Introduction

When initially GST was introduced as a substitute to the older tax regime, focus was on the categorization on the goods and services to the slabs of tax rates. Apart from the ones which were qualified not to be taxed for socio- economic reasons and reasons of their importance (e.g.- water, most agricultural produce, contraceptives etc.), others were put into different rate slabs.

Sanitary pads, however, were subject to 12% GST which created a rage amongst the public, especially when comparisons were drawn to the exempt contraceptives and hygiene products. Petitions were filed in the Delhi and Bombay High Court respectively on the grounds of it violating Article 15(1) and 21 of the Constitution of India. Although, this problem was solved in no time as the Government of India released a notification exempting the sanitary pads from the GST completely, but there were worries about the consequences of the same.

This project discusses the position of taxation on sanitary pads pre and post exemption regime, discussing the effects of the same in both eras. Moreover, it also discusses the consequences of exempting the sanitary napkins completely of GST and suggests what can be the alternatives to tackle the problems of high maximum retail price and less accessibility of the pads to the general masses

The Press Note and the explanation to the 12% GST

After the Goods and Services Tax was imposed in India there was an opposition from many activists claiming that the imposition of GST on sanitary napkins is a deterrent to women upliftment. In order to curb to such growing protests, the government released a press note justifying the imposition of 12% GST.[1]

The Press Note

The government claimed that sanitary napkins are classifiable under heading 9619. In pre-GST, they attracted Concessional Excise Duty of 6% and 5% VAT and, the pre-GST estimated total tax incidence on sanitary napkins was 13.68%.  Therefore, 12% GST rate had been provided for sanitary napkin.[2]

Major raw materials for manufacture of sanitary napkins and applicable GST rates on them are as under:

18% GST rate- Super Absorbent Polymer, Polyethylene Film, Glue, LLDPE– Packing Cover

12% GST rate- Thermo Bonded Non-woven, Release Paper, Wood Pulp

Input Tax Credit

Crucially, to understand the argument, one must grasp the concept of input tax credits. Under the GST, a trader pays tax at every stage of the process. For a sanitary pad manufacturer, for example, that would mean paying tax while buying the raw materials, and then paying tax again when selling the product. To counteract this double taxation, the government refunds the entire tax paid on the input – meaning the raw materials – if the producer has paid the output tax.[3]

Justifications to the GST Rate

1. Now, the press note justifies the given slab by comparing the applicable tax on the domestic manufacturers vis- a- vis foreign manufacturers. For a domestic manufacturer, although within the existing GST law such accumulated ITC will be refunded, it will have associated financial costs [interest burden] and administrative cost. This will put domestic manufacturers at a disadvantage vis-à-vis imports, which will also attract 12% IGST on their imports, but there will be no additional financial costs and associated administrative cost of refunds in their case.

2. Even if this 12% is decreased to 5%, it will further make the tax inversion more prominent and result in even higher accumulated ITC. This will result in correspondingly higher financial costs on account of fund blockage and associated administrative cost of refunds, putting domestic manufacturers at even greater disadvantage vis-à-vis imports.

3. On the other hand, making the tax rate nil would mean local manufacturers would no longer be able to get any Input Tax Credit. This means they would be taxed while buying the raw material and had no option of getting back that money when they sold. Foreign manufacturers, however, would not be subject to input taxes and will also not have to pay any GST, putting them at a massive advantage as compared to domestic manufacturers.

Public Reaction to the 12% GST

I. PIL- delhi high court (Zarmina Israr Khan v. Union of India & Anr)

The GST on sanitary napkins was removed in July, 2018 but before this change was brought by the central government a Public Interest Litigation had already been filed in the High Court of Delhi challenging the imposition of tax as unconstitutional.[4]

Arguments made by the PETITIONERS: –

Violation of Article 21- It was argued in the petition that the impugned levy violates the inviolable and fundamental right to life that is contained in Article 21 of the Constitution of India in as much as it makes it more onerous for women to be able to access an essential item relating to their reproductive, and overall, health[5]

