Hand Sanitizers are a good of common use today. The mask and hand sanitizer has become an essential part of one’s life. Being such an important commodity, GST on such sanitizers is important for both taxpayer and government as for taxpayer, it forms an essential part of his cost while for government, GST on such highly consumed commodity is a good source of revenue. The Apex Court dismissed a Public Interest Litigation seeking exemption for face masks and hand sanitizers from Goods and Services Tax in April 2020. Recently, GOA Authority for Advance Ruling in the case of Sprinfields (India) Distilleries has decided that Hand Sanitisers are classifiable under HSN 3808 and are taxable at 18%. For reference HSN 3808 covers “Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products, put up in forms or packings for retail sale or as preparations or articles (for example, sulphur-treated bands, wicks and candles, and fly-papers)”. The decision does not provide reasoning for arriving at such conclusion and thus, the decision devoid the reader from the wise reasoning. Alas, in order to put an end to the ongoing controversy on the GST rate on sanitizer, vide Press note dated 15.7.2020, states that Hand sanitisers are taxable at 18% just like soaps, Dettol, anti bacterial liquids etc.
Classification disputes are not new. Hon’ble Supreme Court in the Dunlop India Ltd. v. Union of India, (1976) 2 SCC 241,. held as under:
“35. It is good fiscal policy not to put people in doubt and quandary about their liability to duty. When a particular product like V.P. Latex known to trade and commerce in this country and abroad is imported, it would have been better if the article is, eo nomine, put under a proper classification to avoid controversy over the residuary clause. As a matter of fact in the Red Book (Import Trade Control Policy of the Ministry of Commerce) under Item 150, in section II, which relates to ”rubber, raw and gutta percha, raw“, synthetic latex including vinyl pyridine latex and copolymer of styrene butadiene latex are specifically included under the sub-head”Synthetic Rubber“. We do not see any reason why the same policy could not have been followed in the ICT book being complementary to each other. When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing.
36. It is not for the court to determine for itself under article 136 of the Constitution under which item a particular article falls. It is best left to the authorities entrusted with the subject. But where the very basis of the reason for including the article under a residuary head in order to charge higher duty is foreign to a proper determination of this kind, this court will be loath to say that it will not interfere.”
First thing first, Hand Sanitisers are drugs and are regulated. The Drugs and Cosmetics Act, 1940 (“DCA”) mandates that every drug stocked or sold in India must be sold under a license unless the drug, or the person stocking or selling the drug, is exempt by law from this requirement. Most of the sanitizers preferred by manufacturers in India are formulations recommended by WHO viz., Ethanol 80% (v/v) or Isopropyl alcohol 75% (v/v), Glycerol 1.45% (v/v) and Hydrogen peroxide 0.125% (v/v). Indian Drug regulators approved these formulations for sale in 2017.
Hand Sanitizers are sold both as cosmetics as well as drugs. The definition of ‘drug’ is a very wide definition and includes all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings , including preparations applied on human body for the purpose of repelling insects like mosquitoes. Thus, where the sanitizers claim of killing germs, then it may invite strict regulatory action under DCA. On the contrary, “cosmetic” has been defined under DCA to mean any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic. However, there is many times very fine line of difference between a cosmetic and a drug for eg. Anti dandruff shampoo, toothpaste for teeth whitening etc.. The differentiation shall be then derived from the Intended use which may be established in a number of ways, like:
- Claims stated on the product on labeling, in advertising, etc. if making claim for any kind of claim which establishes the product as being used as a drug to prevent disease (COVID etc.).
- Consumer perception is also very important to determine the nature of the product
- The known therapeutic use is also useful in establishing the nature as a drug.
Now coming to the classification adopted by Press Release – Hand Sanitizers are disinfectants like soap, anti bacterial liquids, Dettol etc. Disinfectants fall under classification – 3808 and are held as disinfectant for the very fact that they kills germs and are used for various purposes generally to maintain hygiene. However, disinfectants are for maintenance of hygiene. It is pertinent to mention that HSN 3808 excludes medicaments. Hon’ble Supreme court in the case of CCE, Mumbai IV v Ciens Laboratories, Mumbai [2013 (295) E.L.T. 3 (S.C.)] held that Courts have to see what the people who actually use the product understand the product to be, and if a product’s primary function is “care” and not “cure”, it is not a medicament. Further, as per HSN Explanatory Notes issued by WCO, Disinfectants are agents which destroy or irreversible inactivate undesirable Bacteria, viruses or other micro organisms, generally on inanimate objects. It is important to note that the product envisaged as disinfictant was inclined for use on inanimate objects and not human being. Dettol was held disinfectant in Reckit Benickser (India) Limited v State of Kerala when Court observed that Dettol is a ‘disinfectant’ used to treat inanimate objects and It was immaterial that it also contained some antiseptic chemicals and was also used for pre-operative preparation of patient’s skin, antisepsis in obstetrics/midwifery, on cuts/wounds (also bites, scratches and insect sting), all externally and for destruction/making inert micro organisms. However, the same may not be true in the case of Hand sanitisers for the following reasons:
- The product is not used to disinfect inamate object
- WHO has specifically provided a separate formule for human use (as chemicals can cause damage to human skin)
- They are not for cleaning or disinfecting but are being used to prevent a person from a deadly disease
- The product is regulated under DCA (though it is not the sole determining factor as used for classification by many experts)
Finally, is it a medicament used for therapeutic or prophylactic uses. The very perception of the user that he is using the hand sanitiser not for maintaining hygiene (like soap) but to prevent a major disease may be seen as a used for prophylactic use. Thus, for the very purpose for which it is used is somewhere ignored, ignoring that it was a specific outbreak of a pandemic which required a separate formulae to be provided by WHO. Hon’ble Supreme Court has in the case of Akbar Badruddin Jiwani v. Collector of Customs – [1990 (47) E.L.T. 161] held that although it is the settled position of law that the words used in Taxing Statute have to be understood in the common parlance or commercial parlance but such a trade understanding or commercial nomenclature can be given only in cases where the word in the Tariff Entry has not been used in a scientific or technical sense and where there is no conflict between the words used in the Tariff Entry and any other entry in the Tariff Schedule. Thus, ignoring the very reason of sudden spurt in the use of hand sanitizer post COVID spread and its trade parlance and commercial parlance, when its manufacture and supply is regulated, may not lead to determination of proper classification and thus rate. Hajmola was held to be an Ayurvedic medicine and not an edible preparation. The sanitiser is not to maintain general hygiene but as a prevention to be used to avoid contagion with the most deadly virus today – COVID 19. Formulations are specific to present situation. Thus, as a conclusion I would like to say – the product needs more deliberation and a hasty conclusion towards hand sanitiser would “sab saaf kar dega”. Its time to take a saviour approach towards Indian industry and in case of an industry issue, a prospective approach would boast morale of struggling industries.
