Pharma industry deny allegations of GST evasion on hand sanitisers

Upset over allegations of GST evasions on the manufacturing and marketing of alcohol-based hand sanitisers, the pharma industry has requested that the Central Economic Intelligence Bureau (CEIB) should consult with the GST Council and provide urgent clarifications on this issue.  

Refuting charges of wrong classification of hand sanitisers, it claims that from 2017 (time of new GST regime) till now, hand sanitisers have been classified under HSN code 3004 with 12 per cent GST. However, the revenue department has never raised any objection to the said classification. Now, the revenue department is proposing a classification under heading 3808 which comes under 18 per cent tax rate. 

Industry associations have made representations to the GST Council as well as the Finance Ministry and other governing authorities stating that the charges of duty evasion levelled against the pharma industry are false.

For instance, the North Chapter of CII has written a letter to the Central Board of Indirect Taxes and Customs. It pointed out, “It is important to note that most of the industries manufacturing the hand sanitisers are registered under the Drugs and Cosmetics Act, 1940 and the said sanitisers come within the definition of ‘medicinal preparations’ i.e., under Section 2(g) of Drugs and Cosmetics Act, 1940. The interpretation regarding classification of goods must be construed in the sense in which persons who deal in such goods understand it normally. The goods must also be classified according to their popular meaning and commercial sense as well. It may be noted that in the past, anti-lice shampoo, as well as prickly heat powder, have also been held as medicaments while referring to their use, as the primary purpose of such goods (like hand sanitisers) is to prevent the disease.”

The letter also highlighted that the Ministry of Commerce and Industry, while prohibiting the export of alcohol-based hand sanitisers vide Notification No. 08/2015-2020 dated 01.06.2020, mentioned their ITC HS Codes as 3004, 3401, 3402 and 3808.

The association has requested the authorities to provide clarification regarding classification of hand sanitisers, after providing adequate opportunity to all the stakeholders. Its letter also requested, “The field formation may kindly comprehensively be directed not to adopt any coercive/aggressive investigations like visits and summoning, until such clarity is given by the CBIC, especially in view of the fact that up till spread of COVID-19, the department itself assessed the returns of the assessees considering the classification as 3004 attracting 12 per cent GST.”

Other stakeholders of the industry shared similar views with Express Pharma. 

BR Sikri, Chairman FOPE, and Vice President BDMA commented, “Hand sanitisers manufactured by pharma manufacturing facilities are to be treated like any other medicine in a GMP environment after getting a licence from the authority concerned in Form 25. Accordingly, manufacturers and marketers in the Indian pharma industry are using HSN Code 3004 with a tariff of 12 per cent. But, the government has opined that these manufacturers are wrongly classifying the said item, it needs to be classified under tariff heading 3808 which has an 18 per cent GST rate. This option is based on the classification of the World Customs Organisation (WCO) which opines that the correct classification of alcohol-based hand sanitisers is under head 3808 of HSN.”

He continued, “To overcome this ambiguity there is a need to interact with industry as well as with the experts of GST and other legal consultants instead of simply asking the industry to pay the difference between 12 per cent and 18 per cent. The industry has helped the nation by providing such a huge quantity of sanitisers at a time when it was needed. Suddenly imposing a financial burden will not create a good precedent. Every problem has a solution provided it is discussed and deliberated among stakeholders instead of taking onside action.”

Harish Jain, Secretary, Karnataka Drugs and Pharmaceutical Manufacturers Association too commented “In Karnataka, after the on