Violation of Article 15(1)- She also argued that the impugned levy is discriminatory and violative of Article 15(1) of the Constitution of India in as much it burdens only women, who ultimately are the consumers of sanitary napkins. A menstrual cycle is not a matter of choice. Sanitary napkins are thus, not a luxury, nor are they a life-style product. On the contrary, they are, in fact, a basic necessity and an essential item for women;[6]

Nature of the item being taxed- Moreover, the petitioner in this matter argued that there are certain items that have been exempted from the imposition of GST with an intent to not burden the consumer, keeping in mind the nature of the item and the perceived significance to the consumer. The underlying rationale is to ensure affordability for the customer and to not discourage the use of the item concerned by taxing it. Some of these items include kajal, kumkum, bindis, sindur, alta, plastic and glass bangles, hearing aids, passenger baggage, puja samagri of all kinds, and all types of contraceptives, including condoms.[7]

Essential & critical sanitation product- The petitioner claimed that the Respondents have grouped sanitary napkins with toys, leather goods, roasted coffee, mobile phones and processed foods amongst others for the imposition of a GST rate of 12% under the present tax regime. The classification of an essential and critical sanitation product with goods non-essential to survival, reflect the extent of the gender-inclusive priorities, or the lack thereof, of the State.[8]

Lack of differential treatment- Aside from the fact that the imposition of any GST on sanitary napkins is illegal, the impugned levy also makes no distinction between high-cost and low-cost sanitary napkins and taxes them on an equal footing. This is quite opposed to the differential treatment given to various goods, such as footwear, based on their retail sale price. For instance, under the GST, Footwear having a retail sale price not exceeding Rs. 500 per pair are taxed at the rate of 3% only, whereas other kinds of footwear not falling within this category have been taxed at 18%. The sheer arbitrariness of the imposition of a 12% rate of GST. The action of the Respondents amounts to ensuring that a woman is liable to pay tax on her inevitability to menstruate, a biological process that is inherent in women. Such an action, at best, represents a palpable nonchalance to the every-day reality faced by women in India, and at the worst, represents a parochial and misogynistic mind-set.[9]

Verdict of the High Court

As a result of this petition the Delhi High Court bench of Acting Chief Justice Gita Mittal and Justice C Hari Shankar sought response of the Centre on a plea against imposition of 12 per cent GST on sanitary napkins. They also issued notices to the Finance Ministry and the Goods and Services Tax Council directing them to file their counter in the matter.[10]

Response of the Government

In the reply filed with regards to this petition the Council stated that the basis of arriving at tax rates considers not only the use of the goods and services but also their pre-GST tax incidence and mode of production. The council sought dismissal of the plea, the GST Council said that to treat sanitary napkins as a separate set would be arbitrary and discriminatory. They claimed that the levy on sanitary pads, like other levies, enhance reserves, which in turn facilitate provision of various educational and medical facilities which facilitate effective exercise of reproductive rights by enabling the state to marshal its resources[11]

II. PIL- Bombay High Court (Shetty Women Welfare Foundation v. Union of India)

A similar PIL was filed on 29th June 2017 in the Bombay High Court by a Mumbai based Non- Government Organization called Shetty Women Welfare Foundation seeking exemption on GST on sanitary napkins.[12]

Arguments made by the petitioner

The grounds on which the petition was filed were similar to the Delhi High Court case as well (inclusive of Article 21 and Article 15(1) arguments). The petitioner also contended that this exemption is necessary to make access to basic menstrual hygiene products easier for women. It also stated that only 12% women in India can afford sanitary napkins, thus leaving the basic hygiene product out of the reach of 88% women and girls, hence it’s important that the exemption may be granted to increase access of the napkins to the marginalized and lower middle class populace.[13]

Verdict of the Court

The division bench of Justices NH Patil and NW Sambre asked the Maharashtra government to cut down the cost of napkins and making them available at concessional rates. They also suggested that the government should issue guidelines to Gram Panchayats which can then ask their women members to spread awareness on the issue among girls at the rural level.  The honourable court also asked the state to mention what steps it has taken to spread awareness about the use of sanitary napkins and making them available at concessional rates.[14]

