GST ON HAND SANITIZERS

[Dr. Sanjiv Agarwal]

In the alco-beverages industry, lock-down impacted the industry badly with production virtually coming to a halt , distribution paralyzed and sales taking a dip. However, there emerged a sliver liming in the form of sanitizers which has become a household item and everyone’s basic need. Such sanitizers are alcohol based and many alco-beverage companies have shifted to production of alcohol based sanitizers.

While alco-beverages are out of ambit of goods and services tax (GST), being a state subject but subject to state excise duty and VAT, hand sanitizers do fall within the tax net of GST. So, there emerged a scenario whereby alco-beverage companies came in purview of GST jurisdiction because of manufacture of hand sanitizers. With this, another issue which emerged is that sanitizers should be subject to levy of GST at what rate? Does it contain a medicinal property and whether it should be taxed at a lower rate or exempt from tax ?

Recently, this issue was examined by Appellate Authority for Advance Ruling (AAAR, Karnataka) in two cases, i.e., IN RE: M/S. WIPRO ENTERPRISES PVT LTD. [2021 (7) TMI 265 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA] and IN RE: M/S CE-CHEM PHARMACEUTICALS PVT LTD [2021 (7) TMI 264 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA]. In these cases, it was held that alcohol based hand sanitizers can be considered, at best, a substance that has disinfectant properties to present the spread and transmission of germs, bacteria or viruses and does not have medicinal properties.

The use of alcohol based hand sanitizers neither controls the diseases caused by virus / bacteria, nor does it develop preventive characteristics inside the human body to fight diseases. It is merely a product recommended for used in hand hygiene practices. Alcohol based hand sanitizers shall be subject to a GST levy of 18% (9% CGST and 9% SGST). However, with effect from 14th June 2021 upto 30th September 2021, the GST rate on hand sanitizer has been reduced to 5% GST (i.e 2.5% CGST and 2.5% SGST) vide Notification No 05/2021 CT (R) dated 14th June 2021. 

Re: Wipro Enterprises Pvt. Ltd.

The Appellant was engaged in the manufacture of toilet soaps, LED bulbs and fittings, other toiletries and other consumer products and manufacturing and marketing Hand sanitizer at a large scale at their various factories primarily to combat the situation arising on account of pandemic COVID-19. The Appellant is currently manufacturing and marketing the Alcohol-based n=hand sanitizer and charging GST at 180/0 under HSN 3808.94. However, it is the Appellant's understanding that the said goods would fall under HSN 3004 with a GST rate of 12%.

The Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following issue:

“What is the appropriate classification of the hand sanitizer for the purpose of GST?

What is the applicable rate of GST?”

The AAR vide its order IN RE: M/S. WIPRO ENTERPRISES PRIVATE LIMITED, [2021 (3) TMI 141 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA] held as under:

“The hand sanitizers are classifiable under Heading 3808 under the Customs Tariff Act.

The hand sanitizers are liable to tax at the rate of 9% under CGST Act and at the rate of 9% under the KGST Act.”

[ IN RE: M/S. WIPRO ENTERPRISES PRIVATE LIMITED - 2021 (3) TMI 141 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA].

Being aggrieved, an appeal was preferred before the AAAR, Karnataka. It was submitted that  they had obtained a drug licence under the provisions of the Drugs and Cosmetics Act, 1940 for the purpose of manufacturing and selling the product Alcohol-based hand sanitizer; that the hand sanitizer manufactured by the Appellant contains 95% v/v of ethyl alcohol, which is within the standard prescribed by the Indian Pharmacopoeia; that the said hand sanitizer is meant for use as an antibacterial gel to keep hands clean and protected having a property to kill 99.99% of germs; that on perusal of the Tariff entry and Explanatory Notes, Chapter Heading 3004 is the most appropriate chapter heading to cover medicaments which are used for therapeutic or prophylactic value; that the term “therapeutic” and “prophylactic” has not been defined under the Tariff or Explanatory Notes and hence they place reliance on the definition as contained in P RamanathaIyer's Advanced Law Lexicon wherein the word “prophylactic” is defined as “Done or used as preventive against disease. Formulated to prevent something”. Reliance was placed reliance on the decisions of the Supreme Court in the case of SUJANIL CHEMO INDUSTRIES VERSUS COMMISSIONER OF C. EX., & CUS., PUNE - 2005 (2) TMI 129 - SUPREME COURT, COMMISSIONER OF CENTRAL EXCISE VERSUS M/S WOCKHARDT LIFE SCIENCES LTD - 2012 (3) TMI 40 - SUPREME COURT and COMMISSIONER OF CENTRAL EXCISE, MUMBAI IV VERSUS M/S. CIENS LABORATORIES, M/S. TIME PHARMA - 2013 (8) TMI 467 - SUPREME COURT wherein it was uniformly held that if a product is used for preventing spread of disease, the same would be considered to be of prophylactic use therefore qualifying as a medicament.

