Classification of Dialysis Components as Chemicals, Not Medical Instruments: AAR Mandates 18% GST on Dry Citrate Powder and Bicarbonate Bags [Read Order]

The Authority for Advance Ruling (AAR) Gujarat has passed a notable ruling pertaining to the taxation of health supplies i.e the Dialysis Component ,stating that as chemical components utilized in hemodialysis do not fall under the category of Medical Instruments.

The Bench passed this ruling stating that Dry Citrate Powder and Bicarbonate Bags need to be classified under inorganic chemicals attracting an 18% tax rate instead of a concessional rate of 12% that is applicable to Medical Devices.

The applicant M/s. Soxa Formulations and Research P Ltd.is a company that deals in the manufacturing of pharmaceutical and medical devices. The issue arose pertaining to the classification of two of its products it is Dry Citrate Powder which is utilized as an anticoagulant that prevents blood clotting during the process of hemodialysis and Bicarbonate Bags which are cartridges filled with sodium bicarbonate which is required for the solution utilized during hemodialysis.

The applicant filed an application on whether these products could be classified under HSN 9018, which falls under Medical Instruments that attracts a lower rate of tax.The applicant argued that the products are specialized medical components or parts and accessories that are designed for use with dialysis machines.

Further,the applicant stated that since the products are indispensable for the medical treatment of patients with kidney failure and have no other practical application they are medical equipment consumables subject to 12% tax. The applicant highlighted the medical usefulness of the products over their chemical composition.

However, the Authority took a literal approach to interpretation based on the Customs Tariff Act. The Bench comprising Sushma Vora (Member SGST) and Vishal Malani (Member CGST) stated that for a product to be classified under 9018 it had to fulfill the basic criterion of qualifying as an instrument, apparatus or appliance.

The AAR found that chemical powders or cartridges that are used up or consumed during a procedure did not have the physical attributes of an instrument.

Accordingly,the Bench found that Dry Citrate Powder was essentially a chemical compound classified under HSN 2833 while the Bicarbonate Bags were essentially sodium bicarbonate classified under HSN 2836. Both products would attract an 18% GST. Hence,the therapeutic value of a substance did not alter its essential nature as a chemical for tax purposes.

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