III. Interference of the Supreme Court

On both proceedings, the honourable Supreme Court stayed the proceedings which challenged the levying of GST on sanitary pads. The court said that it’ll look into the matters and the possibility of whether they can be clubbed together and heard at the Supreme Court or not.[15]

Exemption of GST on Sanitary Napkins- Why it doesn’t help the case

On 26th July, 2018, the Government of India by Notification No. 20/2018 exempted “Sanitary towels (pads) or sanitary napkins; tampons” from GST.[16] The notification came into force on the 27th July, 2018. However, this started contemplations on the effect it might have on the domestic manufacturers and the effect of it on the final price of the product

I. How the Domestic and Small- scale Manufacturers will suffer

Impact on imports vis-a-vis domestic manufacturers

According to World Bank data, average annual sanitary napkin imports into India from China were to the tune of $ 31.6 million between 2012 and 2016. China’s average annual sanitary napkin exports to the world during this period were valued at $1.4 billion. This suggests that China can exploit the Indian market in case the present policy change makes imports more competitive. A tariff increase at the current juncture when there is a looming threat of a global trade war might trigger other unforeseen actions by India’s trade partners.[17]

Moreover, this impact has also been confirmed by Mr. Arun Jaitley and the press release which was discussed earlier in the project. The outcome will be that the Indian manufacturers wouldn’t be able to claim Input Tax Credit on the raw materials used in the manufacture of the napkins. We have already seen that the raw materials are taxed even at the rate of 18%. On the other hand, there will no input taxes imposed on the foreign manufacturers and this will create a huge cost difference on the price of the products.

Impact on small scale manufacturers

Another fact worth highlighting is that the policy might end up benefitting the bigger companies more than small scale units and self-help groups making sanitary napkins. This is because units with a turnover below 20 lakhs were anyway exempted from paying GST on their products. These will now have to compete with the bigger manufacturers who will most likely see a decline in their tax liability.[18]

The upshot is, while exempting sanitary napkins from GST might help the government in gaining some support among consumers via lower prices, these gains might come at the cost of hurting the interest of domestic manufacturers, especially small-scale producers. The fact that the government has changed its earlier position on the issue is proof that its political economy priorities are changing as the elections come closer.

II. Price Drop and accessibility- Still a furlong away

Price drop might not be possible

As the GST exemption for sanitary napkins means that the input tax credit would now not be available to the manufacturer. Experts believe that while prices may fall due to the rate cut, the reduction may not be significant the input tax credit issue may result in manufacturers increasing the overall price of the product. So, in reality the customer may not see a price drop of 12 per cent on a pack of napkins.

This is because of the reason that even if there is no GST on the final product, the raw materials are still being taxed at the rate of 12- 18%. This will increase the price of the final product. To add kerosene to the fire, the manufacturers can’t even claim Input Tax Credit, which would have covered a huge cost of their manufacturing process.

Accessibility still an issue

Even if we assume that MRPs of sanitary napkins will remain unaffected. In that case, would this exemption really translate into more women using sanitary products? Depending on brand, a pack of 10 napkins may cost Rs 70-90. Tax exemption may result in reduction in its price by 8-10 Rs. The cheaper the product, the lower this benefit will be. In fact, for some basic napkins (costing 20-30 rupees) the difference in cost may be negligible. To increase the accessibility, the price difference has to be a considerable one, so more women, of every section of the society will use the napkins. But, exemption doesn’t bring any solution to the table.

The question here is not of savings but whether this reduction in prices would be enough to bring these products in reach of women who don’t use sanitary napkins because of cost issues: The women from the most fragile financial sections. These are the ones most susceptible to use unhygienic methods because first, they can’t spend Rs 20-30 a month on something that’s of no use to other members of the family; second, they aren’t aware how essential menstrual hygiene is and third they don’t even know how sanitary products can make tackling periods easy.

