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Sanitizer : Classification HSN Code 3004 or 3808?

Sanitizer - Classification - HSN Code - Taxscan

One basic thing should be clearly understood by all that classification of any product as medicament or cosmetics is only and exclusively governed by the provisions of the Drugs & Cosmetics Act, 1940. Production/ manufacture/ storage/sale of these products is governed by the provisions of the Act of 1940 including Drugs and Cosmetic Rules, 1945 made thereunder and notifications issued from time to time in exercise of the powers conferred under the Act/Rules.

The legal position needs to be clarified at this stage that no ministry/GST Council is legally competent to declare a product as medicament including sanitizers.  In continuation, it should be added that GST Council is capable to declare a rate of GST on medicament and not a classification of sanitizer i.e. medicament or not? It is in the exclusive domain of the Drug Controller of the State where the product is being manufactured/sold.

  1. The problem of classification arose because AYUSH Mantralaya issued a Notification dated 02/04/2020 inviting manufacturers to come forward to manufacture Sanitizer.  Obviously, such Sanitizer should be classifiable as medicament Ayurvedic / Homeopathic  / Unani / Tibbi/ Siddha.
  2. The DIRECTORATE GENERAL OF GST INTELLIGENCE dated 10/06/2020 issued instructions stating that Sanitizer is liable to be classified under HSN Code 3808 and therefore liable to tax @ 18% instead of @ 12% and termed it as evasion of tax.
  3. For manufacture/sale of Sanitizer Drug Licenses were issued in past to a number of manufacturers by the Competent Authority of the State, accordingly, the Sanitizer is medicament.  I have gone through bills of supplies by the Drug License holder to AIMS, Military Canteens, and Drug License Holders.  Meaning clearly that the Sanitizer in common and commercial circles are understood within the broad meaning of medicine. 
  4. Even WHO while provisionally classifying sanitizer under Chapter 3808 has clarified in no uncertain terms that this classification has no legal binding on the member countries and they will be governed by the law of the said country.

Therefore, to classify sanitizer on the basis of alcohol dominance clearly is an attempt that is not at all subject matter of the Ministry of  Finance.

  • Sanitizer, a word now spread in public domain due to Covid-19  but is not a new word in the medical profession particularly in the field of surgery.

Before the start of the Covid-19 pandemic, the main consumption of sanitizer was in Central Government/ State Government / Military Hospitals/ Private Hospitals.  It needs no arguments that purchases by this class of sanitizers for over half of the century were subject to manufacture/sale by a Drug License Holder.

  • The Classification of Sanitizer in HSN Code 3808 (perhaps barrowed from WHO letter/classification) is completely wrong:-

Chapter 38

Miscellaneous Chemical Products

Note:

  1. This chemical does not cover:

(a)…

(b)…

(c)…

(d)medicaments (Heading3003 or 3004).

3808Insecticides, 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).12% IGST or 6% CGST + 6% SGST/ UTGST
  1. Because Chapter – 38 begins with words B insecticide, B pesticides, and ends with the phrase “Similar other product”. Clearly, it begins with a specific mention of certain products that are not suitable for human skin.
  2. Therefore applying the principle of Eejusdem Generis, as explained by the Apex Court in the case reported as Rainbow Steels Ltd. Vs. CST, UP.(1981, 47 STC 298), the phrase “similar other products” will carry only and only one meaning clearly excluding the product for human skin.

The principle is explained in Maxwell on the Interpretation of Statutes (12th Edition), at page 289, thus:

 “Where two or more words which are susceptible to analogous meaning are coupled together, noscuntur a sociis. They are understood to be used in their cognate sense. They take, as it were, their color from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.”

  • When Competent Authority, Drug Controller of States issued Drug License to any manufacturer to produce/sell Sanitizer then according to the law laid down by the Supreme Court in the case of M/s. Ponds India Ltd. Vs. Commissioner Trade Tax 2008 NTN, SC-169. Unless some cogent reliable material is available Department cannot after a period of time will be permitted to switch over to another entry i.e. from medicament to insecticide etc.  The plea was totally rejected by the Hon’ble Apex Court.  
  • Therefore, no formidable, valid and legal reasons are stated in the circular dated 10/06/2020, it appears incorrect and unjustified approach in the eye of law, printed here in above.
  • Hon’ble Supreme Court of India M/s. Icpa Health Product (P) Ltd. Vs. Commissioner of Central Excise, Vadodara Civil Appeal No. 4766-4768 of 1998 decided on 20/04/2004.

