Companies making hand sanitisers as well as raw materials have come under the lens of the Director General of GST Intelligence for allegedly incorrectly categorising these products and evading tax. But the matter, as it turns out, is not so simplistic as it seems. Pharmaceutical companies have argued that hand sanitisers are medicaments but the taxman believes them to be disinfectants.
Things get further complicated as medicaments are liable for 12 per cent GST but disinfectants are under the 18 per cent GST bracket. According to the GST framework, anything that is used as medicine or used to manufacture medicine is categorised under medicaments, while soaps or liquids used as soaps are categorised under disinfectants.
According to a report in The Economic Times, the GST department's investigation arm, DGGI, has initiated an investigation in this regard as well as sent notices to some companies. The DGGI has said in the tax notice, as seen by the daily, that 'medicaments' consist of mixed or unmixed products for therapeutic or prophylactic use in measured doses.
Manufacturers have maintained their stand and a group of Gujarat-based pharmaceutical companies have even approached the Supreme Court in this matter. The apex court has directed them to approach the high court against the GST department. Makers have argued that hand sanitisers are crucial in the battle against COVID-19 and are therefore equivalent to medicaments that should be taxed at 12 per cent.
The daily stated that hundreds of companies in Gujarat and Maharashtra are under scrutiny. Some of these companies make sanitisers, similar products, or raw materials for such items.
Pharmaceutical companies that supply disinfectants to hospitals are also under the taxman's lens. In most cases, DGGI has said that these items are liable to be taxed higher as they are used to sanitise hospitals, much like hand sanitisers. Some of the companies have said that they are manufacturing 'hand and skin' medicaments that doctors use before operations. As these are categorised as 'life-saving drugs' they are categorised in the 5 per cent slab.
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