The outbreak of COVID-19 has resulted a surge in the demand for relevant medical supplies and prevention material/services, such as sanitizers, disinfectants, PPE kits, protective masks, protective spectacles, rubbing alcohol, gloves, infrared thermometers, ventilators, fumigation services etc. Goods and Services Tax (hereinafter referred to as ‘GST’) on masks, sanitizers, gloves, PPE kits and some other key COVID-19 medical supplies may fall either under the 5% or 12% or 18% GST slabs due to some valid controversies about their classification based on their contents and usage in accordance to the accepted principles of classification of goods and services. The present pandemic has also led to a trail of amendments, relief measures and other changes directed at regulating the foreign trade and associated matters. The analysis of such measures and changes in brief as well as some controversies shall provide the reader an insight on the possible widespread effects needing reconsideration of earlier understanding.

1. TRADE FACILITATION CUSTOMS LAW

The following are the major amendments which have been introduced in effect to the outbreak of COVID-19 intending at regulating & providing relief to the business keeping into consideration the requirement of the current situation.

  1. PROCEDURE FOR EXPORT OF PPE MEDICAL COVERALLS NOTIFIED

Trade Notice No. 17/2020-21 dated 29.06.20201 issued by the Directorate General of Foreign Trade (hereinafter referred to as ‘DGFT’) restricts the export of PPE medical coveralls for COVID-19 (hereinafter referred to as ‘the Product’) and fixes the export quota of 50 lakh Product Units per month. It notifies the online application procedure through DGFT’s ECOM system for Export authorizations and criteria for export of the aforementioned commodity. This is as follows:

  • Export of only 50 lakh units of the Product shall be allowed monthly.

  • Exporters to apply online through DGFT’s ECOM system for Export authorizations

  • Only applications for export of the Product filed from 1st to 3rd day of each month to be considered for monthly quota.

  • Approvals/allocations to be done by 10th of every month in accordance with Handbook of Procedures.

  • Validity of Export License will be for 3 months only.

Further, the requirements/eligibility criteria for issuance of Export license for exporting the products along with documents to be submitted along with online application have been laid as follows:

  • The applicant shall be a manufacturer of the Product.

  • Applicant is to submit copy of Testing/ Accreditation of the Product issued to him from laboratories notified/recognized by the Ministry of Textiles.

  • Applicant to either submit copy of importing country’s PPEs medical coveralls Standards Certificate obtained by it or copy of Bureau of Indian Standards Certificate obtained by it, if importing country does not insist in a Standard Certificate.

  • Applicant to submit a Chartered Engineer’s certificate certifying that fabrics used in the Product were manufactured in India.

  • Copy of Applicant firm’s IEC.

  • Only one application per IEC will be considered during a month

  • Copy of Purchase Order/Invoice

  • All documents to be duly self-attested by

authorized person of the firm.

  1. DUTY EXEMPTIONS

The Department has exempted the levy of customs duty and health cess on medical equipment to combat COVID-19 pandemic by virtue of Notification No. 20/2020-Cus dated April 9, 2020 upto 30.09.2020.2 The following goods are covered by the exemption notification:

S.

No.

HSN

DESCRIPTION OF GOODS

1.

9018 or 9019

Artificial respiration or other therapeutic respiration apparatus (Ventilators)

2.

63 or any Chapter

Face masks and surgical masks

3.

62 or any Chapter

Personal protection equipment (PPE)

4.

30, 38 or any chapter

COVID-19 testing kits

5.

Any chapter

Inputs for the manufacture of above items

The importer however should follow the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017

  1. OTHER EXEMPTIONS

The DGFT in another relief measure by way of Trade Notice No. 62/2012-2020 dated 06.04.20203 directed that where imports taking place under a Free Trade Agreement, have claimed preferential treatment but original hard copy of Certificate of Origin on account of disruptions caused by COVID-19 pandemic cannot be produced or only a digitally signed copy or unsigned copy of the certificate may be accessed and cleared provisionally.

The final assessment may however be done subsequently on submission of the original certificate by the importer. Also, the revenue may be secured through undertaking and appropriate security.

