Tax Department Doesn’t Think Sanitizer COs’ A/Cs are Clean

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

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

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

Pharmaceutical companies say sanitizers are medicament, while the taxman considers them disinfectants. The indirect tax department’s investing 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 “medicament” consist of mixed or unmixed products for therapeutic or prophylactic use, in measured doses.

Manufacturers argue that hand sanitizers are crucial in the battle against Covid-19, therefore equivalent to medicament, 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 tax department.

“Rate rationalization 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. “Sanitizers, an essential commodity in this environment, fit with the gamut of medicament and must be giver beneficial treatment in larger public interest.”

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

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