“Thus, if a product comprises of two or more constituents which have been mixed together for therapeutic or prophylactic uses, then it would be medicament.  As stated above, the Appellants products were examined by the Chemical Examiner who has opined that these products have therapeutic properties.  Also admittedly these products are used for disinfecting the skin prior to surgery.  As per Concise Oxford Dictionary, 9th Edition, the term “Prophylactic” would mean “intending to prevent diseases, a preventive medicine or course of action”.  It is clear that the Appellants’ products are used as a cleanser for cleaning of wounds and abrasions and minor cuts and to disinfect the skin prior to surgery.  They, therefore, also have prophylactic uses.  As the products have therapeutic properties and prophylactic uses they are Medicament falling under Chapter 30. 

Chapter 30

Pharmaceutical Products

3004Medicaments (including veterinary medicaments) used in bio-chemic systems and not bearing a brand nameKg2.5%2.5%5%Nil

As they fall under Chapter 30 by virtue of Note 1(c) to Chapter 38, they do not fall within Chapter 38.  It will therefore have to be held that the products cannot be classified under Tariff item 38.08.  In this view of the matter, the impugned judgment cannot be sustained and is accordingly set aside.  It is held that the Appellants’ products will be classifiable under Tariff Item 3003.10”

The extent or the quantity of medicament used in a particular product will also not be a relevant factor.  Normally, the extent of the use of medicament ingredients is very low because a larger use may be harmful to the human body.  The medicinal ingredients are mixed with what is in the trade parlance called filler or vehicles in order to make the medicament useful.  To illustrate an example of Vicks Vaporub is given in which 98 percent is said to be paraffin wax, while the medicament part, i.e. menthol is only 2 percent.  Vicks Vaporub has been held to be medicament by this Court in Collector of Central Excise v. Richardson Hindustan Ltd. 1 [1989] 42 ELT A100 (SC). Therefore, the fact that the use of medicinal elements in a product was minimal does not detract from it being classified as a medicament.

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NOTE:

Sanitizer is a preventive medicine for the safety of patients from germs, insecticides, etc. and therefore as per the terms of Drugs and Cosmetics Act 1940 a Drug License is required for the manufacturing/distribution/sale of sanitizer of medicament grade.

Quantity of medicament is not decisive as was held by the Hon’ble Supreme Court in the case of Vicks Veporub in which medicament is only 2%. Medicament consists of (a) active ingredients of medicine (b) other ingredients (c) vehicles or fillers.  To increase the quantity on one hand and on the other the medicine to mark user friendly.

Recently opinions are coming with a quantity of high percentage of Alcohol in sanitizer and merely on this basis, various ministries have come to the conclusion that sanitizer is not a medicament, and hence it is liable to tax at 18%.  This is wholly baseless and contrary to the provisions of the Drugs and Cosmetics Act under which the Controller of each State is the final authority to declare that the product is Medicament or not.

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Presently there is a great controversy in media regarding the classification of hand sanitizer.  In this respect, we humbly present the following for your kind consideration to issue the necessary directions to remove the confusion:

  • Sanitizers are a part and partial of an allopathic surgery and they are used pre/post care protection of the patient.
  • Naturally sanitizer being medicament is for the purpose of classification within exclusive demand of the State under Drugs & Cosmetics Act, 1940.
  • WHO issued a clarification regarding hand sanitizer and placed it under HSN Code 3808 and also noted that this classification is not binding on any Government.
  • Various ministries of Union of India merely on the basis of a higher quantity of Alcohol in sanitizer placed it under HSN Code 3808.
  • Alcohol is merely a vehicle and filler under the Drugs & Cosmetics Act 1940 and therefore its quantity will not be a determinative factor under the provisions of the said Act.
  • Recently Health and Family Welfare Ministry gave relaxation on their gazette dated 27/07/2020 in Rule 65(17) for the purpose of hand sanitizer.

PRAYER

It is, therefore, humbly requested that during the Covid-19 period mask and sanitizer being used by each and every person of the country, government should consider to declare them exempt as they are essential for up keeping the human life.

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Narendra Sharma is an Advocate practising in Kanpur. He can be contacted at narendra.advo@rediffmail.com. Views are Personal.
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