5% Health Cess on Import of Medical Devices w.e.f. 2nd Feb 2020

Healthcare in India comprises hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance, and medical equipment. The Indian healthcare industry amounted to $150 billion in 2018 and is expected to reach US $280 billion by 2022 due to increased demand for specialized and quality healthcare facilities. The market is dominated by private players. The industry is rapidly developing and is being fuelled by large investments from existing corporate hospital chains and new entrants backed by private equity investors. This growth will be driven by healthcare facilities, private-public projects, medical diagnostic and pathological laboratories, and the health insurance sector. In addition, changing demographics, disease profiles, and the shift from chronic to lifestyle diseases in the country has led to increased spending on healthcare delivery.

In Healthcare Sector, one of the most vibrant and fast-growing segments is Medical Devices & Equipment’s. The Indian medical device market is worth over $9 billion and is expected to reach $14 billion by the end of 2025. The Indian medical device industry become a very attractive destination for overseas exporting countries like U.S., Europe & also in recent times China. India imports nearly 80%- 90% of its medical devices and barriers to entry are low compared to other industries. India remains highly dependent on imports for many types of medical devices, particularly higher-end products that include cancer diagnostics, medical imaging, ultrasonic scans, and PCR technologies.

Imports are growing rapidly as world-class hospital groups such as Max, Hinduja Group, Fortis and Apollo build high-end infrastructure and open India to medical tourism, which now adds $2 billion to the Indian healthcare market.

Data from the commerce ministry, compiled by the Association of Indian Manufacturers of Medical Devices (AiMeD) — an umbrella organisation representing the Medical Devices Industry — shows that imports of medical devices in FY19 grew 24 per cent year-on-year (YoY) to Rs 38,837.28 crore, an increase of Rs 7,450 crore.

The growth in imports was led by product categories such as diagnostic items, ultra-sonogram machines, MRI and ECG apparatus, syringes with needles, suture needles, digital thermometers, malaria diagnostic kits, and hearing aids.

In order to discourage Imports and Promote Domestic Manufacturing and accelerating medical devices manufacturing as a ‘Make in India’, Health Cess on Medical Devices falling under Heading 9018-9022 are being announced in the Budget’ 2020. The Health Cess @ rate of 5% shall be Levied with effect from 2^nd Feb’2020.

“India is now making world-class goods and exporting such products. We have made considerable progress in medical equipment, too. Till a few years back, we were dependent on imports for medical equipment. Now, not only we are manufacturing medical equipment but also exporting them in large quantities. This sector deserves further fillip,” Sitharaman said in her second Union Budget presentation in Parliament.

“To achieve the twin objectives of giving impetus to the domestic industry and also to generate resource for health services, I propose to impose a nominal health cess, by way of a duty of customs, on the imports of medical equipment keeping in view that these goods are now being made significantly in India,” she added.

HEALTH CESS – Clause 139 : Fourth Schedule to Finance Bill, 2020

139(1) In the case of goods specified in the Fourth Schedule being goods imported into India, there shall be levied and collected for the purposes of the Union, a duty of customs, to be called the Health Cess, at the rates specified in the said Schedule, for the purposes of financing the health infrastructure and services.

(2) The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Health Cess levied under this Chapter for the purposes specified in sub-section (1), as it may consider necessary.

(3) For the purposes of calculating the Health Cess under this Chapter on the goods specified in the Fourth Schedule, where such duty is leviable at any percentage of its value, the value of such goods shall be calculated in the same manner as the value of goods is calculated for the purpose of customs duty under the provisions of section 14 of the Customs Act, 1962 (hereafter in this Chapter referred to as the Customs Act).

(4) The Health Cess leviable under sub-section (1), chargeable on the goods specified in the Fourth Schedule, shall be in addition to any other duties of customs chargeable on such goods under the Customs Act or any other law for the time being in force.

(5) The provisions of the Customs Act and the rules and regulations made thereunder, including those relating to refunds and exemptions from duties, offences and imposition of penalty, shall, as far as may be, apply in relation to the levy and collection of the Health Cess leviable under this Chapter in respect of the goods specified in the Fourth Schedule as they apply in relation to the levy and collection of duties of customs on such goods under the said Act or the rules or the regulations made thereunder, as the case may be.

Calculation of Health Cess :

Health Cess @ rate of 5% shall be calculated in the same manner as the value of goods is calculated for the purpose of customs duty under the provisions of section 14 of the Customs Act, 1962.

Customs Duty Calculation on Medical Devices wef 2nd Feb’2020

 Exemption from Levy of Health Cess

However, this Cess is being Exempted on Medical Devices which are Exempt from BCD including under FTA Notifications. Further, inputs / parts used in the Manufacture of Medical Devices is also being Exempted from Health Cess vide Notification No. 08/2020-Customs, the 2nd February, 2020. 

Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.

Author : SN Panigrahi, GST & Foreign Trade Consultant, Practitioner, International Corporate Trainer & Author.Author is Available for Corporate Trainings & Consultancy and Can be reached @ snpanigrahi1963@gmail.com