Amidst debate on GST rate on alcohol-based hand sanitiser, an Authority for Advance Ruling (AAR) has said that this hygiene product will attract GST at the rate of 18 percent.
The applicant, Springfields (India) Distilleries, moved to Goa AAR with two queries. First, the classification of hand sanitiser and second, as the Consumer Affairs Ministry has classified hand sanitiser as an essential commodity, will this be exempted from GST. The applicant believes that hand sanitisers are covered under HSN 30049087 and to be taxed at 12 percent under GST.
AAR heard this matter at a time when GST administration is investigating into the allegation of some manufacturers, including alcohol-based hand sanitiser makers, resorting to tax evasion/non-payment of GST by misclassifying the product. Tax officials apprehend that many manufacturers and suppliers, including sugar mills & distilleries, are classifying alcohol-based hand sanitiser under tariff heading 3004 while actually, it should be under tariff heading 3808 of HSN (Harmonised System of Nomenclature). The GST rate on products under tariff heading 3004 is 12 percent while for those under 3808, it is 18 percent. “Misclassification appears to have resulted in substantial evasion of GST,” official alleged.
In the matter before AAR, it was opined that tariff item 3004 refers to medicaments for therapeutic or prophylactic uses. The general sanitiser is used as an alternative to wash hands (to maintain) hygiene, hence broad alcohol-based hand sanitiser without any curative or preventive ingredients may not be considered as a medicament. Officials listed five factors to classify the said product curative effect of the product (therapeutic use), the preventive effect of the product (prophylactic use), the period of usages. i.e. to be used for a limited period or regularly, the product contains curative/preventive ingredients and trade parlance, i.e. how it is known in the market.
After going through all the submission and provision of the GST Act, the Authority said: “It is of the opinion that hand sanitizers manufactured by the applicant are of the category of Alcohol-based sanitisers and are classifiable under heading 3808 of HSN to which rate of GST applicable is 18 percent.” Regarding the second query, AAR said that there is a separate notification under GST law for exempted goods and services. “Merely classifying any goods an essential commodity will not be criteria for exempting such goods from GST,” it said.
In India, one can get hand sanitiser either in liquid, gel or foam form. Alcohol-based sanitisers have higher market share. Since no vaccine is available yet for Covid-19, the standard advice for effectively avoiding the infection is cleaning hands with sanitisers containing at least 60 percent alcohol. This has boosted sales which have almost doubled on a month-on-month basis in recent times.
The AAR can be accessed: http://gstcouncil.gov.in/sites/default/files/ruling-new/Goa_AAR_01_2020-21_29.06.2020_SID.pdf