2. CONTROVERSIAL ISSUES AS PER HSN Code vis-à-vis GST RATE ON SOME ITEMS OF EXTENSIVE USE AGAINST COVID-19

GOODS AND SERVICES TAX LAW

  1. ISSUES RELATED TO CLASSIFICATION

The pandemic has led to introduction of new products and services in the market. Additional facilities for manufacture of such products have also been resorted to by several ventures as their new business lines. After detailed research and analysis of Harmonized System Nomenclature (hereinafter referred to as ‘HSN’) as updated till 2017 by World Customs Organization, we have prepared and enclosed the table providing various important products, their description, HSN Code, relevant rate notification and its item number as well as the GST tax rate in accordance to the prescribed Schedule under the GST law. The possible notifications and relevant entries have been incorporated with our brief comments for easier understanding and brief analysis of the most appropriate applicable classification and GST rate on the specifically described product. The difference of opinion regarding the categorization of some items has emerged due to very complicated structure of the classification entry which is really difficult to comprehend. The issues of classification have already started surfacing as being raised by the investigating agencies of the GST Departments.

There have been contrasting views regarding the classification of N95 Mask whether would be suitable under Heading 9018 or 9020 of the Harmonized System of Nomenclature.

  1. Masks used for medical purposes and for other than medical purposes

In India, masks can be broadly divided into 4 types, on the basis of their physical features. These are:

  1. Masks with detachable filters or with a mechanical part;

  2. Masks without a detachable filter or a mechanical part;

  3. Masks made of cellulose paper or felt or non woven fabric; and

  4. Textile masks including designer masks which have now formed a part of the suit sets.

Further, the World Health Organisation in its 2016 Guidelines on Personal Protective Equipment (hereinafter referred as ‘PPE’) recommended technical specifications for surgical mask.4 Guidance Flyer issued by WHO recommends Advanced masks (Surgical masks for single use only & N95 masks) for health workers or those in contact with COVID 19 patients or COVID patients themselves5. While, homemade masks of cloth have been recommended for people not suffering from medical conditions or having breathing difficulties. Guidelines prescribing the use of PPE in different settings have also been issued by the Ministry of Health and Family Welfare.6

There has however, emerged another category of face masks with replaceable filters. The following columns (I) and (II) state the competing entries for classification of the aforementioned Mask:

 

I

II

HSN

9018

9020

Rate

12%

12%

Text

Instruments and Appliances used in Medical, Surgical, Dental or Veterinary Sciences, Including Scientigraphic Apparatus, Other Electromedical Apparatus and Sight -Testing Instruments

Other breathing appliances and gas masks, Excluding Protective Masks having neither Mechanical Parts nor Replaceable Filters

Our View:

Heading 9020 constitutes of two major categories of ‘Other Breathing Appliances’ and ‘Gas Masks’ but at the same time excludes the protective masks which do not have mechanical parts or replaceable filters. Hence a protective mask of the category having replaceable filters shall be classified within the Heading 9020 and shall attract a GST rate of 12%.

The second part of the heading containing exclusion of protective masks having neither mechanical parts nor replaceable filters creates a complexity and needs a clearer consideration of the facts of each case in order to classify a mask under the heading 9020 or 9018.

Further, the third category of ‘textile mask’ is classifiable under Heading 6307.90 depending upon the ‘sale value’ of the mask as a textile article. A textile mask with a sale value below ₹ 1000/- piece shall attract a rate of 5%. On the other hand, a textile mask with a sale value exceeding ₹ 1000/- piece shall attract a rate of 12%.

  1. Face Shields majorly used for medical purposes

A constituent of the ‘Personal Protective Equipment’ is a plastic face shield with headgear providing good visibility to both the wearer and the patient with an adjustable band attached firmly around the head. It aims to protect the facial area from exposure to airborne particles containing virus that may be expelled by another person.

The following are the competing entries:

 

I

II

HSN

9018

3926.90

Rate

12%

18%

Text

Instruments and Appliances used in Medical, Surgical, Dental or Veterinary Sciences, Including Scientigraphic Apparatus, Other Electromedical Apparatus and Sight -Testing Instruments

Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]

Our View:

Face Shields as have been described above, are being majorly used for ‘medical’ purposes and the same shall qualify as an ‘instrument and appliance’ classifiable under Heading 9018, sub-heading ‘Other’ with HSN 9018 99 with applicable rate of 12%.

The possible contrary view has emerged based on the two rulings rendered by the United States CROSS Rulings7 where under both the rulings, it has been held that such face shields brought into U.S. shall have a classification under Heading 3926.90 attracting a rate of 18% holding that they “would be considered articles of plastic, and as they are not more specifically provided for elsewhere.” The said view makes the impugned product susceptible to challenge and leviable to a higher rate.