The reality is this group may find it difficult to spare money for sanitary napkins even after the tax exemption. And this is where the real challenge of ensuring menstrual hygiene for all women lies. The drop in prices is so negligible that it would hardly make any difference for women who stay away from sanitary products because of their costs. The ones who use costly branded napkins (and who’ll benefit the most from this tax exemption) are anyway less likely to stop using these only because their period-expenditure increased by 8-10 rupees.[19]

Any kind of drop in costs is always welcomed by customers but overstretching the rate cut to claim victory (by campaigners), and a step towards women empowerment (by the government) will take the focus away from real problem: sanitary napkins may still be out of reach of women who need cheaper sanitary products the most.

Conclusion

To conclude, it has been already established that imposing GST rates of 12% on an object like sanitary napkin which is an essential element of personal hygiene and healthcare among the women, is exorbitant. It violates right to equality and the right to women under differential treatment under Article 21 and 15(1). It certainly doesn’t help the cause of increasing accessibility of the product to the lower middle class and the marginalized segment of the society as it leads to increase in the maximum retail price. So, the need to at least reduce the rates of the levy was imminent. However, reducing it to lower percentages had its own problems which was explained by the 2017 press note and focused on by Mr. Jaitley.

It has also been explained that to exempt sanitary pads entirely from GST has its own complication which will lead to wiping out the domestic and small scale manufacturers, as the foreign and large scale manufacturers get the benefit out of the GST regime. The solution can be to reduce the rate to 0% and not entirely exempting it from the GST. This will help the domestic manufactures in claiming Input Tax Credit on the raw materials which are still being taxed. Also, on the other hand, since the tax rate in now 0%, they won’t have to pay taxes on the final product. This will result into bringing the effective price of the sanitary pads to a very affordable price.

However, this alone won’t help the problem of increasing usage and accessibility of the same. The rural and uneducated need to be aware what is the use of such sanitary napkins and how the same is integral to women hygiene and healthcare. A scheme can be formulated similar to what the Bombay High Court asked the Maharashtra Government to do with respect to rural and grass root level. Active participation of the government has to be made sure keeping in mind that hygiene and health forms a crucial part of Right to Life under Article 21.

Bibliography

Cases

Shetty Women Welfare Foundation v. Union of India and Anr., Bombay H.C., W.P.(C) No. 2447- 2448 of 2017……. 8

Zarmina Israr Khan v. Union of India & Anr., Delhi H.C., W.P. (C) No. 6034 of 2017…….. 6

Government Documents

Government of India, Notification No. 20/2018 dated 26th July, 2018……..10

Press note, GST rate for Sanitary Napkins, dated 10th July 2017, https://pib.gov.in/newsite/PrintRelease.aspx?relid=167293………….. 4

Newspaper Articles

Bombay High Court tells Maharashtra government to make sanitary pad cheaper, India Today, January 16, 2018, https://www.indiatoday.in/india/story/bombay-high-court-tells-maharashtra-government-to-make-sanitary-pads-cheaper-1147018-2018-01-16……..9

Delhi High Court notice to government on plea against 12% GST on sanitary napkins, Jul 18, 2017,//economictimes.indiatimes.com/articleshow/59650717.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst……. 7

GST rate cut: Who will benefit from the tax cut on sanitary napkins?, July 23, 2018, https://www.cnbctv18.com/healthcare/who-will-benefit-from-the-tax-cut-on-sanitary-napkins-354421.htm…………………… 12

High Court questions 12% GST on sanitary napkins, Nov 16, 2017, https://www.zeebiz.com/india/news-high-court-questions-12-gst-on-sanitary-napkins-31510……. 8

Is GST exemption for sanitary napkins a victory or will it allow Chinese pads to dominate?, Jul 23, 2018, https://scroll.in/article/887530/is-gst-exemption-for-sanitary-napkins-a-victory-or-will-it-allow-chinese-pads-to-dominate……. 4

