GST rate on Hand sanitizer, Goods and Services Tax - GST

[KARAN VERMA]

Sir

What is HSN code and GST rate on Hand Sanitizer.

Posts / Replies

[KASTURI SETHI]

HSN 3808 94 00. GST Rate @18% vide Notification No.1/17-CT(R) dated 28.6.17 (as amended up to 30.12.19) at serial no.87.

[KARAN VERMA]

Sir

Many pharmaceutical companies sold this under HSN 30049087 and gst rate 18%.

[KARAN VERMA]

Sorry, gst rate 12% and Hsn code 30049087- antibacterial formulation.

They said this is not disinfectant like Harpic.

[KASTURI SETHI]

Sanitizer also acts as disinfectant. For determination of classification of any product we are not to resort to nomenclature only. There are so many factors to be considered e.g function and end-use, ingredients of the product, whether it is covered under specific entry in tariff or under the category of 'others' or 'Not elsewhere specified'. Only the factor of 'known in common parlance' would not suffice. In such a scenario, it is safer to opt for AAR.

[Ganeshan Kalyani]

I agree with Sri Kasturi Sir's reply. It is not easy to determine the HSN for a product. It includes the correct understanding of the ingredient of the product, its use etc. It is better you approach advance ruling.

[Sumit Srivastava]

I hold in high esteem the experts who have by their replies and articles enriched the knowledge and lives of lesser mortals like me.

In the present case, my two cents go thus -

+ The queryist seeks the correct classification of "Hand sanitizer". While appreciating the thin line demarcating the qualities of a sanitizer/disinfectant, nevertheless, bearing in mind that a leap from the classification under HSN code 3004 9087 to 3808 9400 would fetch higher revenue to the government by way of a higher rate of tax (12% & 18% respectively) and which, in all probability, the Authority for Advance Ruling would certainly endorse (as is observed from the litany of orders reported by TMI), I, for one, would hold back the manufacturer from knocking the doors of the AAR and land in an abyss.

+ Be that as it may, googling about the words "sanitizers and disinfectants" leads one to answers which the mind has questions about (thanks to the Artificial Intelligence (AI) capabilities of Google) and provides answers aplenty. Some of the links I would like to share with discerning readers are https://www.nycoproducts.com/resources/blog/whats-the-difference-between-sanitizers-and-disinfectants/

and

http://www.uschemical.com/wp-content/uploads/2016/04/L000207_SANITATION_VS_DIS.pdf

+ Suffice to say that in the context in which the query arose in the mind of the queryist, what with all the earthlings talking about COVID-19, I feel that what answers to "T" the question is - Sanitizers are only used on food contact surfaces & Disinfectants are generally not used on food contact surfaces, unless they have specific labeling instructions to be used as a sanitizer.

+. The "sanitizer" which the queryist refers to is "Hand sanitizer".

+ Apart from the other distinguishing features that differentiate between a "sanitizer" and "disinfectant", methinks that the Hand Sanitizer, classification of the same, is verily ensconced under the heading 3004 9087 and would attract lesser rate of GST as indicated by the queryist.

In fact, in these turbulent times, "Hand sanitizers" which, in any case, have disappeared from the store shelves or online platforms should be exempted or charged to NIL rate of tax, if not already, whether the classification ultimately decided by the authorities concerned, goes the Chapter 30 way or the Chapter 38 highway.

I hope the learned experts, whose writings, I am always impressed with, continue to share their wisdom on this platform for many more years to come.

Thanks for bearing with my longish reply.