The latter entry is however expansive and according to the general rules of interpretation, a specific entry over a general entry shall prevail. The entry for classification of a specially designed item based on its specific use is a better categorization being a nearer entry.

  1. Mechanical Sprayer including battery/ power operated used in fumigation

A battery/power operated mechanical sprayer usually works when user slides the locking button to the unlocked position, which enables the trigger button. When the user presses the trigger button, the motor is activated, which bring the water, water-based sanitizers or disinfectants up the suction hose via the pump to the spray chamber.

 

I

II

III

HSN

8424

8424.89

84131910

Rate

12%

18%

5%

Text

Sprinklers; drip irrigation system including laterals; mechanical sprayers

Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines

[other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]

Pumps for Liquids, whether or not fitted with a measuring device, Liquid Elevators

— Other

— Hand Pumps

Our View:

The article ‘battery/power operated mechanical sprayer’ clearly falls within the Heading of ‘Mechanical Sprayers’ under 8424 subjecting the same to a rate of 12%. A specific entry reading ‘mechanical sprayers’ has been listed thereunder.

However, a contrary view might be taken claiming a classification under the heading 8424.89 attracting a higher rate of 18% under the heading ‘Mechanical Appliances’. A careful consideration of the physical characteristics of the impugned product is required as to whether the product shall constitute a ‘sprayer’ or ‘gun’ or ‘appliance’.

A pump or a liquid elevator on the other hand shall be classifiable under Heading 8413.19.10 attracting a rate of 5%. Similarly, gun sprayer has been specifically stated under Heading 8424.89.

  1. Hand Sanitizers

Most controversial item concerning the classification issue is ‘sanitizer’. The specification as per WHO note on Handrub Formulations mentions the ingredients: Ethanol, Isopropyl Alcohol, Hydrogen Peroxide and Glycerol. The majority of the formulation contains either Ethanol or Isopropyl Alcohol.8

The Director General of Goods and Services Tax vide its (internal) communication dated June 16, 2020 relating to evasion of GST in respect to Alcohol based – Hand Sanitizers (as used in ‘WCO Classification’) has stated that some manufacturers of the product are classifying product under wrong tariff heading 3004 attracting a rate of 12% while the product shall attract a rate of 18% under Heading 3808.

The most competitive entries under which a sanitizers or disinfectants could fall are as follows:

 

I

II

III

IV

V

HSN

3004

3401

3402

3808

3824

Rate

12%

18%

28%

18%

18%

Text

Medicaments for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale, including Ayurvedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail sale

Soap, Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap

Organic surface- active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401

Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant-growth regulators, disinfectants and similar product

Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included

Notes to HSN Code Chapter 34

Note 2 of Chapter Note while defining ‘soap’ for 3401 states that Products containing abrasive powders remain classified in heading 3401 only if in the form of bars, cakes or moulded pieces or shapes. In other forms they are to be classified in heading 3405 as “scouring powders and similar preparations”.

Note 3 defining ‘organic surface-active agents” are products which when mixed with water at a concentration of 0.5% at 20oC and left to stand for one hour at the same temperature: give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; and reduce the surface tension of water 4.5 X 10-2 N/m (45 dyne/Cm) or less.

Our View:

  1. Heading 3004

    The Heading 3004 primarily deals with ‘Medicaments’ and states its properties thereafter. The present commodity does not largely fulfill the basic criteria as has been set by the heading 3004, probably the classification adopted by some of the manufacturers needs serious reconsideration.

    The HSN classification 3004 could only be attracted for sanitizer because of its characteristic being “prophylactic” which means measures designed to prevent the occurrence of an adverse event, a disease or its dissemination. For the purpose of the correct classification of the product, many other accepted principles of classification needs to be examined in depth.

  2. Heading 3824

    The classification HSN 3824 is a general category for chemical products which do not fall in any other classification.

    A view has been taken by the US CROSS Rulings in NY N3110379 where it has been held that the sanitizer made of Alcohol from Rum Distillated 70 % v/v, to be used in antimicrobial applications such as hand sanitizing and also containing distilled water, hydrogen peroxide, glycerin and isopropyl myristate shall be classified under Heading 3824 i.e. “Prepared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Other: Other: Other: Other.”

    A similar view has been taken by NY N30436510

    wherein the product constituted of a liquid

    sanitizer comprising of the active ingredient, ethyl alcohol (62% of the total product), the remainder of the hand sanitizer comprising of water, isopropyl alcohol, glycerin, fragrance, propylene glycol, and aloe barbadensis leaf juice.

