Govt, industry quarrel over GST on hand sanitisers

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Multiple goods and services tax (GST) rates have now become a bone of contention between hand sanitiser manufacturers and the government. Last month, the Central Economic Intelligence Bureau alerted GST authorities about manufacturers of alcohol-based hand sanitisers paying 12% GST by “wrongly classifying” them as “medicaments” (under tariff heading 3004) instead of disinfectants (under tariff heading 3808), which attract an 18% levy.

In a letter to principal commissioners, the director general of GST Intelligence has alleged that this has led to “substantial evasion” of tax. Authorities have analysed data for 62 manufacturers and have asked field offices to verify if other producers, including distilleries and sugar mills, have also “mis-classified” the product that is being used across households and offices. The missive has given GST inspectors and officers a reason to conduct “surprise visits”, armed with search warrants, industry bodies have complained. The Association of Indian Medical Device Industry has petitioned finance minister Nirmala Sitharaman to stop the inspections, arguing that it is causing harassment.

It has argued that hand sanitisers are classified as “drugs” as manufacturers obtain a drug manufacturing licence. Besides, it said, the product is used by medical professionals to sanitise their skin before a surgery and for cleaning wounds and has pharmaceutically active ingredients that have both therapeutic and prophylactic value. The trade body has also argued against its classification as either a cosmetic or a disinfectant. Further, the association has pointed to the commerce and industry ministry’s notification of June, which had put alcohol-based hand sanitisers under tariff heading 3004 to argue its case.

Hand sanitiser is the latest product where there is a GST dispute due to classification of product into two different tax slabs. Government officials, who are seeking a merger of the 12% and 18% slabs into one, with a combined levy of 16-17%, have said that the move will end these disputes. In a large number of countries, there is just one or two rates, but the GST Council opted for multiple rates ranging from 5% to 28%, with compensation cess added in case of sin and luxury goods such as cars, soft drinks and tobacco arguing that a single rate was not feasible and two rates would result in either a revenue loss for the government or heavy burden on some consumers.

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