‘Alcohol-based hand sanitiser to draw 18% GST’

Shishir Sinha New Delhi | Updated on March 05, 2021

Reducing GST on sanitisers will create an inverted duty structure, the Finance Ministr y had said   -  NISSAR AHMAD

Karnataka Authority for Advance Ruling (AAR) says it is not a medicament

Authority for Advance Ruling (AAR) in Karnataka has said that alcohol based hand sanitizer is not medicaments. Accordingly, it is liable to be taxed at 18 per cent.

In its recent ruling on an application by Bengaluru-based Wipro Enterprises, the AAR has said that: “Alcohol-based hand sanitisers, as the name itself suggests, are to sanitise the hands and disinfect them and hence cannot be covered under Medicaments.” Hence, it ruled that rate of CGST and SGST would be 9 per cent each.

Applicant’s argument

Earlier, the applicant argued that hand sanitiser manufactured by it contains 95 per cent v/v of ethyl alcohol, which is within the standard prescribed by the Indian Pharmacopoeia. It obtained a drug license under the provisions of the Drugs and Cosmetics Act, 1940.

It submitted that hand sanitiser is a dis-infectant having prophylactic value and hence should be classifiable under HSN Code 3004 having 12 per cent GST rate. Prophylactic is defined as ‘Done or used as preventive against disease/Formulated to prevent something.’

The company said that the hand sanitizer is manufactured and supplied by them under a valid drug licence and is used for killing bacteria, as indicated on the packaging and also in the Indian Pharamacopoeia.

Right classification

According to Aditya Singhania, Partner at Singhania’s GST Conusltancy, the ruling states that sanitisers cannot be compared with vaccines.However, Covid-19 vaccines help in preventing from such infection and likewise hand sanitisers also help in preventing from such virus. Both of these are not used for treatment of an already prevalent disease in a patient but as a measure to prevent such infection and hence can be rightly classified as medicament having prophylactic value. Ruling relied on explanatory notes to HSN (Harmonised System of Nomenclature) of WCO (World Custom Organisation), and held that sanitisers are not available as tablets, ampoules, etc. but did not considered that the notes does includes usage of small quantities of power. Likewise, hand sanitizer practically is to be used in small quantities to prevent from such disease-causing ailment.

The Finance Ministry has already clarified that inputs for manufacture of hand sanitisers would also attract a GST rate of 18 per cent. Reducing the GST rate on sanitisers and other similar items would lead to an inverted duty structure and put the domestic manufacturers at disadvantage vis-a-vis importers. Lower GST rates help imports by making them cheaper.

Singhania said once the classification by taking specified GST rate is adopted by the manufacturers, the invoicing is done to lakhs of distributors and thereafter to entire value addition chain, hence, “any wrong or mis-classification may see floods of Show Cause Notices on account of short payment of tax and may fall hefty on taxpayers in terms of interest and penalty.”

Published on March 05, 2021

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