If there was any year in the recent past that made us realise the importance of the general state of health care programs and the overall medical infrastructure in our country, it was without a doubt the year 2020. Decades of research and development in the field of medicine and medical equipment was put to test not just in India but the world over.
It is not just the advancement of medicine that determines the efficacy of the health care system. Government policies in and around technology, too, are a strong indicator of any country's health care infrastructure. The tax regime for medicine and medical equipment forms a major aspect of such policymaking.
Lower rates of GST and customs duty on medical devices prima facie may appear beneficial but the rates of duty on parts of such medical devices used for manufacturing do need to be favourable as well. There is enormous disparity between the rates of final products and the parts used for manufacturing such products.
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Circular No. 113/32/2019-GST (Circular) issued in October 2019 was introduced with an intention to align the GST rates of medical equipment with parts of medical equipment. Primarily, all medical devices are covered under HSN (Harmonised System of Nomenclature, an internally recognised product coding system) 9018, 9019, 9021, and 9022 with a GST rate of 12%.
Parts and accessories of medical devices are covered under HSN 9033 with a higher duty rate of 18%. The circular clarified that 12% IGST would be applicable on the parts and accessories suitable for use solely or principally with a medical device falling under headings 9018, 9019, 9021, or 9022 in terms of chapter note 2(b).
This meant that "parts" of those medical devices that were classified under the aforementioned headings would get classified under these very headings and attract a lower rate of duty compared to a higher rate of 18%. The government's intention for publishing the circular could not be probed but the question is, did the circular achieve the desired results?
This clarity is only under GST with no similar notification for customs. This means the importers would still classify the "parts" under 9033 but the sale within the country would take place under 9018, 9019, 9021, or 9022. As such, rather than changing the classification with a circular, the government should have simply reduced the rates. Furthermore, there are parts under HSN 9033 that may not be related to medical devices classified as under 9018, 9019, or 9021 and so attract the higher duty of 18%.
Independently, customs duty rationalisation is the need of the hour on such parts that are not produced in India but are very much needed in manufacturing critical medical devices. Higher rates on such parts create an inverted duty structure if the final product still attracts lower rates when produced in India.
Overall, the medical devices market in India, be it for parts or final products, attracts multiple rates ranging from 5%, 12%, to 18%. Uniformity in these rates will go a long way in bringing down compliance complexity as well.
(The author is Partner, Khaitan & Co.)