    If we go by the view as supported by US CROSS Rulings NY N311037 and NY N304365 wherein a similar issue relating to classification of hand sanitizer was raised before the authority then unfortunately the appropriate Heading for classification of hand Sanitizers is 3824 attracting a rate of 18%.

    However, the analysis of the same is to be made taking into consideration the chemical constitution, intended use and by applying other relevant tests for determination of appropriate classification of the product. The products falling under same family is an important consideration for attracting the particular classification, by this criteria the questioned product must fall in 3808 covering “Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant- growth regulators, disinfectants and similar product”.

  3. Heading 3402

    Heading 3402 concerns “Organic surface- active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401.”

    If the product sanitizer could be characterized as per its contents as an organic substance then such sanitizer may fall in 3402, but in accordance to the principle of use of the product, the nearest entry is 3808 which could appropriately be used for deciding the applicable rate of tax under GST being a consumption based tax collection system.

    The appropriate Heading for classification of hand Sanitizers is 3808 attracting GST rate of 18%. Hand sanitizers fall under the category: ‘Insecticides, rodenticides, fungicides, herbicides, antisprouting products and plant-growth regulators, disinfectants’ and shall qualify as ‘similar product’ as per the same family of consumable products as well as for the reason that they possess similar properties to the genus of products covered in the category.

  4. Disinfectant

Disinfectants with constitutions of alcohol, benzalkonium chloride solution or peroxyacids, or other disinfectants are common in use in present times.

Our View:

‘Disinfectant’ is specifically mentioned under Chapter Heading 3808 attracting a rate of 18%, so there is not much to debate on its classification for the present purposes.

The classification of the good is dependent upon the chemical properties of the product. The rules of classification have relied on chemical composition and reactions and hence, a reference to chemical composition is also a prerequisite to the classification of the product.

  1. Protective Garments generally known as the Personal Protective Equipment (PPE) WCO Classification provides for the following Headings which may be perused for classification of the said product:

    1. 3926.20: Protective unisex garments made of plastic sheeting, textile reinforced plastics or textile backed plastics

    2. 4015.90: Protective unisex garments made of rubber sheeting…

    3. 4818.50: Paper or cellulose garments

    4. Other Sub headings of Chapter 62, which can be discussed as follows:

 

I

II

III

HSN C

6210.10

6210.50

6210.50

Rate

5% or 12%

5% or 12%

5% or 12%

Text

Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02 or 56.03).This includes spun- bonded garments.

Other protective garments of textiles and rubberised textile fabrics or woven fabrics that are impregnated, coated, covered or laminated (fabrics of headings 59.03, 59.06 or

59.07).

Unisex protective garments made of rubberized textile fabrics

Our View:

While a distinction on the basis of the broad heads may be done depending on the properties of the protective garment, the most closely related heading under Chapter 62 is the Heading 6210.10 i.e. Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02 or 56.03).This includes spun- bonded garments.

As per Wikipedia, Felt has been defined as “Felt is a non-woven textile. It is made by compressing and matting fibres together until they connect to form a sturdy fabric. Felt has a long history and is the oldest form of cloth known. Felt has been used in many cultures as a material for clothing, footwear, rugs and even tents.”

The reason for the above conclusion is that in major cases, the use of the commodity is ‘surgical’ or ‘medical’ and that the material used for making the protective garment is made of ‘felt or nonwovens whether or not impregnated, coated, covered or laminated’.

PPE made from plastic sheeting other than felts impregnated, coated, covered or laminated with plastics or embedded in plastics will be classifiable under the Heading 3926.20 with an applicable rate of 18%.

  1. Gloves including surgical rubber gloves and others

Gloves, full fingered are being commonly used for prevention from the spread of the disease. They are made by using varied materials ranging from plastic, rubber, textile, etc. A differentiation on the basis of material used to manufacture the product and the purpose of manufacturing them has been made.

The following are the competing Headings for undertaking the process of classification of the product:

 

I

II

III

IV

V

HSN

3926.20

4015.11

4015.19

6116.10

6216

Rate

18%

12%

18%

5% or 12%

5% or 12%

Text

Other articles of plastics and articles of other materials of headings 3901

to 3914 [other than bangles of plastic, plastic beads and feeding bottles]

Surgical rubber gloves or medical examination rubber gloves

Articles of apparel and clothing accessories (including gloves, mittens and mitts), for all purposes, of vulcanised rubber other than hard rubber [other than Surgical gloves]

Knitted or crocheted gloves which have been impregnated or covered with plastics or rubber

Textile Gloves that are not knitted or crocheted

Our View:

An intricate analysis of the properties of the material used to manufacture the product and those specified in the description of the product is required to ascertain the correct classification of the product. The intended use of the product in light of the destination based tax collection system read with the principles used in the classification process are needed to be relied upon.

