2021 (7) TMI 265 - AAAR - GST

Alcohol-based hand sanitizers classified as disinfectants under GST. Appeal delay condoned. HSN 3808.94 prevails.

The appellate authority upheld the lower authority's decision that alcohol-based hand sanitizers are classified under Chapter Heading 3808.94 as ... Classification of goods: medicament vs disinfectant - Common parlance test for product identity - Scope of Chapter Heading 3004 (medicaments) - Scope of Chapter Heading 3808 (disinfectants and sanitizers) - Incidence of GST linked to tariff classification - Reliance on regulatory/administrative notifications for tariff classificationCondonation of delay - Condonation of 12 days' delay in filing the appeal under the proviso to Section 100(2) of the CGST Act. - HELD THAT: - The appeal was filed 12 days after the 30-day statutory period for filing appeals against an Advance Ruling. The proviso to Section 100(2) permits this Authority to condone delay up to an additional 30 days. The appellant explained delay due to communication lag and quarantine of the authorised signatory. The Authority, having considered the explanation, exercised the proviso power and condoned the 12-day delay. [Paras 9]Delay of 12 days in filing the appeal is condoned.Classification of goods: medicament vs disinfectant - Scope of Chapter Heading 3004 (medicaments) - Common parlance test for product identity - Whether the alcohol-based hand sanitizer is classifiable as a 'medicament' under Chapter Heading 3004. - HELD THAT: - Chapter 3004 covers products for therapeutic or prophylactic uses; mere regulation under the Drugs & Cosmetics Act or compliance with pharmacopoeial standards does not automatically render a product a medicament. The deciding tests are whether the product has substantial therapeutic or prophylactic qualities and whether its primary market identity in common parlance is that of a medicine. The Authority found that alcohol-based hand sanitizers act externally to inactivate or remove pathogens and do not treat or confer internal preventive characteristics; they prevent transmission but do not prevent onset or progression of disease in the sense required for prophylactic/therapeutic medicaments. Applying the common parlance test, the product is commonly understood as a hand-hygiene/disinfecting product rather than a medicine. Judicial authorities relied upon by the appellant were found not to be sufficiently analogous to change this conclusion. [Paras 12, 13]Alcohol-based hand sanitizer is not a 'medicament' classifiable under Chapter Heading 3004.Scope of Chapter Heading 3808 (disinfectants and sanitizers) - Whether the alcohol-based hand sanitizer is classifiable under Chapter Heading 3808 as a disinfectant (including sanitizers). - HELD THAT: - Heading 3808 covers products intended to destroy or inactivate micro-organisms and expressly includes sanitizers. The Explanatory Notes describe disinfectants as agents that destroy or irreversibly inactivate undesirable micro-organisms 'generally on inanimate objects', but that phrase does not exclude external use on animate objects where the function remains destruction or inactivation of micro-organisms. The Authority relied on precedent recognizing products used externally on animate objects can still be disinfectants. Given the product's disinfecting function and common identity as a sanitizer, the Authority agreed with the lower Authority that the product falls within Heading 3808, specifically 3808.94. [Paras 14]Alcohol-based hand sanitizer is classifiable under Chapter Heading 3808 (disinfectant/sanitizer), specifically 3808.94.Reliance on regulatory/administrative notifications for tariff classification - Whether the DGFT Notification or other administrative notices can determine tariff classification for GST purposes. - HELD THAT: - The Authority held that a DGFT Notification is not authoritative for tariff classification under the Customs Tariff/ GST law; classification must be determined from the First Schedule to the Customs Tariff Act read with relevant notes. Statutory measures or restrictions under a different statute, having different objects, should not be mechanically imported into the fiscal classification exercise. Consequently, the DGFT references could not override the statutory description under the Customs Tariff Act. [Paras 16]DGFT Notification cannot be