[KASTURI SETHI]

Dear Sumit Srivastava,

I am all praise for your art of drafting. Before posting my reply I have gone through all the literature available on this issue. It is not correct that AAR decides the issue of classification in favour of Govt. AAR decision has no precedent value, however, this can be used as persuasive tool. I agree to the extent that there is a thin difference between the two. Opting for AAR means saving oneself from possibility of interest & penalty. You are saved from rigours of litigation and it is a fact that nobody likes litigation. In sanitizer, dominant ingredient is disinfectant and Disinfectant has a specific entry. Sanitizer and disinfectant both kill germs and virus. Alcohal is major ingredient used as disinfectant in sanitizer. Any classification is decided, inter alia, on the basis of major constituent in any product. Function, usage, marketability, nomenclature in trade parlance etc.are also other factors to be dwelt upon.

We express our views in the interest of the visitors of TMI Website. Final decision is to be taken by the concerned manufacturer. The querist does not depend upon only one site.The querists visit so many platforms/sites before arriving at any conclusion. Nobody should jump at conclusion.

[KASTURI SETHI]

Dear Sumit Srivastava Ji,

You have triggered me to study further on the issue. In this context, a few judgments of Hon'ble Supreme Court/CESTAT/CEGAT are worth-reading and worth-following which are as under:-

1. "Classification - Principles - Basic character, function and use more important than name used in trade parlance - Rules of Interpretation of Tariff applicable only if determination of classification according to terms of headings and relative section or chapter notes not possible. [para 3]" Reported as 2008 (231) ELT 207 (SC) = 2008 (9) TMI 66 - SUPREME COURT in the case of CCE Vs. International Tobacco.

2. "End use to be considered if classification is related to function of goods." Reported as 1986 (24) ELT 325 (CEGAT) = 1985 (10) TMI 195 - CEGAT, NEW DELHI in the case of Union Carbide Vs. CCE, Collector Customs, Bombay.

3."HSN and Rules of interpretation override trade parlance." Reported as 2005 180 ELT (300) (SC) = 2005 (2) TMI 114 - SUPREME COURT in the case of O.K.Play (India) Vs. CCE, Delhi-III, Gurgaon.

4. "If the legislature has adopted a technical term, then that technical term has to be understood in the technical sense and not on the basis of market parlance". Reported as 1997(93) ELT 646 (SC) = 1997 (7) TMI 652 - SUPREME COURT in the case of Reliance Cellulose Products Ltd. Vs.CCE.

5. "If the tariff entry is used in a scientific or technical sense or when there is a conflict between entries in the tariff, common parlance will not prevail. "Technical meaning prevails. Reported as 1990 (47) ELT 161 (SC) = 1990 (2) TMI 50 - SUPREME COURT in the case of Akbar Badruddin Jiwani Vs.Collector Customs.

6. Last but not least and it is very very important from the assessee's point of view and that is "The burden of proof of classification is on the department" reported as 2005 (179) ELT 17 = 2004 (12) TMI 92 - SUPREME COURT (SC-3 Member Bench in the case of Vicco Laboratories Vs. CCE, Nagpur. .

[Kashish Gupta]

Dear Experts,

I would like to add on my points related to this query. These are as under:

1. It is well settled that the words used in tariff shall be presumed to be of popular sense. The absurdity of adopting the technical meanings over “common parlance” in fiscal statutes was highlighted by the Hon'ble Supreme Court in Reliance Cellulose Products Ltd. Hyderabad v. Collector of Central Excise, Hyderabad-I Division, Hyderabad reported at (1997) 6 SCC 464 = 1997 (7) TMI 652 - SUPREME COURT by holding as under:

• “20. In other words, if the word used in a fiscal statute is understood in common parlance or in the commercial world in a particular sense, it must be taken that the Excise Act has used that word in the commonly understood sense. That sense cannot be taken away by attributing a technical meaning to the word. But if the legislature itself has adopted a technical term, then that technical term has to be understood in the technical sense. In other words, if in the fiscal statute, the article in question falls within the ambit of a technical term used under a particular entry, then that article cannot be taken away from that entry and placed under the residuary entry on the pretext that the article, even though it comes within the ambit of the technical term used in a particular entry, has acquired some other meaning in market parlance. For example, if a type of explosive (RDX) is known in the market as Kala Sabun by a section of the people who uses these explosives, the manufacturer or importer of these explosives cannot claim that the explosives must be classified as soap and not as explosive.”