The most commonly used type: Rubber gloves shall be classifiable as ‘Surgical rubber gloves’ attracting a lower rate of 12% or shall constitute an ‘article of apparel and clothing accessories’ attracting a rate of 18% shall depends upon the very facts of each case.

  1. UV Disinfectant Boxes

UV Disinfectant boxes and similar appliances usually contain a component emitting ultraviolet (UV) rays/light to disinfect documents, medical instruments, articles, etc. and are in common use in work places and hospitals to sanitize the inputs.

Our View:

The most closely related Heading to the impugned product is Heading 8543.70.99 i.e. “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this Chapter.” The present Entry is of a residuary and general nature attracting a rate of 18% under the rate notification.

It is hence iterated herein that UV disinfectant process is also commonly used in medical establishments for disinfecting of medical instruments, etc. but UV Disinfectant boxes does not find any specific mention in Chapter 90 which contains Medical or Surgical Instruments and Apparatus.

  1. AVAILABILITY OF INPUT TAX CREDIT

    1. Handwash, sanitizer, masks etc. provided to the employees by the employer

In the series of inadvertent event of spreading of corona virus turning into pandemic, the Prime Minister under Sections 6 and 10 of the Disaster Management Act, 2005 declared the pandemic as a ‘national disaster’, followed by the national lockdown as per Order dated 24.03.2020 under the Act. The Ministry of Home Affairs thereafter issued guidelines11 which have been updated from time to time to prescribe National Directives for COVID-19 Management. These include special directions for Work Places, which are as follows:

  1. Provision for thermal scanning, handwash, sanitizer will be made available at all entry and exit points and common areas

  2. Frequent sanitisation of entire office, common facilities and all points which come into human contact.

  3. Wearing of face cover is compulsory in all work places and adequate provision of the same should be made

  4. Employees showing any symptoms of COVID 19 should be immediately sent for checkup in nearby medical hospitals/ clinics.

  5. Arrangement for transport facilities to be ensured with social distancing wherever public/private transport is not feasible

  6. Intensive communication and training on good hygiene practices shall be taken up

Standard Operating Procedures12 for offices, factories, workplaces and establishments has been prescribed to be as follows:

  1. All workplaces to have adequate measures for temperature screening and provide sanitizers at convenient places

  2. All organisations to sanitise their workplaces between shifts.

  3. All areas in the premises to be disinfected

  4. For workers coming- from outside, special transportation facility to be arranged without any dependency on public transport

  5. Medical insurance for workers to be made mandatory

Hence, in light of the above laws, the ‘work places’ are required to fulfill the above mentioned conditions. A failure to comply with any of the above shall on the other hand attract penal measures as imposed by State laws. Hence, a compliance of the above provisions is necessary for carrying on the business i.e. such activities by virtue of the above laws is in course or furtherance of business. Moreover, to instil confidence in the employee’s to work together at workplace all these products are necessary otherwise the work cannot be possible adhering the social distancing norm to fight COVID-19.

Section 16 of the Central Goods and Services Tax Act, 2017, prescribes the eligibility for taking credit. Section 17(5) however specifies a list of supplies in respect of which such credit shall not be available. The list blocks credit in respect of the following:

  1. Under clause (b), Food and beverages

  2. Under clause (b), life insurance and health insurance.

  3. Under clause (h), goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

In addition to the above, the following cases shall also be referred in order to determine the correct position in relation to the availability of credit on the supplies on which such credit on input has been blocked.

  • In Re: Caltech Polymers Pvt. Ltd. 2018 (10) TMI 1313 –AAR Kerala

The present application was filed with the issue of whether the food expenses for canteen services recovered from the employee without any profit margin would be liable to GST. The Appellate Authority held that the activity would constitute a ‘supply’ and would
constitute a taxable service. It was observed before the Advance Ruling
Authority that there is an involvement of ‘consideration’ as has been defined under Section 2(31) of the CGST Act, 2017 and that such provision of food shall fall within the meaning of ‘business’ as has been defined under Section 2(17)(b) of the CGST Act, 2017.

