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18% or 12%? Fresh ruling on GST rate for sanitisers underlines need for rethink

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The Authority of Advanced Rulings (AAR) has said that hand sanitisers should be subject to 18 percent GST rate.

18% or 12%? Fresh ruling on GST rate for sanitisers underlines need for rethink
The Authority of Advanced Rulings (AAR) has said that hand sanitisers should be subject to 18 percent GST rate – amid a broader backdrop of the product achieving near ubiquity and even being considered an ‘essential commodity’ by the government.
The ruling came after a manufacturer, Springfields (India) Distilleries, sought clarity on whether sanitisers can be treated as ‘medicaments’ because of their therapeutic or prophylactic use, and hence charged 12 percent GST that is levied on the category.
The applicant also urged the authority to rule on whether the product should be exempt from GST, given that it was termed essential commodity by the government.
But the AAR said alcohol-based sanitisers, which are used to “maintain hygiene” did not contain any curative or preventive ingredients and hence could not be considered medicaments.
“Alcohol-based hand sanitisers are classifiable under heading 3808 of HSN (pertaining to disinfectants) on which rate of GST applicable is 18 percent,” the AAR said.
Besides, it added that “merely classifying any goods as essential commodity will not be the criteria for exempting such goods from GST.”
Recently, the directorate general of GST intelligence had written an internal letter to its officers stating that hand sanitisers fall within the tax bucket of 18 percent. The letter was written to highlight potential evasion of taxes by distilleries and manufacturers by classifying sanitisers in the 3004 HSN (medicaments) bracket.
Experts, however, say the government should consider slashing the GST rate on hand sanitisers given their importance in fighting the pandemic.
The AAR’s ruling is in line with the previous view taken by GST authorities over the debate on whether they qualify as a medicament or disinfectant, said Abhishek Jain, Tax Partner, EY.
“Given its significance during the pandemic and with multiple players now into manufacturing of this product, the government should consider issuing an explicit clarification to control unwarranted litigation on this aspect,” he said.
The government should consider exempting hand sanitisers from GST considering their importance in today’s times, said Anita Rastogi, PwC Partner, GST and Indirect tax.
She added that the debate on the rate on sanitisers was “yet another classic case of multiple GST rates causing challenges."
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