Close on the heels of the Union finance ministry’s clarification that hand sanitizers are disinfectants like soaps, anti-bacterial liquids, etc. which attract 18% GST, pharma micro, small and medium enterprises (MSMEs), the major manufacturers of hand sanitizers, have urged the ministry to revisit its stand and ensure that a lower GST rate of 12%, instead of 18%, is levied on alcohol-based handrubs.
The hand sanitizer manufactured by a large section of the drug industry was classified as HSN code 3004 attracting 12% GST before March 2020. The HSN code 3004 consists of mixed or unmixed products for therapeutic or prophylactic uses.
The Indian pharma industry is manufacturing hand sanitizers which are invariable as per the formulations recommended by the World Health Organization (WHO). The WHO has prescribed two standard formulations for hand sanitisers. The first one refers to ethanol 80 per cent (v/v), glycerol 1.45 per cent (v/v) and hydrogen peroxide 0.125 per cent, where v/v stands for volume. The second formulation consists of isopropyl alcohol 75 per cent (v/v), glycerol 1.45 per cent (v/v) and hydrogen peroxide 0.125 per cent (v/v).
Accordingly, manufacturers and marketers in India use HSN code 3004 with a tariff of 12%. The tax rate 18% as per entry no 87 of Schedule III notification no 1/2017 CT rates under heading 3808 is applicable for insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant growth regulators, disinfectants and similar products.
The above ‘disinfectants’ word is more applicable to products, which fall under different class rather than the alcohol based hand sanitizers which are used by human beings and come under mendicant product category with a valid drug licence in Form 25, said Nipun Jain, chairman of Small and Medium Pharma Manufacturers Association (SMPMA).
In spite of non- availability of manpower, transportation, raw material etc, pharma MSMEs have ramped up production of handrub following the drugs controller general of India’s direction and on the call of the country. Despite giving encouragement to the industry, finance ministry is claiming 18% GST for hand sanitizer which is under drug category falling under HS code 3004 by misclassifying it under HSN code 3808, said Nipun Jain, chairman of Small and Medium Pharma Manufacturers Association.
The ministry has been asking for arrears since March 2020. The pharma MEMEs are suffering a lot due to fears and restrictions made by the government in the COVID-19 period on procurement, production and supply of hand sanitizers and looking for financial aid out of Rs 20 lakh crore package announced by the government to help the industry and generate employment to boost the economy of the country, said Jain.
Earlier the finance ministry argued that various chemicals, packing materials and input services etc. used for the manufacture of hand sanitizers also attract a GST rate of 18%. Reducing the GST rate on sanitizers and other similar items would lead to an inverted duty structure and put the domestic manufacturers at a disadvantage vis-a-vis the importers of hand sanitizers.
Refuting the ministry’s argument, SMPMA chairman said “This has always been the case in the pharma industry. The GST on pharma raw material i.e. active pharmaceutical ingredients (APIs) is levied at the rate of 18% whereas finished formulations attract 12% GST.
SMPMA has written to the Central Board of Indirect Tax and Customs to reclassify alcohol based handrubs under HSN code 3004 attracting 12% GST to help MSMEs which are reeling under the impact of the COVID-19 outbreak. It will resolve the prevailing confusion and uncertainty to reduce litigation and also ensure uniformity of the compliance, said the industry body.
SMPMA pointed that pharma industry is manufacturing the hand sanitizer under the licence of Drugs and Cosmetics Act, 1940 and Rules 1945 which mandates that every drug stocked or sold in India must be sold under a licence unless the drug or the person stocking or selling the drugs is exempted by law from this requirement.
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