  • CCE v. Brakes India Ltd. 2018 (11) TMI 1748

The issue before the Madras High Court was whether an activity carries out in compliance of statutory requirement under a particular Act alone would make the said activity/ service as input service under Rule 2(l) of the CENVAT Credit Rules, 2004 especially when such service/activity has no nexus in or integral connection to the manufacture of final product. It was held that when the employer spends money to maintain factory premises in an eco-friendly manner based upon the directives issued by the Statutory Authorities, the tax paid on such services would form part of the costs of the final product, that the same would fall within the ambit of ‘input services’ and that the assessee is entitled to claim the benefit.

  • CCE v. Stanzen Toyotetsu India (P.) Ltd. 2011 (4) TMI 201

It was held that credit on Outdoor catering services, transportation charges, rent-a- cab scheme and Group Health Insurance shall be available. It was held that it is clear from the definition any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products constitutes input service. If the credit is availed by the manufacturer, then the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business – merely because these services are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and the assessee is not entitled to the benefit of CENVAT credit.

Our View:

Considering the unique and challenging circumstances to protect human beings from the virus by introduction of the new law to fight the COVID pandemic, the business are entitled to undertake certain compulsory activities which were not prevalent before the COVID scenario. The circumstances however have found a mention in the previous excise regime wherein the credit was available in cases an activity which was compulsory to be undertaken by a law. The same has been asserted by the Appellate Authority for Advance Rulings under the New GST regime as well. So, the direct expenses for such fight to protect the business interests including all stakeholders are legitimate expenses in furtherance of business and thus the ITC would be eligible on all such inward supplies, as mandated by the law.

  1. CSR Expenditure

    • The Mumbai Bench of CESTAT in the case of Essel Propack v. Commissioner [2018-TIOL-3257-CESTAT-Mumbai] held that Corporate Social Responsibility (hereinafter referred to as CSR) is not in the nature of charity and is directly connected with the principal manufacturing activity of the company which is largely dependent on smooth supply of raw materials. The Bench held that contribution towards Social Responsibility is a mandatory requirement for public sector undertakings and has also been made obligatory for the private sector. CENVAT credit was allowed to the appellant for the reason that the production and sustainability of the company would be at stake if such activity is not treated as ‘business’ activity.

    • The Kerala Authority for Advance Rulings in an application filed by Polycab Wires Pvt. Ltd. 2019-VIL-100- AAR, the applicant had distributed electrical goods to people affected by the flood in Kerala in discharge of the applicant’s CSR obligations. It was hence adjudicated that the goods were distributed on free basis without collecting any money. Such distribution shall amount to ‘disposal by way of gift’ and no ITC shall be available as per Section 17(5)(h).

In a similar context to that of the mandatory CSR activities by law, while the erstwhile regime provides for credit, the AAR denies the same by invoking the specific provision of Section 17(5) concerning blocked credit.

The tussle on whether an obligation imposed by introduction of a law to the effect amounts to a supply in the course or furtherance of business is yet to reach the Courts. It points at the blatant denial of the right available to the taxpayer to avail ITC.

3. CONCLUDING REMARKS

The present circumstances of pandemic are once a lifetime challenge, so the situation needs to be tackled with exceptional thinking and innovative actions. The issues of classification or categorization of products and services needs to be re-invented considering the distinctive facts and circumstances. The GST law needs to be uniquely interpreted considering the crucial need to protect the human race both from the ill-effects of deteriorating health and economy.

CLASSIFICATION OF GOODS & SERVICES USED MAJORLY IN COVID ERA

Compiled & Presented by Mukul Gupta – Senior Partner & Counsel, Prateek Gupta – Partner & Counsel and Akshi Narula – Associate Lawyer At Sharnam Legal

S.

No.

NOTIFICATION NUMBER

HSN/ SAC NO.

Entry

DESCRIPTION OF GOODS/ SERVICES

RATE OF TAX

GST Schedule- Rate

1

PERSONAL PROTECTIVE EQUIPMENT (PPE) KIT

Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02-felt, whether or not impregnated, coated, covered or laminated as well as 56.03-non-wovens, whether or not impregnated, coated, covered or laminated). This includes spun-bonded garments. As per Wikipedia, Felt has been defined “Felt is a non woven textile. It is made by compressing and matting fibres together until they connect to form a sturdy fabric. Felt has a long history and is the oldest form of cloth known. Felt has been used in many cultures as a material for clothing, footwear, rugs and even tents.”