treated as determinative of classification under the Customs Tariff/ GST law; reliance on it is rejected.Incidence of GST linked to tariff classification - Appropriate GST rate applicable to alcohol-based hand sanitizers classified under Heading 3808.94. - HELD THAT: - Goods under Chapter Heading 3808 attract 9% CGST and 9% SGST as per the relevant schedule. The Authority noted a temporary concessional GST rate applicable to hand sanitizer under 3808.94 - from 14th June 2021 to 30th September 2021 the rate was reduced to 5% (2.5% CGST + 2.5% SGST) by a specific notification - and recorded the applicable rates accordingly. [Paras 17]Hand sanitizers under 3808.94 attract 9% CGST and 9% SGST ordinarily; reduced GST of 5% applied for the specified temporary period per notification.Final Conclusion: The Authority condoned the delay in filing the appeal, affirmed the Advance Ruling that alcohol-based hand sanitizers are not medicaments under Chapter 3004 but are disinfectants/sanitizers classifiable under Chapter Heading 3808.94, rejected reliance on DGFT notifications for tariff classification, and recorded the applicable GST rates (ordinary 9% CGST + 9% SGST, with a temporary reduced rate of 5% for the stated period). The appeal is dismissed and the Advance Ruling is upheld. Issues Involved:1. Classification of alcohol-based hand sanitizer under GST.2. Applicable GST rate for alcohol-based hand sanitizer.3. Condonation of delay in filing the appeal.Issue-wise Detailed Analysis:1. Classification of Alcohol-based Hand Sanitizer under GST:The appellant, engaged in manufacturing various consumer products, including alcohol-based hand sanitizers, sought clarification on the appropriate GST classification for hand sanitizers. They argued that the product should be classified under HSN 3004 (medicaments) with a GST rate of 12%, instead of HSN 3808.94 (disinfectants) with a GST rate of 18%.The appellant's primary argument was based on the therapeutic and prophylactic properties of the hand sanitizer, as it is used to kill germs and prevent diseases. They supported their claim by citing various Supreme Court judgments and the definition of 'prophylactic' from legal lexicons. Additionally, they emphasized that the product is manufactured under a drug license as per the Drugs and Cosmetics Act, 1940, and meets the standards prescribed by the Indian Pharmacopoeia.However, the appellate authority rejected these arguments, stating that the hand sanitizer does not have substantial therapeutic or prophylactic properties. It is primarily a disinfectant used for hand hygiene, preventing the transmission of germs, rather than treating or preventing diseases. Therefore, it does not qualify as a medicament under Chapter Heading 3004 but falls under Chapter Heading 3808.94 as a disinfectant.2. Applicable GST Rate for Alcohol-based Hand Sanitizer:The appellant contended that the GST rate for hand sanitizers should be 12% under HSN 3004. They also referred to a DGFT notification that classified hand sanitizers under multiple headings, including 3004, to support their claim.The appellate authority clarified that the DGFT notification is not authoritative for GST classification. The classification must be based on the Customs Tariff Act, relevant Section Notes, and Chapter Notes. The authority upheld the lower ruling that alcohol-based hand sanitizers fall under Chapter Heading 3808.94, attracting a GST rate of 18% (9% CGST and 9% SGST). However, from June 14, 2021, to September 30, 2021, the GST rate on hand sanitizers under Chapter Heading 3808.94 was reduced to 5% (2.5% CGST and 2.5% SGST).3. Condonation of Delay in Filing the Appeal:The appellant sought condonation for a 12-day delay in filing the appeal, citing the COVID-19 pandemic and quarantine of the authorized signatory as reasons. The appellate authority condoned the delay, exercising the power vested under the proviso to Section 100(2) of the CGST Act, which allows for an additional 30 days beyond the initial 30-day filing period.Conclusion:The appellate authority dismissed the appeal, upholding the lower authority's order that alcohol-based hand sanitizers are classifiable under Chapter Heading 3808.94 as disinfectants, attracting a GST rate of 18%. The delay in filing the appeal was condoned, but the appellant's arguments for reclassification under HSN 3004 were rejected.