Hand Sanitizers – Taxable at 18%?

Hand Sanitizers are a good of common use today. The mask and hand sanitizer has become an
essential part of one’s life. Being such an important commodity, GST on such sanitizers is important
for both taxpayer and government as for taxpayer, it forms an essential part of his cost while for
government, GST on such highly consumed commodity is a good source of revenue. The Apex Court
dismissed a Public Interest Litigation seeking exemption for face masks and hand sanitizers from
Goods and Services Tax in April 2020. Recently, GOA Authority for Advance Ruling in the case of
Sprinfields (India) Distilleries has decided that Hand Sanitisers are classifiable under HSN 3808 and
are taxable at 18%. For reference HSN 3808 covers “Insecticides, 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)”. The decision does not provide reasoning of the decision
and thus, the decision devoid the reader from the wise reasoning. Alas, in order to put an end to
the ongoing controversy on the GST rate on sanitizer, vide Press note dated 15.7.2020, states that
Hand sanitisers are taxable at 18% just like soaps, Dettol, anti bacterial liquids etc.

Classification disputes are not new. Hon’ble Supreme Court in the Dunlop India Ltd. v. Union of
India, (1976) 2 SCC 241,. held as under:

“35. It is good fiscal policy not to put people in doubt and quandary about their liability
to duty. When a particular product like V.P. Latex known to trade and commerce in this
country and abroad is imported, it would have been better if the article is, eo nomine, put
under a proper classification to avoid controversy over the residuary clause. As a matter of
fact in the Red Book (Import Trade Control Policy of the Ministry of Commerce) under Item
150, in section II, which relates to ”rubber, raw and gutta percha, raw“, synthetic latex
including vinyl pyridine latex and copolymer of styrene butadiene latex are specifically
included under the sub-head”Synthetic Rubber“. We do not see any reason why the same
policy could not have been followed in the ICT book being complementary to each other.
When an article has, by all standards, a reasonable claim to be classified under an
enumerated item in the Tariff Schedule, it will be against the very principle of classification to
deny it the parentage and consign it to an orphanage of the residuary clause. The question
of competition between two rival classifications will, however, stand on a different
footing.
36. It is not for the court to determine for itself under article 136 of the Constitution
under which item a particular article falls. It is best left to the authorities entrusted with the
subject. But where the very basis of the reason for including the article under a residuary
head in order to charge higher duty is foreign to a proper determination of this kind, this
court will be loath to say that it will not interfere.”

First thing first, Hand Sanitisers are drugs and are regulated. The Drugs and Cosmetics Act, 1940
(“DCA”) mandates that every drug stocked or sold in India must be sold under a license unless the
drug, or the person stocking or selling the drug, is exempt by law from this requirement. Most of the
sanitizers preferred by manufacturers in India are formulations recommended by WHO viz., Ethanol
80% (v/v) or Isopropyl alcohol 75% (v/v), Glycerol 1.45% (v/v) and Hydrogen peroxide 0.125% (v/v).
Indian Drug regulators approved these formulations for sale in 2017.

Hand Sanitizers are sold both as cosmetics as well as drugs. The definition of ‘drug’ is a very wide
definition and includes all medicines for internal or external use of human beings or animals
and all substances intended to be used for or in the diagnosis, treatment, mitigation or
prevention of any disease or disorder in human beings , including preparations applied
on human body for the purpose of repelling insects like mosquitoes. Thus, where the
sanitizers claim of killing germs, then it may invite strict regulatory action under DCA. On the
contrary, “cosmetic” has been defined under DCA to mean any article intended to be rubbed,
poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any
part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and
includes any article intended for use as a component of cosmetic. However, there is many times
very fine line of difference between a cosmetic and a drug for eg. Anti dandruff shampoo, toothpaste
for teeth whitening etc.. The differentiation shall be then derived from the Intended use which may
be established in a number of ways, like:
- Claims stated on the product on labeling, in advertising, etc. if making claim for any kind of claim
which establishes the product as being used as a drug to prevent disease (COVID etc.).
- Consumer perception is also very important to determine the nature of the product
- The known therapeutic use is also useful in establishing the nature as a drug.

Now coming to the classification adopted by Press Release – Hand Sanitizers are disinfectants like
soap, anti bacterial liquids, Dettol etc. Disinfectants fall under classification – 3808 and are held as
disinfectant for the very fact that they kills germs and are used for various purposes generally to
maintain hygiene. However, disinfectants are for maintenance of hygiene. It is pertinent to
mention that HSN 3808 excludes medicaments. Hon’ble Supreme court in the case of CCE, Mumbai
IV v Ciens Laboratories, Mumbai [2013 (295) E.L.T. 3 (S.C.)] held that Courts have to see what the
people who actually use the product understand the product to be, and if a product’s primary
function is “care” and not “cure”, it is not a medicament. Further, as per HSN Explanatory Notes
issued by WCO, Disinfectants are agents which destroy or irreversible inactivate undesirable
Bacteria, viruses or other micro organisms, generally on inanimate objects. It is important to note
that the product envisaged as disinfictant was inclined for use on inanimate objects and not human
being. Dettol was held disinfectant in Reckit Benickser (India) Limited v State of Kerala when Court
observed that Dettol is a ‘disinfectant’ used to treat inanimate objects and It was immaterial that it
also contained some antiseptic chemicals and was also used for pre-operative preparation of
patient’s skin, antisepsis in obstetrics/midwifery, on cuts/wounds (also bites, scratches and insect
sting), all externally and for destruction/making inert micro organisms. However, the same may not
be true in the case of Hand sanitisers for the following reasons:
- The product is not used to disinfect inamate object
- WHO has specifically provided a separate formule for human use (as chemicals can cause
damage to human skin)
- They are not for cleaning or disinfecting but are being used to prevent a person from a deadly
disease
- The product is regulated under DCA (though it is not the sale determining factor as used for
classification by many experts)
Finally, is it a medicament used for therapeutic or prophylactic uses. The very perception of the user
that he is using the hand sanitiser not for maintaining hygiene (like soap) but to prevent a major
disease may be seen as a used for prophylactic use. Thus, for the very purpose for which it is used is
somewhere ignored, ignoring that it was a specific outbreak of a pandemic which required a
separate formulae to be provided by WHO. Hon’ble Supreme Court has in the case of Akbar
Badruddin Jiwani v. Collector of Customs - [1990 (47) E.L.T. 161] held that although it is the settled
position of law that the words used in Taxing Statute have to be understood in the common parlance
or commercial parlance but such a trade understanding or commercial nomenclature can be given
only in cases where the word in the Tariff Entry has not been used in a scientific or technical sense
and where there is no conflict between the words used in the Tariff Entry and any other entry in the
Tariff Schedule. Thus, ignoring the very reason of sudden spurt in the use of hand sanitizer post
COVID spread and its trade parlance and commercial parlance, when its manufacture and supply is
regulated, may not lead to determination of proper classification and thus rate. Hajmola was held to
be an Ayurvedic medicine and not an edible preparation. The sanitiser is not to maintain general
hygiene but as a prevention to be used to avoid contagion with the most deadly virus today – COVID
19. Formulations are specific to present situation. Thus, as a conclusion I would like to say - the
product needs more deliberation and a hasty conclusion towards hand sanitiser would “sab saaf kar
dega”. Its time to take a saviour approach towards Indian industry and in case of an industry issue,
a prospective approach would boast morale of struggling industries.