2021 (7) TMI 264 - AAAR - GST

Dismissal of Appeal for Hand Sanitizer Classification Upheld

The appeal filed by M/s. Ce-Chem Pharmaceuticals Pvt Ltd was dismissed, upholding the order NO.KAR ADRG 07/2021 dated 26/02/2021. The products in ... Classification of goods - medicaments - disinfectants - common parlance test - Drugs and Cosmetics Act regulation not determinative of classification - Chapter Heading 3004 - Chapter Heading 3808 - GST rate on Chapter Heading 3808 - condonation of delay under proviso to Section 100(2)Medicaments - common parlance test - Chapter Heading 3004 - classification of goods - Alcohol-based hand sanitizers are not classifiable as medicaments under Chapter Heading 3004. - HELD THAT: - Chapter 3004 covers medicaments for therapeutic or prophylactic uses; a product must have substantial curative or preventive value and be manufactured primarily to control or cure disease or be commonly used by consumers as a medicine. Alcohol-based hand sanitizers (Isopropyl Rubbing Alcohol and Chlorhexidine Gluconate & Isopropyl Alcohol solution) are used externally for hand hygiene to prevent transmission of pathogens but do not control disease within the body nor develop preventive characteristics in the human body. Regulation under the Drugs & Cosmetics Act and conformity with Pharmacopeia standards do not ipso facto convert a product into a medicament for tariff classification; the identity in common parlance governs classification. Applying the common parlance test and considering the product's nature and use, the hand sanitizers are commonly understood as hygiene/disinfecting products, not medicines used for treatment or prevention of disease, and therefore do not qualify under Chapter Heading 3004. [Paras 12, 13]The alcohol-based hand sanitizers are not medicaments and are not classifiable under Chapter Heading 3004.Disinfectants - Chapter Heading 3808 - classification of goods - Alcohol-based hand sanitizers are classifiable as disinfectants under Chapter Heading 3808 (specifically 3808.94). - HELD THAT: - Chapter 38.08 includes products intended to destroy or irreversibly inactivate micro-organisms and expressly lists disinfectants, sanitizers and bacteriostats. The Explanatory Notes describe disinfectants as agents acting generally on inanimate objects, but that description does not exclude products with disinfecting properties that are formulated for external use on animate objects. Precedent supports that an agent retaining the function of destroying or inactivating microorganisms remains a disinfectant even when used externally on animate objects. The impugned alcohol-based hand sanitizers perform external disinfection of hands and accordingly fall within the meaning and ambit of 'disinfectant' classifiable under Heading 3808.94. [Paras 14]The products are classifiable under Chapter Heading 3808 (disinfectants), affirming classification under Heading 3808.94.GST rate on Chapter Heading 3808 - The applicable GST rate for the products classified under Chapter Heading 3808 and the temporary reduced rate applicable for the specified period. - HELD THAT: - Goods classifiable under Chapter Heading 3808 attract the GST rate specified for that heading in the Notifications. The Authority notes that the standard applicable rate is 9% CGST and 9% SGST as per the relevant entry. Additionally, a temporary reduced rate was notified: with effect from 14th June 2021 to 30th September 2021, hand sanitizers falling under Chapter Heading 3808.94 were subject to a reduced GST of 5% (2.5% CGST and 2.5% SGST). [Paras 17]The products attract the GST applicable to Chapter Heading 3808; the reduced rate of 5% (2.5% CGST + 2.5% SGST) applies for 14th June 2021 upto 30th September 2021 as notified.Condonation of delay under proviso to Section 100(2) - Delay in filing the appeal was condoned. - HELD THAT: - The appeal was filed 14 days after the statutory due date. Under the proviso to Section 100(2) the Authority may condone delay up to 30 days. Considering the facts presented, including difficulties arising from the COVID-19 pandemic and quarantine of the authorised signatory, the Authority exercised its discretion to condone the delay in filing the appeal. [Paras 9]The 14-day delay in filing the appeal is condoned.Final Conclusion: The appeal is dismissed and the Advance Ruling NO.KAR ADRG 07/2021 dated 26/02/2021 is upheld: the impugned alcohol-based hand sanitizers are not medicaments under Chapter Heading 3004 but are disinfectants classifiable under Chapter Heading 3808.94 and attract the GST applicable to that heading (with the temporary reduced rate of 5% operative from 14th June 2021 to 30th September 2021); the appellant's delay in filing the appeal was condoned. Issues Involved:1. Classification of alcohol-based hand sanitizers under the appropriate HSN code.2. Applicable GST rate for the hand sanitizers.3. Condonation of delay in filing the appeal.Detailed Analysis:Issue 1: Classification of Alcohol-Based Hand SanitizersArguments by Appellant:- The Appellant manufactures Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution, which they believe should fall under HSN 3004 with a GST rate of 12%.- They obtained a drug license under the Drugs and Cosmetics Act, 1940 for these products, which are used for therapeutic or prophylactic purposes.- They cited definitions and Supreme Court decisions to argue that products preventing disease spread should be classified as medicaments.- The World Health Organization (WHO) recognizes alcohol-based hand-rub for hand hygiene, indicating its prophylactic use.- They emphasized that the common parlance test should be applied, where products are classified based on common understanding rather than scientific definitions.Findings by Authority:- Hand sanitizers are defined as cleansing agents used for removing pathogens and are typically alcohol-based.- Chapter 3004 covers medicaments for therapeutic or prophylactic uses, but hand sanitizers do not have substantial curative or preventive value.- Alcohol-based hand sanitizers are primarily disinfectants, preventing the transmission of germs but not the onset or progression of diseases.- The presence of drugs like Isopropyl alcohol and Chlorhexidine Gluconate does not make the product a medicament.- Applying the common parlance test, hand sanitizers are seen as hygiene products, not medicines.Conclusion:- Alcohol-based hand sanitizers do not qualify as medicaments under Chapter 3004. They are classified under Chapter Heading 3808.94 as disinfectants.Issue 2: Applicable GST RateArguments by Appellant:- They argued for a GST rate of 12% under HSN 3004.- They referenced a DGFT Notification indicating multiple classifications for alcohol-based hand sanitizers.Findings by Authority:- The DGFT Notification is not authoritative for GST classification.- Hand sanitizers under Chapter Heading 3808 attract a tax rate of 9% CGST and 9% SGST.- A temporary reduction to 5% GST was noted from 14th June 2021 to 30th September 2021.Conclusion:- The applicable GST rate for hand sanitizers classified under Chapter Heading 3808.94 is 18%, with a temporary reduction to 5% during the specified period.Issue 3: Condonation of DelayArguments by Appellant:- The delay was due to the ongoing pandemic and the appellant being under self-quarantine.Findings by Authority:- The delay of 14 days was condoned based on the reasons provided, exercising the power under Section 100(2) of the CGST Act.Conclusion:- The delay in filing the appeal was condoned.Final Order:The appeal filed by M/s. Ce-Chem Pharmaceuticals Pvt Ltd was dismissed, upholding the order NO.KAR ADRG 07/2021 dated 26/02/2021. The products in question are classified under Chapter Heading 3808.94 with an applicable GST rate of 18%, subject to temporary reductions as specified.