2. Similarly, the Hon'ble Supreme Court in Shree Baidyanath Ayurved Bhavan Ltd. v. Collector of Central Excise, Nagpur, reported at (1996) 9 SCC 402 = 1995 (3) TMI 109 - SUPREME COURT applied the common parlance test to classify the product “Dant Lal Manjan”, which was in issue. The Hon'ble Supreme Court held that “Dant Lal Manjan” did not qualify as a medicament under the Central Excise Act, by setting forth the following reasons:

• “3. … The Tribunal rightly points out that in interpreting statutes like the Excise Act the primary object of which is to raise revenue and for which purpose various products are differently classified, resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning, that is to say the meaning attached to them by those using the product. It is for this reason that the Tribunal came to the conclusion that scientific and technical meanings would not advance the case of the appellants if the same runs counter to how the product is understood in popular parlance."

3. The twin test method (Twin test of common parlance and the ingredients contained in the product) evolved by the Hon'ble Supreme Court was applied to determine the classification of a product as a cosmetic or medicament in Puma Ayurvedic Herbal (P) Ltd. v. Commissioner, Central Excise, Nagpur, reported at (2006) 3 SCC 266 = 2006 (3) TMI 141 - SUPREME COURT.

• “2. … In order to determine whether a product is a cosmetic or a medicament a twin test has found favour with the courts. The test has approval of this Court also vide CCE v. Richardson Hindustan Ltd. [(2004) 9 SCC 156] = 1989 (1) TMI 352 - SC ORDER There is no dispute about this as even the Revenue accepts that the test is determinative for the issue involved. The tests are:
  • I. Whether the item is commonly understood as a medicament which is called the common parlance test. For this test it will have to be seen whether in common parlance the item is accepted as a medicament. If a product falls in the category of medicament it will not be an item of common use. A user will use it only for treating a particular ailment and will stop its use after the ailment is cured. The approach of the consumer towards the product is very material. One may buy any of the ordinary soaps available in the market. But if one has a skin problem, he may have to buy a medicated soap. Such a soap will not be an ordinary cosmetic. It will be medicament falling in Chapter 30 of the Tariff Act.
  • II. Are the ingredients used in the product mentioned in the authoritative textbooks on Ayurveda?”

4. The essential character of the medicine and the primary function of the medicine is derived from the active ingredients contained therein and it has certainly a bearing on the determination of classification. As held in Amrutanjan case [Amrutanjan Ltd. v. CCE, (1996) 9 SCC 413 : (1995) 77 ELT 500] = 1995 (3) TMI 97 - SUPREME COURT, the mere fact that the ingredients are purified or added with some preservatives does not really alter their character.”

5. Since for buying a hand sanitizer, no medical prescription is required, it should not be scientifically interpreted. The public at large accepts it as a normal sanitizer which kills the germs and does not render an ailment to a specific disease. Anyone can use it in their routine life. Hence, the classification therefore can very well be made under Chapter 30.

[KASTURI SETHI]

Nicely analyzed the judgements. I want to say 'prescription' does not come into picture here.

[KARAN VERMA]

Thanks kashish ji for such detailed explanation.

[CSSANJAY MALHOTRA]

Killing germs can't be the sole criteria as there are various products which kills germs but still find place in Chapter 38 as disinfectant also kill germs. Chapter 30 is for Pharma products.

Do review Chapter 3402 also for sake of knowledge and review why same is not best suited for Hand sanitisers as same has multiple use i.e. kiling germs and cleaning hands.

CBIC in any case may come out with clarifications in due course. One will find judgements across all chapters 30, 34, 38 but can't be made blindly applicable to one's product. Use of product sometimes is specified on label also. Ingredients for manufacture of Hand sanitisers varies in most of cases, that is also need to be looked at.

