Nowadays, there has been a lot of chaos regarding the Goods and Service Tax (GST) rate on Hand Sanitizers. Different taxpayers are taking different positions. The dispute is between the three Tariff Headings (TH) 3401, 3808, 3004. Export data shows that exporters have classified either under TH 3808 or TH 3004.
However, the Director General of GST Intelligence vide its letter communicates that there is misclassification of ‘Hand Sanitizer’ (Alcohol based) and it is required to be classified under TH 3808 inorder to attract 18% GST rate, alleging that evasion of taxes by the taxpayers.
CUSTOM TARIFF HEADINGS & ITS ANALYSIS
1. Analysis of TH 3401 – TH 3401 in the First Schedule to CTA Act includes the following three categories of products:
(i) soap;
(ii) organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap;
(iii) organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap; and
(iv) paper, wadding, felt and nonwovens, impregnated, coated, or covered with soap or detergent.
For ease of understanding
- Hard Soaps, soft soaps and liquid soaps not exceeding 5% of alcohol
- the TH includes soaps in form of bars, cakes, moulded pieces, or shapes
- HSN Explanatory Notes issued by WCO covers the preparation for washing the skin. The expression word ‘washing the skin’ is important not ‘washing the hands’.
- includes paper, wadding, felt and nonwovens, impregnated, coated, or covered with soap or detergent.
HSN 3402-Organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401.[Clearly, Hand Sanitizer is not covered, since it is in liquid form and contains more than 5 percent of alcohol]
2. Analysis of TH 3808 – HSN Explanatory Notes issued by WCO states that products under TH 3808 can clearly be divided into following four groups:
a) Insecticides;
b) Fungicides;
c) Herbicides, anti-sprouting products, plant growth regulators; and
d) Disinfectants
It is apparent that the Hand Sanitizer wouldnot be classified under the above 3 categories but can be classified under the ‘Disinfectants’.
Such explanatory notes are re-produced (verbatim) as below:
‘Disinfectants are agents which destroy or irreversibly inactivate undesirable bacteria, viruses or other micro-organisms, generally on inanimate objects. Disinfectants are used, for example, in hospitals for cleaning walls, etc., or sterilising instruments. They are also used in agriculture for disinfecting seeds and in the manufacture of animal feeds to control undesirable micro-organisms. The group includes sanitisers, bacteriostats and sterilisers’
Attention : Please note that the very definition of ‘disinfectants’ under TH 3808 states that these are agents applied generally on inanimate objects i.e. non-living objects. Further, reading the entire Group (d), it can be inferred that TH 3808 is not talking about disinfectant used on human body. Most importantly, the explanatory notes clearly excludes ‘Disinfectants, insecticides, etc., having the essential character of medicaments, including veterinary medicaments (heading 30.03 or 30.04)’. Therefore, if one can prove that the Hand Sanitizer is a medicament under TH 3004, other TH like 3401 or 3808 cannot be applied.
3. Analysis of TH 3004 – Currently, the Hand Sanitizer, used as a protection from Coronavirus and it is no more used as a regular hygiene product, can be considered as a medicament under TH 3004. Interestingly, TH 3004 specifically includes disinfectants too. There is abundance of jurisprudence to substantiate that hand sanitizers, in today scenario, be treated as a medicament.
Before evaluating the appropriate classification, one may also have to evaluate the classification adopted for the said goods, prior to the COVID-19 pandemic. Earlier, a general hand sanitizer was used as a product to clean the hands and was merely used as an alternative to soap (liquid form or in bar form). One can draw reference to the fact that even a normal soap would help in controlling the spread of infections/COVID. However, this aspect is not sufficient to classify a soap as a medicament.
CONCLUSION – A taxpayer has a good case to classify the Hand Sanitizer under TH 3004. The following questions of law or facts shall be raised before any Authority or Court:
- Whether the following factors are satisfied or not
– Curative effect of the product (therapeutic use)
– Preventive effect of the product (prophylactic use)
– Period of usage i.e, to be used for limited period or regularly
– Product contains curative/preventive ingredients even in small quantities
– License to manufacture, store and sell by FDA
– Reference to Pharmacopoeia or authoritative books
– Trade parlance, i.e, how it is known in the market
– Certificate by the technical experts or authorities
- Whether Hand Sanitizer do really kill coronavirus bacteria, is there any scientific evidence?
- What is the probability that a person’s hands have got the virus when he touched any object during this pandemic?
- What are the experts’ opinions on this matter?
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