2021 (3) TMI 141 - AAR - GST

Classification of Hand Sanitizer for GST: Ruling on Applicable Rate and Category

The case involved the appropriate classification and applicable GST rate for Hand Sanitizer. The authority ruled that Hand Sanitizers are classified under ... Classification as disinfectant under Heading 3808 - Medicaments under Heading 3004/3003 - requirement of therapeutic or prophylactic use - HSN explanatory notes - measured doses and packings for retail sale - Common parlance test and primary function (care v. cure) - Schedule III entry covering disinfectants and applicable GST rateMedicaments under Heading 3004/3003 - requirement of therapeutic or prophylactic use - HSN explanatory notes - measured doses and packings for retail sale - Common parlance test and primary function (care v. cure) - Whether the hand sanitizers manufactured by the applicant qualify as medicaments under Heading 3004 or 3003 of the HSN. - HELD THAT: - The Authority examined the nature and use of the impugned alcohol-based hand sanitizers and the HSN provisions and explanatory notes for Chapters 30 and 38. Heading 3004 covers products for 'therapeutic or prophylactic uses' and, as reflected in the explanatory notes, typically embraces goods put up in measured doses or in packings for retail sale with indications of disease, dose or method of use. The Authority found that the product is not used for treatment of an existing disease and is not specific to any particular disease (unlike vaccines or disease-specific prophylactics); therefore it does not have a therapeutic use. The product is an alcohol-based disinfectant/sanitizer used generally to disinfect skin surfaces and to 'sanitize' or care for hands rather than to cure or prevent a specific disease. Applying the common parlance test and the Ciens Laboratories guidance on primary function (care v. cure), the Authority concluded that the primary function of the product is disinfection/care and not therapeutic or disease-specific prophylaxis. Consequently, the product does not satisfy the essential characteristic required for classification as a medicament under Headings 3004 or 3003 and falls outside those headings. [Paras 6, 8]Hand sanitizers do not qualify as medicaments under Heading 3004 or 3003 and are not classifiable as medicaments.Classification as disinfectant under Heading 3808 - Schedule III entry covering disinfectants and applicable GST rate - Whether the hand sanitizers are classifiable under Heading 3808 and the consequent GST rate applicable. - HELD THAT: - Chapter 38 and HSN heading 3808 expressly cover disinfectants. Chapter Note 1 to Chapter 38 excludes medicaments of Chapter 30, but having already determined that the product is not a medicament, the Authority held that the specific entry for disinfectants applies. On that basis, the Authority placed the hand sanitizers under Heading 3808. The Authority then connected that classification to the relevant entry in the Central Tax (Rate) notification schedule (entry no. 87 of Schedule III to Notification No.01/2017) which covers disinfectants and prescribes the notified tax rate. [Paras 6, 9]Hand sanitizers are classifiable under Heading 3808 as disinfectants and, accordingly, attract the tariff entry referenced in the rate notification.Final Conclusion: The Authority ruled that the applicant's alcohol-based hand sanitizers are not medicaments within Headings 3003/3004 but are disinfectants classifiable under Heading 3808, and are taxable at the notified rate of 9% under both the CGST Act and the KGST Act. Issues Involved:1. Appropriate classification of Hand Sanitizer for the purpose of GST.2. Applicable rate of GST on Hand Sanitizer.Issue 1: Appropriate Classification of Hand Sanitizer for GSTThe applicant, engaged in manufacturing and marketing Hand Sanitizer, sought an advance ruling on its classification under GST. They argued that Hand Sanitizer should be classified under Chapter Heading 3004 as a medicament used for therapeutic or prophylactic purposes. The applicant referenced several legal precedents and definitions to support their claim that Hand Sanitizer, containing 95% v/v of ethyl alcohol and recognized by the Indian Pharmacopoeia, qualifies as a prophylactic agent.However, the authority noted that while disinfectants, including Hand Sanitizers, have properties of killing disease-causing agents and can claim to be prophylactic, their primary function is to disinfect surfaces. Disinfectants, by definition, are chemical agents designed to inactivate or destroy microorganisms on inert surfaces, and are frequently used in settings like hospitals and kitchens to kill infectious organisms.The authority referred to HSN Code 3808 94 00, which clearly covers all disinfectants. Chapter Note 1 to Chapter 38 explicitly states that this chapter does not cover medicaments (Heading 3003 or 3004). For goods to be classified under HSN 3004, they must be for 'therapeutic use' or 'prophylactic use.' The authority concluded that Hand Sanitizer does not have a therapeutic use as it is not used for the treatment of an already prevalent disease. Additionally, it does not have a specific prophylactic use against COVID-19 infection, as it is not specific to any disease like Polio drops or Covaxin.The authority also examined the explanatory notes to HSN of WCO for Heading 3004, which includes medicaments in measured doses or forms such as tablets, ampoules, capsules, etc., for therapeutic or prophylactic use. Since Hand Sanitizers are not available in these forms, they cannot be classified under Heading 3004. Similarly, HSN 3003, which covers mixed products for therapeutic or prophylactic use not put up in measured doses, was also deemed inapplicable for the same reasons.Issue 2: Applicable Rate of GST on Hand SanitizerThe authority concluded that Hand Sanitizers are classified under heading 3808 as disinfectants. This classification falls under entry no. 87 of Schedule III of Notification No.01/2017 - Central Tax (Rate) dated 28.06.2017. Consequently, Hand Sanitizers are taxable at the rate of 9% under the CGST Act and at the rate of 9% under the KGST Act.Ruling:1. Hand Sanitizers are classifiable under Heading 3808 under the Customs Tariff Act.2. Hand Sanitizers are liable to tax at the rate of 9% under the CGST Act and at the rate of 9% under the KGST Act.