2021 (3) TMI 140 - AAR - GST

Classification of goods - hand sanitizers - Isopropyl rubbing alcohol IP - Chlorhexidine Gluconate - Isopropyl Alcohol solution - to be classified under Chapter Heading 3004 attracting 12 % GST or otherwise? - HELD THAT - The drugs not only include medicines but also substances. So, obtaining a license for manufacturing of hand sanitizers, which is a disinfectant is actually a compliance of Drugs and Cosmetic Act, 1940. However, to decide the issue whether the disinfectant/ hand sanitizer should fall under HSN 3004 or 3808, we need to revert to HSN explanatory notes, case laws and common understanding of the product in the market. The HSN Code 3808 94 00 clearly covers all disinfectants. When there is a specific entry covering disinfectants, the same needs to be classified under the same head. But the Chapter Note 1 to the Chapter 38 clearly states that this Chapter does not cover medicaments (Heading 3003 or 3004) - for a goods to be covered under HSN 3004, the goods so supplied should be for therapeutic use or for prophylactic use . It is seen that the agent would be called a therapeutic agent only if it has a curative effect against a disease. Since the product in question is not used for treatment of an already prevalent disease in a patient, the same cannot be said to have a therapeutic use. Meaning of Disinfectants - HELD THAT - Disinfectants are those goods used for disinfection. The disinfect has the meaning to get rid of infection or cleanse by destroying infecting micro-organisms especially by chemical means. Disinfectant is any substances that is used to kill germs, such as viruses, bacteria, and other microorganisms that can cause infection and disease. Further as per the common parlance also, the Alcohol based hand sanitizers are never classified as Medicaments. People buy hand sanitizers as an alternative to soap and for disinfecting purpose. In the present case, it is seen that the alcohol-based hand sanitizers, as the name itself suggests is to sanitize the hands and disinfect them and hence cannot be covered under Medicaments - The goods covered under heading 3808 are covered entry no. 87 of Schedule III of Notification No.01/2017 - Central Tax (Rate) dated 28.06.2017 and are taxable at the rate of 9% under the CGST Act. Similarly, the goods are taxable at the rate of 9% under the KGST Act.

Summary

Issues Involved:
1. Classification of Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution under GST.
2. Determination of the applicable GST rate for these products.

Issue-wise Detailed Analysis:

1. Classification of Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution under GST:

The applicant, a private limited company, manufactures and sells pharmaceutical formulations and sought to classify Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution under Chapter Heading 3004, attracting 12% GST. The applicant argued that these products are medicaments for prophylactic use, supported by various licenses and letters from regulatory authorities, and should be classified under Chapter Heading 3004.

The Authority for Advance Rulings (AAR) examined the nature of the products and the relevant legal provisions. It was noted that hand sanitizers are used to disinfect skin surfaces from microbes and viruses, and are frequently used in various settings to kill infectious organisms. The AAR referred to the definition of "drug" under Section 3(b) of the Drugs and Cosmetic Act, 1940, which includes substances intended for the prevention of disease.

However, the AAR emphasized that obtaining a manufacturing license for hand sanitizers under the Drugs and Cosmetic Act does not determine their classification under GST. The classification must be based on the Harmonized System of Nomenclature (HSN) explanatory notes, case laws, and common understanding of the product.

The AAR found that HSN Code 3808 94 00 specifically covers disinfectants, and Chapter Note 1 to Chapter 38 states that this chapter does not cover medicaments (Heading 3003 or 3004). Therefore, the products in question do not fall under HSN 3004, which covers medicaments for therapeutic or prophylactic use. The AAR concluded that the products do not have a curative effect against a disease and are not specific to any disease, thus they cannot be classified under HSN 3004 or 3003.

2. Determination of the applicable GST rate for these products:

The AAR determined that the appropriate classification for Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution is under HSN 3808, which covers disinfectants. The products are not considered medicaments as they are primarily used for care rather than cure, and are not specific to any disease.

The AAR referred to the Supreme Court judgment in Ciens Laboratories, Mumbai, which ruled that if a product's primary function is care and not cure, it is not a medicament. The AAR also noted that in common parlance, alcohol-based hand sanitizers are not classified as medicaments but as disinfectants.

Consequently, the AAR ruled that the products merit classification under Chapter Heading 3808 and attract 18% GST, as per entry no. 87 of Schedule III of Notification No.01/2017 - Central Tax (Rate) dated 28.06.2017.

Ruling:
Isopropyl rubbing alcohol IP and Chlorhexidine Gluconate & Isopropyl Alcohol solution merit classification under Chapter Heading 3808 and attract 18% GST, in terms of entry no. 87 of Schedule III of Notification No.01/2017 - Central Tax (Rate) dated 28.06.2017.