Tax department doesn’t think sanitiser companies’ accounts are clean – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/india/tax-department-doesnt-think-sanitiser-comapanies-accounts-are-cean/articleshow/83828856.cmsSynopsis

Pharmaceutical companies say sanitisers are medicaments, while the taxman considers them disinfectants. The indirect tax department’s investigation arm, Director General of GST Intelligence (DGGI), has initiated an investigation in this regard and even sent notices to some companies.

Companies making hand sanitisers and the raw materials used in them have come under scrutiny for allegedly categorising these items incorrectly and escaping tax.

The question is whether sanitisers should be treated asmedicaments, liable to goods and services tax (GST) of 12%, or as disinfectants or consumer products, on which 18% GST is levied.

Tax Dept Doesn’t Think Sanitiser Cos’ A/Cs are Clean

Under the GST framework, medicaments are broadly medicines, anything that can be used as medicine or used to manufacture medicine. Disinfectants are essentially soap or liquids used as soaps.

Pharmaceutical companies say sanitisers are medicaments, while the taxman considers them disinfectants. The indirect tax department’s investigation arm, Director General of GST Intelligence (DGGI), has initiated an investigation in this regard and even sent notices to some companies.

As per a tax notice ET has seen, the DGGI has said “medicaments” consist of mixed or unmixed products for therapeutic or prophylactic use, in measured doses.

Manufacturers argue that hand sanitisers are crucial in the battle against Covid-19, therefore equivalent to medicaments, and should be taxed at 12%.
A group of Gujarat-based pharmaceutical companies had approached the Supreme Court over this matter. The Supreme Court told them to approach a high court against the tax department.

“Rate rationalisation is the effective solution to reduce classification disputes for supplies, which could arguably be covered by two headings with different rates,” said Abhishek A Rastogi, partner at Khaitan & Co. “Sanitisers, an essential commodity in this environment, fit within the gamut of medicaments and must be given beneficial treatment in larger public interest.”

Insiders say hundreds of companies based in Gujarat and Maharashtra are under the tax lens.

Wide DGGI Investigation
These companies include those that either make sanitisers or similar products, or make raw materials for such items. Several companies had switched to making sanitisers after the pandemic began.
The DGGI is also said to be looking at pharmaceutical and other companies that supply disinfectants to hospitals. These companies said they have been claiming the lower GST rate even before the pandemic struck. In most cases, these products are liquids used to sanitise hospitals, akin to hand sanitisers, according to DGGI officials, and thereby liable to be taxed higher.

Some of the companies say they are manufacturing ‘hand and skin’ medicaments that doctors use before an operation, paying an even lower GST of 5%. These products qualify for the 5% slab because they are categorised as ‘life-saving drugs.’

Matter of Opinion
Experts say there are two views on the matter — whether tax should apply on the basis of the raw materials used in a product or the latter’s end use.
Some companies that are exporting products treated as disinfectants, or supplying them to hospitals, argue that end use should be considered and not the raw materials. Hence, these should be taxed at the medicaments rate. The tax department, on the other hand, wants to categorise every item as a disinfectant, irrespective of end use.

The manufacturers had told the Supreme Court that sanitisers are currently treated as “insecticides,” assuming the coronavirus is similar to an “insect,” and that sanitisers are used to kill it.

“Given that sanitisers are used as a protection from coronavirus, they should be re-categorised as medicaments,” the pharmaceutical companies and manufacturers had told the Supreme Court.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s