Amid the ongoing debate over goods and services tax (GST) rate on hand sanitizers, the government on Wednesday clarified alcohol-based hand sanitizers will continue to be levied at the standard rate of 18 percent as the product is a disinfectant like soaps and not a medicament. With the Consumer Affairs Ministry having classified hand sanitizers as essential commodities in wake of Covid-19 pandemic, there had been a demand from certain sections of the industry, particularly liquor and sugar sectors, to classify sanitizers in the medicament category attracting lower 12 percent duty.
“It is stated that hand sanitizers attract GST at a rate of 18 percent. Sanitizers are disinfectants like soaps, anti-bacterial liquids, Dettol, etc, all of which attract duty at the standard rate of 18 percent under the GST regime,” a Finance Ministry statement said. “It is further clarified that inputs for the manufacture of hand sanitizers are chemicals, packing material, input services, which also attracts a GST rate of 18 percent. Reducing the GST rate on sanitizers and other similar items would lead to an inverted duty structure and put the domestic manufacturers at disadvantage vis-a-vis importers,” the statement added.
Earlier, the Goa bench of the GST Authority for Advance Ruling (AAR) also held that the alcohol-based hygiene products will attract 18 percent GST. It added that its classification as an essential commodity cannot be a criterion for exemption from GST. The order came on a petition from Springfields (India) Distilleries over-classification of the hand sanitizer and the applicable rate of GST.
The clarity has also come in a wave of reports of large-scale tax evasion reported by the Central Economic Intelligence Bureau (CEIB) with certain new manufacturers of sanitizers paying 12 percent GST due to the wrong classification instead of the actual 18 percent. In fact, the CEIB, which comes under the Department of Revenue, in a recent communication to the Directorate General of GST Intelligence, has said that some manufacturers of alcohol-based hand sanitizers are resorting to “non-payment” or “evasion” of CGST and SGST by paying 12 percent GST due to the wrong classification instead of the actual 18 percent.
Following the letter from the CEIB and the directive for immediate action, the Directorate General of GST Intelligence has prepared a list of 62 manufacturers and suppliers of the alcohol-based hand sanitizers and analyzed them. The Finance Ministry said that lower GST rates help imports by making them cheaper, and this is against the nation’s policy on Aatmanirbhar Bharat. Consumers would also eventually not benefit from the lower GST rate if domestic manufacturing suffers on account of inverted duty structure, it said.