[KASTURI SETHI]

Sh.CS Sanjay Malhotra Ji, Sir, Thanks for throwing light on the issue.

[KASTURI SETHI]

I have received a message via WhatsApp from a registered taxpayer to clarify why there are two different rates of GST in respect of sanitizers. I am nobody to clarify. I am no authority. The taxpayers should either approach Board or Advance Ruling Authority for this purpose. Thus they will be able to avoid rigours of litigation.

[SYED RIZVI]

Sir ,

A manufacturer engaged in Cosmetic items, has just got a license for the first time in view of Covid-19 crisis to make good the shortage of Hand Sanitizer in market . Now tell me shouldn't this be treated and fall under essential item and no GST or at most 5% be charged thereon. What is the position as on date .Please enlighten

[KASTURI SETHI]

Keeping in view of health crisis caused by Covid-19, Hand Sanitizer has become essential item. Thus this item has become indispensable item. It is suggested thar a representation may be made to the Finance Minister. In such a situation we can hope that Govt. may grant exemption from the whole of GST in public interest as well as in the interest of the whole nation. Govt. is granting exemptions from Customs duty on essential equipments, medicines, materials etc. So the querist is advised to make a representation through Trade and Industry Association.

Regarding the rate of GST on Hand Sanitizer as on today , after going through all the replies of the experts and various judgements quoted by them and also keeping in view of the multiple uses of hand sanitizer, correct classification appears to be under Chapter/Heading 3402 attracting GST @ 18% ( CGST 9% and SGST 9%) at serial no.61 A of Notification No. 1/17-CT(R) dated 28.6.17 as amended.

[YAGAY andSUN]

In addition to above mentioned replies of our experts, GST do use Customs Tariff Act for HSN and for determination of Classification of goods GIR would play an important role. These Rules need to be taken into consideration while determining classification of goods under GST Laws.

[yashika aggarwal]

CAN WE USED 12 % FOR HANDSANITIZER

[YAGAY andSUN]

GST Evasion: DGGI clarifies 18% of GST applicable on Hand Sanitizers and not 12%

The Directorate General of GST Intelligence (DGGI) clarified that 18% of Goods and Service Tax (GST) is applicable to the Hand Sanitizer and not 12% of GST. As per the World Customs Organisation (WCO), the Central Economics Intelligence Bureau (CEIB) informed DGGI that some manufacturers of “Hand Sanitizers (Alcohol-based)” are wrongly classifying the said item under tariff heading 3004 (12% GST) whereas the said item is liable to be classified under tariff heading 3808 (18% GST). It has also been informed that Sugar Mills and distilleries are also engaged in manufacturing or supplying alcohol-based hand sanitizers and are classifying the same under tariff heading 3004 (12% GST) of HSN whereas the same is correctly classifiable under heading 3808 (18% GST) of HSN. Thus, the misclassification of Hand sanitizers’ (Alcohol-based) appears to have resulted in substantial evasion of GST. “Intelligence furnished by the CEIB has been further developed in the DGGI Hqrs. A list of 62 manufacturers/suppliers of above said the item was prepared by the DGGI Headquarters by identifying the manufacturers with the help of the online shopping platforms, such as Amazon, Flipkart, Snapdeal, Paytm, etc. and has been analyzed in DGGI,” the letter said. “While the misclassification of Hand Sanitizers produced under various established brands is being looked into by various Zonal Units of DGGI, it is requested that misclassification of Hand Sanitizers manufactured/supplied by sugar factories/distilleries in your jurisdiction may kindly be verified at your end in order to plug any revenue Images,” the DGGI requested.

