Page 21 - GSTL_13th August 2020_Vol 39_Part 2

2020 ] GST ON SANITIZERS WITH ALCOHOL J29

GST ON SANITIZERS WITH ALCOHOL

By
Dr. Sanjiv Agarwal, FCA, FCS

In Customs as well as in GST, goods are classified
for tax purposes on the basis of Harmonised System of
Nomenclature (HSN) code. HSN code is a uniform code
acceptable worldwide given to various products (over
5000 or so). Post COVID-2019, few relatively new prod-
ucts have come to be known which are now products of
mass consumption. One such product is Sanitizer which
also have alcohol and/or ethyl alcohol.
In India, hand sanitizers are manufactured in the form of liquid, gel or
foam and its demand has shot up during recent times. Many Sugar Mills and
distilleries are also engaged in manufacturing/supplying alcohol-based hand
sanitizers.
In India many liquor manufacturing companies and distilleries have
commenced manufacturing of sanitizers amid huge demand post COVID-2019.
The issue of correct classification is a compliance issue as the rate of GST is dif-
ferent based on HSN classification. Sanitizers are not exempt from tax and have
to be appropriately classified for levy of GST as any wrong or misclassification
may result in short payment of tax leading to tax evasion and consequent costs in
terms of interest, penalties, etc.
The product [hand sanitizer (alcohol based)] has ingredients such as
Ethyl Alcohol LP, Glycerol LP, Hydrogen Peroxide LP., purified water, etc. Hand
sanitizers having ethyl alcohol as ingredient is a alcohol based product and is
correctly classified under Heading 3808 of HSN. The active ingredient of Ethyl
Alcohol LP. is over 70% in most of the cases.
Many manufacturers and suppliers, including sugar mills & distilleries,
are classifying alcohol-based hand sanitizer under Tariff Heading 3004 while ac-
tually it should be under Tariff Heading 3808 of HSN (Harmonised System of
Nomenclature). Globally, World Customs Organization (WCO) also holds that
alcohol based hand sanitizers are classifiable under the Heading 3808 of HSN.
The GST rate on products under Tariff Heading 3004 is 12 per cent while
for those under Heading 3808, it is 18 per cent. Since there is a difference of 6%
tax between two codes, companies tend to choose a the code leading to lower tax
to be competitive in the market. However, GST being an indirect tax, it does not
affect the manufacturer or the supply chain. Misclassification appears to have
resulted in substantial evasion of GST.
According to classification opinion of World Customs Organization
(WCO), a nodal organization for determining classification of the merchandise
goods based on Harmonized Commodity Description and Coding Systems, the
WCO has inferred that Alcohol based hand sanitizers are correctly classifiable
under Heading 3808 of HSN (precisely under sub-heading 3808.94), i.e.,

GST LAW TIMES  13th August 2020  21