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March 10, 2021

Sanitizers are not medicaments and hence 18% GST is applicable – AAR

by CA Jessica Nagaonkar in GST

Sanitizers are not medicaments and hence 18% GST is applicable – AAR

The COVID 19 Pandemic has been severely disruptive to human life as well as the economy. However, the healthcare sector is expected to generate the maximum revenue, owing to the outbreak of the COVID-19, which has increased the application. The healthcare sector has always been one of the key contributors to the global hand sanitizer market. Sales of hand sanitizers and similar products have swelled across several international markets since the COVID-19 outbreak began in January 2020. Demand for hand sanitizer is surging around the globe as the new coronavirus spreads, prompting retailers to ration supplies and online vendors to hike prices. Hand sanitizers are primarily sold through retail distribution channels such as supermarkets and hypermarkets, departmental stores, retail stores, and drug stores worldwide.

Let us refer to the case of Wipro Enterprises Private Limited (GST AAR Karnataka), where question was raised before AAR regarding the classification of sanitizers under GST

Facts of the Case:

  • The applicant was engaged in the manufacture of toilet soaps, LED bulbs and fittings, other toiletries, and other consumer products at their various factories.
  • The applicant herein was manufacturing and marketing Hand Sanitizer at a large scale primarily to combat the situation arising on account of pandemic COVID-19
  • Section 16 of the Drugs and Cosmetics Act, 1940 provides that ‘standard quality’ of drug would mean a drug which complies with standard set forth in Schedule II and the said schedule provides for Drugs included in the ‘Indian Pharmacopoeia’.
  • The Hand Sanitizer manufactured by the Applicant contains 95% v/v of ethyl alcohol, which was within the standard prescribed by the Indian Pharmacopoeia, the Applicant had rightfully obtained a drug license under the provisions of the Drugs and Cosmetics Act, 1940.

Advance Ruling was sought for the following questions:

The applicant sought advance ruling in respect of the following questions:

  • What is the appropriate classification of Hand Sanitizer for the purpose of GST?
  • What is the applicable rate of GST?

Observations of Authority of Advance Ruling (AAR)

  • The applicant sought advance ruling with regard to the issue of appropriate classification of Hand Sanitizer for the purpose of GST and the applicable GST rate thereon.
  • In this regard it was to be noted that hand sanitizers were used to disinfect the skin surfaces from microbes and viruses.
  • All disinfectants had a property of killing disease causing agents and could claim to be prophylactic in nature. But the main activity of the disinfectant was to disinfect the surfaces.
  • Disinfectants are chemical agents designed to inactivate or destroy microorganisms on inert surfaces. Disinfectants kill more germs than sanitizers. Disinfectants are frequently used in hospitals, dental surgeries, kitchens, and bathrooms to kill infectious organisms.
  • The HSN Code 3808 94 00 clearly covered all disinfectants.
  • When there is a specific entry covering disinfectants, the impugned product had to be classified under the said heading 3808 94 00.
  • Further the Chapter Note 1 to the Chapter 38 clearly stated that this Chapter did not cover medicaments (Heading 3003 or 3004).
  • Hence, it was be decided whether the product in question was covered under HSN 3003 or 3004 or not.

What was provided under HSN 3004?

  • HSN 3004 covers, “Medicaments (excluding goods of heading 3002, 3005 or 3006) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in the forms of packings for retail sale, including Ayurvedic, Unani, Siddha, homoeopathic or bio-chemical systems medicaments, put up in retail sale”.
  • It was clear that, for any goods to be covered under HSN 3004, the said goods should be for “therapeutic use” or for “prophylactic use”.
  • The agent would be called a therapeutic agent only if it had a curative effect against a disease. Since the product in question was not used for treatment of an already prevalent disease in a patient, the same cannot be said to have a therapeutic use.
  • Also, according to Oxford Dictionary, the term “prophylactic” means, “Protecting against or tending to prevent a disease”.
  • The product in question, no doubt is used as an alternative to soap, it could not be said to have a prophylactic use in COVID Infection as the impugned produce was not specific to COVID-19 infection.
  • The same could not be compared with Polio drops or covaxin, wherein the Polio drops have a prophylactic use in preventing Polio myelitis disease or covaxin helps in preventing COVID -19 infection.
  • In the instant case, the impugned product was not specific to any disease. Hence the goods in question cannot be covered under HSN 3004.

What was provided under HSN 3003?

  • HSN 3003 covers “Medicaments (excluding goods of heading 3002, 3005 or 3006) consisting of two or more constituents which have been mixed together for therapeutic or prophylactic use, not put up in measured doses or in forms or packings for retail sale, including Ayurvedic, Unani, Siddha, homoeopathic or bio-chemical systems medicaments”.
  • Even here, the same logic which was applicable to HSN 3004 applied.
  • Hence it could not be said to be for therapeutic or prophylactic use and hence cannot be covered under HSN 3003.

The Disinfectants, in relation to the meaning, are those goods used for disinfection. The disinfect has the meaning “to get rid of infection” or “cleanse by destroying infecting micro-organisms especially by chemical means. Disinfectant is any substance that is used to kill germs, such as viruses, bacteria, and other microorganisms that can cause infection and disease. Further as per the common parlance also, the Alcohol based hand sanitizers are never classified as Medicaments.

In view of the above, AAR concluded that the impugned goods were covered under heading 3808, which in turn was covered under entry no. 87 of Schedule III of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and hence are taxable at the rate of 9% under the CGST Act. Similarly, the goods are taxable at the rate of 9% under the KGST Act.

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