Mumbai NGO wants GST exemption for sanitary pads, moves HC, Hindutan Times, July 06, 2017, https://www.hindustantimes.com/mumbai-news/mumbai-ngo-wants-gst-exemption-for-sanitary-pads-moves-hc/story-ry9hKOKFzfdaCbDANVE6OI.html…. 8

No GST on sanitary napkins shows shift in government’s priorities,  Jul 26, 2018, https://www.hindustantimes.com/india-news/no-gst-on-sanitary-napkins-shows-shift-in-government-s-priorities/story-fs2P4dZfsqoRDKST7AHVgL.html……….10

SC Stays proceedings challenging GST on Sanitary Napkins in High Courts, The Wire,  January 23, 2018, https://thewire.in/economy/sc-stays-proceedings-challenging-gst-sanitary-napkins-high-courts 9

[1] Press note, GST rate for Sanitary Napkins, dated 10th July 2017, https://pib.gov.in/newsite/PrintRelease.aspx?relid=167293

[2] ibid

[3] Is GST exemption for sanitary napkins a victory or will it allow Chinese pads to dominate?, Jul 23, 2018, https://scroll.in/article/887530/is-gst-exemption-for-sanitary-napkins-a-victory-or-will-it-allow-chinese-pads-to-dominate

[4] Zarmina Israr Khan v. Union of India & Anr., Delhi H.C., W.P. (C) No. 6034 of 2017

[5] Ibid, Para 17(A)

[6] Ibid, Para 17 (D)

[7] Ibid, Para 17 (F)

[8] ibid

[9] Ibid, Para 17 (G)

[10] Delhi High Court notice to government on plea against 12% GST on sanitary napkins, Jul 18, 2017,//economictimes.indiatimes.com/articleshow/59650717.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

[11] High Court questions 12% GST on sanitary napkins, Nov 16, 2017, https://www.zeebiz.com/india/news-high-court-questions-12-gst-on-sanitary-napkins-31510

[12] Shetty Women Welfare Foundation v. Union of India and Anr., Bombay H.C., W.P.(C) No. 2447- 2448 of 2017

[13] Mumbai NGO wants GST exemption for sanitary pads, moves HC, Hindustan Times, July 06, 2017, https://www.hindustantimes.com/mumbai-news/mumbai-ngo-wants-gst-exemption-for-sanitary-pads-moves-hc/story-ry9hKOKFzfdaCbDANVE6OI.html

[14] Bombay High Court tells Maharashtra government to make sanitary pad cheaper, India Today, January 16, 2018, https://www.indiatoday.in/india/story/bombay-high-court-tells-maharashtra-government-to-make-sanitary-pads-cheaper-1147018-2018-01-16

[15] SC Stays proceedings challenging GST on Sanitary Napkins in High Courts, The Wire,  January 23, 2018, https://thewire.in/economy/sc-stays-proceedings-challenging-gst-sanitary-napkins-high-courts

[16] Government of India, Notification No. 20/2018 dated 26th July, 2018

[17] No GST on sanitary napkins shows shift in government’s priorities,  Jul 26, 2018, https://www.hindustantimes.com/india-news/no-gst-on-sanitary-napkins-shows-shift-in-government-s-priorities/story-fs2P4dZfsqoRDKST7AHVgL.html

[18] Government may ask sanitary pad companies to give cost details, Jul 24, 2018
//economictimes.indiatimes.com/articleshow/65112089.cms?from=mdr&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

[19] GST rate cut: Who will benefit from the tax cut on sanitary napkins?, July 23, 2018, https://www.cnbctv18.com/healthcare/who-will-benefit-from-the-tax-cut-on-sanitary-napkins-354421.htm

Author Bio

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Company: Jindal Global Law School, Sonipat
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One Comment

  1. Mohit Pande says:

    Dear Sir,
    Very good analysis. However the culprit is Input Tax Credit system which is causing problems. ITC also provides an opportunity for GST fraud, as ITC is 400% of GST collected.
    The solution is abolish ITC and levy only 5% GST on raw material inputs for all manufactured items.

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