1.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

 

6210.10

223

Articles of apparel and clothing accessories, not knitted or crocheted, of sale value not exceeding Rs. 1000 per piece

5%

Schedule I – 2.5%

1.2

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

170

Articles of apparel and clothing accessories, not knitted or crocheted, of sale value exceeding ₹ 1000 per piece

12%

Schedule II – 6%

2

OTHER PROTECTIVE GARMENTS OF TEXTILES AND RUBBERISED TEXTILE FABRICS OR WOVEN FABRICS THAT ARE IMPREGNATED, COATED, COVERED OR LAMINATED (FABRICS OF HEADINGS 59.03, 59.06 or 59.07).

Example: a unisex full body woven suit impregnated with plastics would be classified under 6210.50 – Other

women’s or girls’ garments”

2.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017 dated 28th June, 2017

 

6210.20

6210.30

6210.40

6210.50

223

Articles of apparel and clothing accessories, not knitted or crocheted, of sale value not exceeding Rs. 1000 per piece

5%

Schedule I – 2.5%

2.2

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

170

Articles of apparel and clothing accessories, not knitted or crocheted, of sale value exceeding Rs. 1000 per piece

12%

Schedule II – 6%

3

PROTECTIVE GARMENTS MADE FROM PLASTIC SHEETING OTHER THAN FELTS IMPREGNATED, COATED, COVERED OR LAMINATED WITH PLASTICS OR EMBEDDED IN PLASTICS

3.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3926.20

111

Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]

18%

Schedule III – 9%

4

N95 MASKS:

Available in variety of categories/models with or without detachable filters or mechanical parts as per the

requirement of the situation under which the mask should be scientifically used.

4.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

9018.00

218

Instruments And Appliances Used In Medical, Surgical, Dental Or Veterinary Sciences , Including Scientigraphic Apparatus, Other Electromedical Apparatus And Sight -Testing Instruments

12%

Schedule II – 6%

4.2

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

9020.00

220

Other Breathing Appliances And Gas Masks , Excluding Protective Masks Having Neither Mechanical Parts Nor Replaceable Filters

12%

Schedule II – 6%

5

TEXTILE MASKS INCLUDING DESIGNER MASKS :

Textile face masks,without a replaceable filter or mechanical parts, including surgical masks and disposable face-masks made of non-woven textiles.

5.1

Notification No.1/2017- Central Tax (Rate) Substituted vide

Notification No. 14/2019-Central Tax (Rate) dated 30-09-2019 w.e.f. 01-

10-2019

 

6307.90

224

Other made up textile articles, sets, of sale value not exceeding Rs. 1000 per piece

5%

Schedule I – 2.5%

5.2

Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 41/2017 dated 14-11-2017, w.e.f. 15-

11-2017

171

Other made up textile articles, sets of sale value exceeding Rs. 1000 per piece [ other than Worn clothing and other worn articles; rags]

12%

Schedule II – 6%

6

CELLULOSE/PAPER MASKS

6.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

4818.50

153

Toilet paper and similar paper, cellulose wadding or webs of cellulose fibres, of a kind used for household or sanitary purposes, in rolls of a width not exceeding 36 cm, or cut to size or shape; handkerchiefs, cleansing tissues, towels, table cloths, serviettes, napkins for babies, tampons, bed sheets and similar household, sanitary or hospital articles, articles of apparel and clothing accessories, or paper pulp, paper, cellulose wadding or webs of cellulose fibres

18%

Schedule III – 9%

7

PLASTIC FACE SHIELD (covering more than the eye area)

7.1

Notification No.1/2017- Central Tax (Rate) vide Notification No. 41/2017 dated 14-11-2017, w.e.f. 15- 11-2017 Rate of tax reduced from 28% to 18%

3926.20

111

Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]

18%

Schedule III – 9%

8

PROTECTIVE SPECTACLES

8.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

9004.90

178

Spectacles, corrective [other than goggles for correcting vision]

12%

Schedule II – 6%

9

MEDICAL VENTILATORS (artificial respiration apparatus)

Provides mechanical ventilation by moving breathable air into and out of the lungs.

9.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

9019.20

219

Mechano-therapy appliances; massage apparatus; psychological aptitude-testing apparatus; ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus

12%

Schedule II – 6%

10

SOAP, PAPER SOAP

10.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3401.00

61

Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; organic surface active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap; paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent

18%

Schedule III – 9%

11

HAND SANITIZER

11.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3808.00

87

Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]

18%

Schedule III – 9%

12

TRIGGER SPRAYER used for Fumigation/sterlisation of the surface and area.

