured largely by two types of units: the ones that had converted their alcohol manufacturing capacity and the ones that got licences from Ayush, reporting ingredients as prescribed by recognised Ayurvedic texts. The latter’s product attracts a GST rate of 12% since it fulfilled the condition of being an Ayurvedic medicament falling under Tariff head 3004, while the other’s attracts 18% under the Tariff Head 3402.
EIB told the DGGSTI about the two different GST rates in the market, apparently without investigating the underlying cause. The DGGSTI concurred broadly with the EIB, but sent the intelligence to field units with a caution on investigating the matter.
On July 15, the finance ministry clarified that hand sanitisers are to be treated as a disinfectant, quite like soap, etc. The ministry press note stated that hand sanitisers attract an 18% GST rate. It further supported the rate classification with the proposition that a lesser rate will make the duty-structure inverse, and will neither make the country atmanirbhar nor benefit the consumer.
The ministry press note has stirred controversy, and it appears it is contrary to the decision of the Supreme Court in Commissioner of Central Excise vs Wockhardt Life Sciences, in which heading 3003, meant for medicaments, was preferred over heading 3402 for hand solutions based on sodium hydroxide, as the hand solutions (quite like hand sanitisers in the present case) were considered to have prophylactic use, and were therefore covered under “medicaments”. The SC had also rejected Revenue’s contention that the impugned product was primarily used as detergent/cleansing preparation, and can’t be a ‘medicament’.
A product being prophylactic in use, and therefore, a medicament, is decided by its predominant use; soaps, detergents, etc, are used in bathing and washing, and can’t be equated with hand sanitisers due to the trite law laid down by the SC. In light of the SC judgment, it should have been ascertained whether hand sanitisers, which have predominantly prophylactic use, are medicaments or not. Also, when the Ayush department has granted licences for products whose ingredients are mentioned in Ayurvedic texts, Revenue should have further clarified if such products, being Ayurvedic, will attract 12% GST rate if they satisfy requisite conditions. This was the criteria laid down by the SC while holding Vicks Vaporub as an ayurvedic product due to it being a medicament and its ingredients being in accordance with Ayurvedic texts even if its formulation is not in the same proportion (Naturalle Health Products (P) Ltd. Vs CCE, Hyderabad). These decisions were based on HSN-based classification, which has been adopted (upto 4-digits) for GST classification. Revenue has made the 4-digit classification and relevant notes of HSN redundant by indicating (though incorrectly) that the GST Council has fixed rates for all kind of hand sanitisers. It defies logic that the consideration of inverse-duty structure should decide the classification and rate. The press note celebrates ‘Atmanirbhar Bharat’ goals, but ironically ignores the licence granted by the Ayush ministry even as the propagation of traditional systems of medicine is an important goal for this government, too.
The prescription of DGGSTI to field units to verify and investigate the matter is the best advice under the circumstances.
The author is Advocate and former Commissioner of Customs & Excise