Alcohol-based Hand-Sanitiser Makers under Scanner for Alleged GST Evasion

· Misclassification of Products Hits Tax Revenue, says Govt source

The Goods & Services Tax (GST) Authority has initiated a probe into alleged tax evasion by alcohol-based hand sanitiser manufacturers.

“Intelligence gathered indicates that some manufacturers, including alcohol-based hand sanitiser makers, are resorting to tax evasion/non-payment of GST by misclassifying the product,” a government source told.

The Directorate General of GST Intelligence (DGGI), using information from the Central Economic Intelligence Bureau and with the help of online shopping platforms, has prepared a list of 62 manufacturers and suppliers who are allegedly involved in this practice, the source added. It did not share the list citing pending investigation.

“While the mis-classification of hand sanitisers produced under various established brands is being looked into by various zonal units of DGGI, it is requested that mis-classification of hand sanitisers manufactured/supplied by sugar factories/distilleries in your jurisdiction may kindly be verified at your end in order to plug any revenue leakages,” a communication by DGGI, addressed to the Principal Chief Commissioners/Chief Commissioners of CGST & Custom, said.

Sources said many manufacturers and suppliers, including sugar mills & distilleries, are classifying alcohol-based hand sanitiser under tariff heading 3004 while actually it should be under tariff heading 3808 of HSN (Harmonised System of Nomenclature). The GST rate on products under tariff heading 3004 is 12 per cent while for those under 3808, it is 18 per cent. “Misclassification appears to have resulted in substantial evasion of GST,” another source said. An earlier estimate put the alleged evasion at over ₹50 crore, but it may have gone up considering the multi-fold increase in sales of hand sanitisers in the last 2-3 months.

Tariff heading 3004 of HSN lists medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvedic, Unani, Homoeopathic, Siddha or Biochemic systems medicaments, put up for retail sale. Tariff heading 3808 of HSN includes insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products.

Alcohol-based hand sanitiser has ingredients such as ethyl alcohol IP, glycerol IP, hydrogen peroxide IP, purified water etc. According to the source, hand sanitisers having ethyl alcohol as ingredient is an alcohol-based product and accordingly need to be classified under heading 3808 of HSN. “The active ingredient of ethyl alcohol IP is over 70 per cent in most of alcohol-based hand sanitiser,” the source said.

Global code

The tax authority also sought opinion from the World Customs Organisation (WCO) which has inferred that alcohol-based hand sanitisers are correctly classifiable under heading 3808 of HSN. HS Code (known as HSN Code in India) has been developed by WCO as a standardised system to classify goods all over the world in a systematic manner. HSN Code has 8-digit uniform code that classifies more than 5,000 products and is accepted globally.

In India, one can get hand sanitiser either in liquid, gel or in foam form. Alcohol-based sanitisers have higher market share. Since, no vaccine is available yet for Covid-19, a common advice for effectively avoiding the infection is cleaning hands with sanitisers containing at least 60 per cent alcohol. This has boosted sales which have almost doubled on a month-on-month basis in recent times.