[KASTURI SETHI]

Classification of any product is always determined on the basis of composition of any product i.e. what ingredient pre-dominates and usage/function there of. This case is worth fighting. The burden of proof is cast upon the department. There is a plethora of case laws to the effect that the burden of proof is cast up on the department. Two Supreme Court judgements are mentioned below :-

Classification of goods is a matter relating to chargeability and burden of proof is squarely upon Revenue - If Department intends to classify goods under a particular heading or sub-heading different from claimed by assessee, Department has to adduce proper evidence and discharge burden of proof- Supreme Court in the case of H.P.L.Chemicals Ltd Vs. CCE, Chandigarh reported as 2006 (197) E.L.T. 324 (S.C.) = 2006 (4) TMI 1 - SUPREME COURT.

Yarn produced by blending sub-standard polyester fibre and viscose staple fibre is classifiable under Excise Heading 55.05 (2) Classification of goods - Proof of - Collector cannot rely on evidence gathered during his visit to manufacturing unit after many years of issuance of show cause notice to arrive at conclusion about classification

(2) The Supreme Court Bench comprising Hon’ble Mr. Justice Syed Shah Mohammed Quadri and Hon’ble Mr. Justice S.N. Variava on 3-5-2002 after condoning the delay dismissed the Civil Appeal No. D. No. 5863 of 2002 filed by Commissioner of Central Excise Goa against CEGAT Order Nos. 2793-2794/2001-WZB/C-II, dated 2-11-2001 and reported in 2002 (145) E.L.T. 324 (Tri. - Mumbai) (Atlantic Spinning & Weaving Mills Ltd. v. Commissioner) = 2001 (11) TMI 559 - CEGAT, MUMBAI.

The Appellate Tribunal in its impugned order had held that yarn produced by blending sub-standard polyester fibre and viscose fibre is classifiable under Heading 55.05 of Central Excise Tariff Act, 1985 and not under Heading 55.06 ibid.

The Tribunal further held that Collector cannot rely on evidence gathered during his visit to manufacturing unit after many years of issuance of show cause notice to arrive at conclusion about classification.

The Tribunal held that where the burden of proof for classification not discharged by department, classification as claimed by assessee accepted.

[Commissioner v. Atlantic Spinning & Weaving Mills Ltd. - 2003 (152) E.L.T. A105 (S.C.)] = 2002 (5) TMI 884 - SC ORDER

[YAGAY andSUN]

The Goa Bench of the GST Authority for Advance Ruling on Application of Springfields (India) Distilleries = 2020 (7) TMI 304 - AUTHORITY FOR ADVANCE RULING, GOA has ruled out that Alcohol-based hand-sanitizers attract a GST rate of 18% and merely classifying any goods as an essential commodity will not be criteria for exempting such GST. Earlier, Springfield’s (India) distillery had sought Advance Rulings on the issue of classification of the Goods namely “Hand sanitizer” and the rate of GST to be applied. The company also sought opinion on whether Hand sanitizer supplied by it is classifiable as an essential commodity as per the notification of the Ministry of Consumer Affairs and to be exempt from GST.

Amidst debate on GST rate on alcohol-based hand sanitizer, an Authority for Advance Ruling has said that this hygiene product will attract GST at the rate of 18%.

The applicant, Springfield’s Distilleries moved to Goa AAR with two queries. First, the classification of hand sanitizer;

Secondly, whether a hand sanitizer as an essential commodity, will be exempted from GST?

However, in the opinion of the AAR when the GST administration is investigating into an allegation of some manufacturers, including alcohol-based hand sanitizer makers, including alcohol-based hand sanitizer makers, resorting to tax evasion /non-payment of GST by misclassifying the product. There has been the apprehension of tax evasion especially by manufacturers, suppliers including sugar mills and distillers are classifying alcohol-based hand sanitizer under the tariff heading 3004 while actually it should be under tariff heading 3808 of HSN (Harmonized System of Nomenclature).

Therefore, it was held that that in the opinion of the Authority that the hand sanitizers manufactured by the applicant are of the category of the Alcohol-based sanitizers and are classifiable are of the category of Alcohol-based sanitizers and are classifiable under heading 3808 of HSN to which the GST is applicable @18%.

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