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2021 (7) TMI 264 - AAAR - GSTClassification of goods - rate of tax - Isopropyl rubbing alcohol IP - Chlorhexidine Gluconate and Isopropyl Alcohol solution - medicaments or not - classifiable under the HSN 3808 taxable at 18% or at 12% under HSN 3004? - applicability of Schedule III of Notification No 01/2017-Central Tax (Rate) dated 28-06-2017 - HELD THAT - Chapter 3004 of the Customs Tariff covers medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses. Though the terms 'therapeutic and prophylactic' have not been defined in either the Customs Tariff or the GST law, a common understanding of the term 'therapeutic' is treatment of a disease whereas 'prophylactic' is preventing the onset or progression of a disease. For a product to be classified as a medicament under Chapter Heading 3004, it is important that the product has either of the two qualities i.e therapeutic or prophylactic. Even if a product is manufactured using ingredients regulated under the Drugs and Cosmetics Act and according to the formula prescribed in the Pharmacopeia, it cannot be classified as a medicament under Heading 3004 unless it is meant for therapeutic or prophylactic uses - the alcohol-based hand sanitizers viz. Isopropyl Rubbing Alcohol and Chlorhexidine Gluconate and Isopropyl Alcohol solution, cannot be considered as a medicaments' classifiable under Chapter Heading 3004. The hand sanitizers do not serve as a replacement for through handwashing with soap and water. Instead, the alcohol-based hand sanitizers are thought to bring the consumers some of the benefits of handwashing when washing hands with soap and water is not practical in certain settings. In fact, alcohol-based hand sanitizers are usually preferred to handwashing with soap in occupational health care setting and in community settings. They are faster, more efficient and easier on the skin than repeated handwashing with soap and water. However, hand sanitizers are not suitable for all settings. Classification of goods is to be determined based solely on the description of goods given in the First Schedule to the Customs Tariff Act read together with the relevant Section Notes and Chapter Notes. Moreover, the conditions and restrictions contemplated by one statute having a different object and purpose should not be mechanically imported and applied to a fiscal statute. The reference to the ITC HS Code for Alcohol-based hand sanitizers which has been made in the DGFT Notification dated 6-5-2020 is not a standard for interpreting the classification of goods as per the Customs Tariff Act. Rate of Tax - Isopropyl Rubbing Alcohol - Chlorhexidine Gluconate - Isopropyl Alcohol solution - HELD THAT - The goods falling under Chapter Heading 3808 attract a tax rate of 9% CGST and 9% SGST in terms of entry Sl.No 87 of Schedule III of Notification No 11/2017 CT (R) dated 28-06-2017. With effect from 14th June 2021 upto 30th September 2021, the GST rate on hand sanitizer falling under Chapter Heading 3808.94 has been reduced to 5% GST vide Notification No 05/2021 CT (R) dated 14th June 2021.
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 Sanitizers Arguments 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 Rate Arguments 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 Delay Arguments 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.
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