It was further submitted that the World Health Organisation has also specifically recognised the use of alcohol-based hand-rub for hand hygiene and this has been specifically stated in their publication “WHO Guidelines on Hand Hygiene in Health Care”. The relevant portion reads as follows:

“Use of alcohol-based hand-rub as the preferred means for routine hand antisepsis in all other clinical situations described in items D(a) to D(f) listed below if hands are not visibly soiled. If alcohol-based hand-rub is not obtainable, wash hands with soap and water.

The product in question was undoubtedly anti-infective in nature and hence the same would qualify as a product used for prophylactic use and in turn merits classification as Medicament under Chapter Heading 3004.

The AAAR observed that the issue before hand was that of classification of the product “Alcohol-based hand sanitizer”. The lower Authority has held that the said product is classifiable under Chapter Heading 3808.94 and this has been assailed by the Appellant who has argued that the product would merit classification under Chapter Heading 3004 as a medicament. The primary reason for the appellant's claim to classify the product under Chapter Heading 3004 is on account of its characteristics and operating procedure and the fact that they have been granted a licence to manufacture the same in terms of the Drugs & Cosmetics Act, 1940. In addition, reliance was placed on judgments rendered in classification matters wherein it has been held that common parlance test takes precedence over scientific and technical specifications as well as the DGFT Notification which refers to the product 'hand sanitizer' under Heading 3004.

It viewed that the alcohol-based hand sanitizers are commonly understood as hand hygiene product used to disinfect the hands from disease spreading germs. It is not commonly considered as a medicine used for the treatment or prevention of any disease or ailment. Even during the current pandemic, the use of alcohol-based hand sanitizer has been propagated only as a good hand hygiene practice which will prevent the transmission of the virus from one human being to another. Our view is supported by a questionnaire survey conducted in India and published in the International Journal of Current Research and Review on the 'Knowledge and awareness on the role of hand sanitizer in prevention of COVID-19'. The survey conducted among a cross section of people from different age groups showed that almost 79% were aware that hand sanitizer is used for maintaining good hand hygiene and to prevent the spread of disease during the Covid pandemic. Therefore, applying this test of common parlance and the fact that the impugned product does not have any therapeutic or prophylactic properties, we hold that the alcohol-based hand sanitizer cannot be classified as a medicament under Chapter Heading 3004 as claimed by the Appellant.

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. They are not recommended for use on hands that are soiled with visible amounts of dirt or grease and are also found to be ineffective at removing some kinds of pathogens. In such instances, handwashing with soap and water is the recommended method to clean hands. Both 'hand sanitizer' and 'soap and water' are recommended methods in hand hygiene practices and each method is effective in certain situations. Alcohol-based Hand Sanitizer is used to disinfect externally and hence would fall within the meaning and ambit of 'Disinfectant' classifiable under Heading 3808.94.

As regards the rate of tax on alcohol-based hand sanitizer, 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 up to 30th September 2021, the GST rate on hand sanitizer falling under Chapter Heading 3808.94 has been reduced to 5% GST (i.e 2.5% CGST and 2.5% SGST) vide Notification No 05/2021 CT (R) dated 14th June 2021.

The appeal was therefore, dismissed and advance ruling upheld.

Re: Ce-Chem Pharmaceuticals Pvt. Ltd.

Similar to the Wipro ruling, an appeal was preferred before AAAR, Karnataka against the Advance Ruling on similar grounds and ruling. The AAAR, Karnataka upheld the ruling and dismissed the appeal [IN RE: M/S CE-CHEM PHARMACEUTICALS PVT LTD. - 2021 (7) TMI 264 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA].

In result, it can be inferred that:

• Alcohol based hand sanitizers can be considered, at best, a substance that has disinfectant properties to present the spread and transmission of germs, bacteria or viruses and does not have medicinal properties.
• The use of alcohol based hand sanitizers neither controls the diseases caused by virus / bacteria, nor does it develop preventive characteristics inside the human body to fight diseases. It is merely a product recommended for used in hand hygiene practices.
• Alcohol based hand sanitizers shall be subject to a GST levy of 18% (9% CGST and 9% SGST).
• With effect from 14th June 2021 upto 30th September 2021, the GST rate on hand sanitizer has been reduced to 5% GST (i.e 2.5% CGST and 2.5% SGST) vide Notification No 05/2021 CT (R) dated 14th June 2021.