Alcohol based hand sanitizers to be taxed @18% GST : AAR

The COVID 19 Pandemic has been severely disruptive to human life as well as the economy. However, the healthcare sector is expected to generate the maximum revenue, owing to the outbreak of the COVID-19, which has increased the application. The healthcare sector has always been one of the key contributors to the global hand sanitizer market. Sales of hand sanitizers and similar products have swelled across several international markets since the COVID-19 outbreak began in January. Demand for hand sanitizer is surging around the globe as the new coronavirus spreads, prompting retailers to ration supplies and online vendors to hike prices. Hand sanitizers are primarily sold through retail distribution channels such as supermarkets and hypermarkets, departmental stores, retail stores, and drug stores worldwide.

The Goa-bench of the GST-Authority for Advance Rulings (AAR) has ruled that Alcohol based hand sanitizers attract a GST of 18% in the advance ruling sought by Springfields (India) Distilleries.

Facts of the Case:-

1. The applicant is a registered partnership firm manufacturing hand sanitizers.
2. Applicant seeked advance ruling with respect to the question of classification of hand sanitizers and what rate of GST is to be applied.
3. The Ministry of Consumer Affairs, Food and Public Distribution has classified ‘hand sanitizers’ under the Essential Commodities Act, 1955 as an essential commodity.
4. Applicant also seeks opinion on whether Hand sanitizers supplied by them are classifiable as essential commodity and to be exempt from GST.

Past issues with the Classification of Hand Sanitizers

1. A petition was filed before the Supreme Court seeking exemption for face masks and hand sanitizers from Goods and Services Tax. The Apex Court on April 21, 2020, dismissed the said Public Interest Litigation.
2. Another petition was also dismissed which sought that the Centre and State Governments provide relaxation on medical expenses related to non-COVID-19 treatments, amidst the widespread coronavirus pandemic.
3. In the wake of the increasing threat of Covid-19, the medical fraternity has asked the government to consider withdrawing GST on hand sanitizer and masks in these difficult times. Hospitals, ambulance, nursing and support staff desperately require sanitizers, masks and other protective equipment in 24×7 in bulk. Besides, medical practitioners and public at large also require hand sanitizers and masks as a major preventive measure to keep away from the highly infectious virus. It would be a big relief for people if GST was not levied on these items. However, no such exemption from GST was provided by the government.
4. Hand sanitiser is the latest product where there is a GST dispute due to classification of the product in different slab rates. Multiple GST rates have now become a subject of issue between hand sanitiser manufacturers and the government. Due to mis-classification of hand Sanitisers (alcohol based), sugar mills and distilleries were filing tax under tariff heading 3004 (12% GST) by wrongly classifying them as “medicaments” instead of “disinfectants” under heading 3808 (18% GST). Following this, GST field officers began to conduct inspection to determine misclassification and consequent GST loss. However it was stated that, Hand washes and sanitizers fall under HSN Code 3808 – Disinfectants and hand sanitizers on which GST is charged at 18%.

Observations of Goa AAR

1. Applicant is of the opinion that ‘hand sanitizers’ are covered under HSN 30049087 – Antihypertensive drugs : Antibacterial formulations not elsewhere specified or included HS Code and Indian Harmonized System Code and to be taxed @12% GST.
2. AAR is of the opinion that ‘hand sanitizers’ manufactured by the applicant are of the category of alcohol based hand sanitizers and are classifiable under Head 3808 of HSN to which GST rate applicable is 18%
3. As far as exempting ‘hand sanitizers’ due to notification passed by The Ministry of Consumer Affairs, Food and Public Distribution, claiming the same as an essential commodity is concerned, AAR was of the view that exempted goods are covered by Notification 2/2017 – Central Tax (Rate) dated 28/06/2019.
4. Merely classifying any goods as an essential commodity will not be the criteria for exempting goods from GST
5. As ‘hand sanitizers’ are not covered under Notification 2/2017 – Central Tax (Rate) dated 28/06/2019, the same will not be exempted under GST.

Therefore, the Goa AAR ruled that alcohol based hand sanitizers manufactured by the applicant are covered under HSN Head 3808: Disinfectants and hand sanitizers on which GST is charged at 18%.

CBIC Press Note – Clarification on GST Rate on Hand Sanitizers.