GST ON SKIN CARE PRODUCTS

[Dr. Sanjiv Agarwal]

In general parlance, there are many products which are used as cosmetics or soaps which may have medicinal relevance or considered as ‘Ayurvedic’ in nature. ‘Ayurvedic’ is one discipline of medicine just like allopathy or homeopathy.

The issue of classification came up before the Authority for Advance Ruling (AAR) of West Bengal in the matter of Akansha Hair & Skin Care Herbal Unit Pvt. Ltd.  2018 (4) TMI 811 - AUTHORITY FOR ADVANCE RULING , WEST BENGAL ; . However, this ruling has since been modified by Appellate Authority for Advance Ruling, West Bengal.

In the instant case, there was a manufacture of skin care preparations and issue was of classification of 33 such products. It was claimed that its skin care preparations are Ayurvedic Medicaments. They are meant for therapeutic or prophylactic uses, put up in packaging for retail sale and entirely correspond to the description of goods under HSN 3004 [serial No. 63 of Notification No. 1/2017-CT (Rate) dated 28.06.2017] and, therefore, taxable under Schedule-II.

The nature of products included face & body grain, face pack for oily skin, face wash, pimple pack, body talc, baby skin care, body wash, skin polishing and glowing oil, anti-crack cream, skin toner, fairness pack, sunscreen cream, moisturizer etc.

In this case, all preparations manufactured by applicant were skin care products manufactured under valid drug license and following the formula prescribed in the authoritative text-books of Ayurveda. AAR ruled that preparations for the care of the skin namely, Rupam (Pimple and Pack) and Pailab (Anti-Crack Cream), in the list submitted by the Applicant of the Application are classifiable as Medicament under Heading 3004 of the Customs Tariff Act, 1975. Preparations listed as Swamajyoti, Sunayana and Tarumitra-60 have not yet come into existence, and, therefore, no rulings are pronounced on their classification. The remaining products mentioned in the list submitted by them are not offered primarily as medicaments and, therefore, not to be included under Heading 3004. This ruling is valid subject to the provisions under Section 103(2) until and unless declared void under Section 104(1) of the GST Act.

It was also observed that medicaments are not defined under GST law or Customs Tariff applicable for goods classification in GST law. Further, for classification of skin care products as medicament, it is not sufficient that such a product manufactured as per authoritative text book, merely helps in controlling skin disease. Its curative or preventive value must be substantial, and product must be manufactured primarily to control or cure a skin-related disease. Further, it must he established that consumers use it primarily for treatment, mitigation, cure or prevention of specific skin disease or skin disorder. Since most of skin care preparations have both uses i.e. medicinal as well cosmetic, essential difference lies in user's perception of a particular product. If user consumes product primarily for cure from or treatment or mitigation of or for prevention of a specific skin disease or disorder, it should be treated as a medicament classifiable under Heading 3004, except when it is specifically included in Heading 3304.

It was also held that a few ingredients added for preservation of quality is not relevant to decide their  Ayurvedic nature. It has to be seen as to whether customer is purchasing product with same belief as manufacturer is selling.

The Appellate Authority for Advance Ruling was approached for four products. The appellant had argued that its skin care preparations are Ayurvedic Medicaments, meant for therapeutic or prophylactic uses and put up in packaging for retail sale, and entirely correspond to the description of goods under Tariff Heading 3004 of Customs Tariff Act, 1975.

The AAR vide its ruling dated 09.04.2018 [Akansha Hair & Skin Care Herbal Unit Pvt. Ltd.  2018 (4) TMI 811 - AUTHORITY FOR ADVANCE RULING , WEST BENGAL] gave the ruling that:

"Preparations for the care of the skin namely, Rupam (Pimple Pack) and Pailab (Anti-Crack Cream), in the list submitted by the Applicant are classifiable as Medicament under Heading 3004 of the Customs Tariff Act, 1975. Preparations listed as Swarnajyoti, Sunayana and Tarumitra-60 have not yet come into existence, and, therefore, no rulings are pronounced on their classification. The remaining products mentioned in the list submitted by them are not offered primarily as medicaments and, therefore, not to be included under Heading 3004."

It was held that to determine whether or not a product or a formulation is to be labelled as a 'medicament', it is necessary to consider its efficacy in treating or remedying an 'injury', an 'ailment' or an 'illness'.

The four products in question were Komal Parash and Romancho (Lavender, Vanila and Kewra). None of the above descriptions qualify for categorizing the products as 'medicaments' or 'medicines' as they are not used in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings; rather are more in tandem with the definition of 'cosmetics' as we find in the Drugs and Cosmetics Act, 1940, because none of the problems that these products treat can be classified as 'injury' or 'ailment'. Thus, these products are not to be classified under Chapter 30, but are to be classified under Chapter 33 (Cosmetics) or Chapter 34 (Soaps), and to be taxed accordingly.

AAAR also ruled that seeking advance ruling of all products on classification and taxability in one application was not sustainable as all products had different uses and ingredients that applicant ought to have applied separately. However, since it was admitted and decided by AAR, appeal was taken up. AAR was advised not to admit similar applications in future.

It was further held that AAR erred in not giving any ruling on products which had not come into existence. Statutory provisions clearly stipulate admitting of advance ruling applications on supply of goods proposed to be undertaken. As such, ruling on said products was also made part of appellate proceedings.

AAAR has ruled that skin care preparations manufactured by appellant are to be classified as soaps and cosmetics and not as medicaments as they cannot treat any injury or ailment. The modification implies that thirty one products were not to be classified  under Chapter 30 but under Chapter 33 (cosmetics) or Chapter 34 (soaps).