Classification of Skin Care Products under GST: Appellate Authority modifies AAR Order [Read Order]

The Appellate Authority for Advance Ruling (AAAR), West Bengal has recently modified an order passed by the AAR by holding that skin preparations are classifiable as cosmetics or soaps under the GST regime.

Earlier, the AAR, in its order held that skin preparations are classifiable as Medicament under heading 3004 only when its used primarily for cure from or treatment or mitigation of or for prevention of a specific skin disease or disorder.

The applicant, Akansha Hair & Skin Care Herbal Unit Pvt Ltd., manufactures skin care preparations and has sought an advance ruling on the classification of 33 of its products.

The counsel for the applicant argued that the applicant produced skin care preparations are Ayurvedic Medicaments and that they are meant for therapeutic or prophylactic uses, put up in packaging for retail sale and entirely correspond to the description of goods under HSN 3004 and, therefore, taxable under Schedule II.

According to the AAR if the product can be used for the treatment of specific ailments and the ingredients used are those specified in the medical or pharmacology books, a strong case exists for it being classified as a medicament.  The authority acknowledged the fact that nearly all proper skin care preparations have therapeutic or prophylactic properties, as they help in maintaining or improving the health of the skin. The Authority further noted that the skin care preparations that are used as medicaments may have the effect of enhancing appearance and beauty by restoring skin health.

Modifying the order, the Appellate Authority noted that as per the descriptions of the products printed on the labels of the products when packaged for retail sale and for information to the customer it is found that the products are used mostly for brightening the skin, controlling the excess oil secretion, keeping skin clean glossy and free of freckles and spots, beautifying the skin of sun-burn and black patches, ensuring dazzling liveliness, enhancing glamour and beauty, preventing excessive perspiration, promoting feeling of freshness, increasing lustre of skin, keeping skin soft, fair, glowing, stop pre-mature ageing and wrinkling of skin, preventing sun burn rashes, dryness, discoloration and burning sensation of skin, properly cleansing, exfoliating and moisturizing the skin, helping for removal of make-ups and sunscreen which clogs pores, helping in the normal firming and toning of skin along with hydrating the skin to make it glow, fresh and smooth, helping to skin and tighten skin pores, makes skin soft and more elastic, reducing excess skin oil, protecting from sun-burn injury.

“None of the above descriptions qualify for categorizing the products as “medicaments” or “medicines” as they are not used in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings; rather they are more in tandem with the definition of ‘cosmetics’ as we find in the Drugs and Cosmetics Act, 1940, because none of the problems that these products treat can be classified as “injury” or “ailment”,” the authority said.