The Karnataka Appellate Authority of Advance Ruling (AAAR) while dismissing appeals of Wipro Enterprises Private Limited and Ce-Chem Pharmaceuticals Private Limited ruled that the 18% GST is payable on Alcohol-based hand sanitizers as it does not contain medicinal properties.
The Appellants, Ce-Chem Pharmaceuticals Private Limited, and Wipro Enterprises Private Limited are engaged in the manufacture and sale of different pharmaceutical formulations comprising tablets, capsules, oral liquids and dry syrups in India and also export the same to various countries across the globe. The Appellant manufactures the two products at a large scale namely Isopropyl rubbing alcohol IP (Consists of Isopropyl Alcohol IP 70% v/v Excipients: Purified water IP QS) and Chlorhexidine Gluconate and Isopropyl Alcohol solution (Composition: Chlorhexidine Gluconate solution IP 2.5% v/v equivalent to 0.5% w/v of Chlorhexidine Gluconate Isopropyl Alcohol IP 70% v/v Purified water IP QS) primarily to combat the situation arising on account of pandemic COVID-19.
The Ce-Chem Pharmaceuticals sought advance ruling on the issue in respect of appropriate classification of the hand sanitizer for the purpose of GST and the applicable rate of GST.
The Authority of Advance Ruling held that Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution merit classification under Chapter Heading 3808 and attract 18% GST in terms of entry no 87 of Schedule III of Notification No 01/2017-Central Tax (Rate) dated 28-06-2017.
The Appellant submits that the Director-General of Foreign Trade (DGFT) vide Notification No 08/2015-2020 dated 01-06-2020, has prohibited the exports of products under 4 headings viz; 3004, 3401, 3402 and 380894; that the products covered under HSN 3401 and 3402 are primarily soap, organic surface-active products which are used for washing the skin, whether in the form of bars, cream or otherwise; that the said description does not match the product in question supplied by the Appellant; that the products covered under the Heading 3808.94 are Insecticides, Rodenticides, Fungicides, Herbicides, Disinfectants and other similar products which are not intended for contact with human skin; that since the product supplied by the Appellant is intended for human skin contact, the said HSN cannot be made applicable to the same. Therefore, the Appellant submitted that the alcohol-based Hand Sanitizers are classifiable under Heading 3004 and it is the intention of the DGFT to identify the same as Medicaments.
The coram of D.P.Nagendra Kumar and M.S.Srikar while upholding the AAR’s ruling held that the rate of tax on Isopropyl Rubbing Alcohol and Chlorhexidine Gluconate and Isopropyl Alcohol solution, the goods falling under Chapter Heading 3808 attract a tax rate of 9% CGST and 9% SGST in terms of entry Sl.No 87 of Schedule III of Notification No 11/2017 CT (R) dated 28-06-2017. With effect from 14th June 2021 up to 30th September 2021, the GST rate on hand sanitizer falling under Chapter Heading 3808.94 has been reduced to 5% GST (i.e 2.5% CGST and 2.5% SGST) vide Notification No 05/2021 CT (R) dated 14th June 2021.
“We state that a DGFT Notification is not an authority for determining the classification of goods under GST law. Classification of goods is to be determined based solely on the description of goods given in the First Schedule to the Customs Tariff Act read together with the relevant Section Notes and Chapter Notes. Moreover, the conditions and restrictions contemplated by one statute having a different object and purpose should not be mechanically imported and applied to a fiscal statute. The reference to the ITC HS Code for Alcohol-based hand sanitizers which has been made in the DGFT Notification dated 6-5-2020 is not a standard for interpreting the classification of goods as per the Customs Tariff Act. We, therefore, reject this submission of the Appellant,” the AAAR ruled.
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