Judgment Update | Classification of alcohol-based Hand Sanitizers under GST
This is to apprise you on recent ruling of the Authority for Advance Ruling, Goa (‘AAR’) in the case of Springfields (India) Distilleries, 2020-VIL-188-AAR. The AAR held that alcohol-based Hand Sanitizers are classifiable under Chapter Heading 3808 of the Customs Tariff Act, 1975 (‘CTA’) and attracts 18% GST.
- The Applicant was inter-alia engaged in manufacture of Hand Sanitizers and sought advance ruling on classification and rate of GST on Hand Sanitizer and exemption, if any, thereon.
- The Applicant contended that Hand Sanitizers are rightly classifiable under Chapter Heading 3004 of the CTA which covers ‘medicaments for therapeutic or prophylactic use’. The Applicant also contented that Hand Sanitizers are classified by the Ministry of Consumer Affairs (‘MCA’) under the Essential Commodities Act, 1955 as an essential commodity and thus, should be exempt from GST.
The AAR rejected the Applicant’s contention and held that alcohol-based Hand Sanitizers are classifiable under Chapter Heading 3808 of the CTA as ‘disinfectants’. Thus, Hand Sanitizers shall attract GST of 18%. The AAR further held that Hand Sanitizers cannot be exempted merely because these goods are classified as essential commodity by the MCA. Notification No. 2/2017 – Central Tax (Rate) dated June 28, 2017 exempts goods from GST and Hand Sanitizers are not covered under this notification.
Press Release by Ministry of Finance:
Notably, Ministry of Finance (‘MOF’) has also issued Press Release dated July 15, 2020 clarifying GST rate on alcohol-based Hand Sanitizers. It is clarified that Hand Sanitizers being disinfectants like soaps, anti-bacterial liquids, dettol etc., will attract 18% GST. It is also clarified that lower GST rate on Sanitizers will result in inverted tax structure and may place domestic manufacturers at disadvantage position vis-à-vis importers.
The ruling of AAR is correct to the extent that mere coverage of goods as an essential commodity by MCA, will not automatically exempt them from GST.
On merits, both ruling and Press Release issued by MOF lacks reasoning for upholding classification of Hand Sanitizers under Chapter Heading 3808 of the CTA. The AAR failed to consider prophylactic use of Hand Sanitizers and its classification under Chapter Heading 3004 and various parameters and tests laid down by Supreme Court for classifying product as medicament. Please refer our NITYA Outlook I Issue 43 I Classification of Hand Sanitizers under GST in trail mail on this issue. Further, logic of inverted tax structure for domestic manufacturers given in Press Release lacks merit as a manufacturer operating under inverted tax structure can claim refund of unutilized ITC. This has no bearing on determination of rate of GST of a product.