12.1

Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 06/2018 dated 25.01.2018

8424.89

325

Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]

18%

Schedule III – 9%

13

PUMP DISPENSER used for Fumigation/sterlisation of the surface and area.

13.1

Notification No.1/2017- Central Tax (Rate) Substituted vide Notification No. 06/2018 dated 25.01.2018

8424.89

325

Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]

18%

Schedule III – 9%

14

MECHANICAL SPRAYER

including battery/power operated and those used in fumigation/sterlisation of the surface and area.

14.1

Inserted vide Notification No. 6/2018 Dated 25-01- 2018

8424.00

195B

Mechanical Sprayer

12%

Schedule II – 6%

15

STEAM SANITIZER: Medical, surgical or laboratory sterlizers, function by steam or boiling water

15.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017 substituted vide Notification No. 41/2017 Dated 14-11-2017

8419.20

320

Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters,non-electric other than Solar water heater and system

18%

Schedule III – 9%

16

OTHER DISINFECTANT PREPARATIONS

put up in forms or packings for retail sale such as rubs and wipes impregnated with alcohol or other disinfectants

16.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3808.94

87

Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]

18%

Schedule III – 9%

17

HYDROGEN PEROXIDE in bulk, Bulk H202 whether or not with solidified with urea

17.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

2847.00

58

Medicinal grade hydrogen peroxide

12%

Schedule II – 6%

18

HYDROGEN PEROXIDE presented as a medicament H2O2 put up for internal or external use as a medicine, including as an antiseptic for the skin. Only covered here if in measured doses or in forms or packings for retail sale (including directly to hospitals) for such use

18.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3004.90

63

Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail saleadministration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail sale

12%

Schedule II – 6%

19

HYDROGEN PEROXIDE put up in disinfectant preparations for cleaning surfaces H2o2 put up as cleaning solutions for surfaces or apparatus.

19.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3808.94

87

Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]

18%

Schedule III – 9%

20

OTHER CHEMICAL DISINFECTANTS put up in forms of packings for retail sale as disinfectants or as disinfectant preparations, containing alcohol, benzalkonium chloride solution or peroxyacids, or other disinfectants

20.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3808.94

87

Insecticides, rodenticides, fungicides, herbicides, anti- sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II]

18%

Schedule III – 9%

21

PLASTIC GLOVES

21.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3926.20

111

Other articles of plastics and articles of other materials of headings 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles]

18%

Schedule III – 9%

22

SURGICAL RUBBER GLOVES

22.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

4015.11

85

Surgical rubber gloves or medical examination rubber gloves

12%

Schedule II – 6%

23

OTHER THAN SURGICAL RUBBER GLOVES

23.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

4015.19

85

Articles of apparel and clothing accessories (including gloves, mittens and mitts), for all purposes, of vulcanised rubber other than hard rubber [other than Surgical gloves]

18%

Schedule III – 9%

24

KNITTED OR CROCHETED GLOVES WHICH HAVE BEEN IMPREGNATED OR COVERED WITH PLASTICS OR RUBBER

24.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

6116.10

222

Article of apparel and clothing accessories or cap/topi, knitted or crocheted, of sale value not exceeding Rs 1000 per piece

5%

Schedule I – 2.5%

24.2

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

6116.10

169

Articles of apparel and clothing accessories, knitted or crocheted, of sale value exceeding Rs. 1000 per piece

12%

Schedule II – 6%

25

TEXTILE GLOVES THAT ARE NOT KNITTED OR CROCHETED

25.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

6216.00

222

Article of apparel and clothing accessories or cap/topi, knitted or crocheted, of sale value not exceeding Rs 1000 per piece

5%

Schedule I – 2.5%

25.2

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

6216.00

169

Articles of apparel and clothing accessories, knitted or crocheted, of sale value exceeding Rs. 1000 per piece

12%

Schedule II – 6%

26

DISPOSABLE HEAD NET

26.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

6505.00

171B

Other headgear, knitted or crocheted, or made up from lace, felt or other textile fabric, in the piece (but not in strips), whether or not lined or trimmed; hair-nets of any material, whether or not lined or trimmed

18%

Schedule III – 9%

27

SHOE COVERS

27.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

6307.90

224

Other made up textile articles, sets, of sale value not exceeding Rs. 1000 per piece

5%

Schedule I – 2.5%

27.2

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

 

171

Other made up textile articles, sets of sale value exceeding Rs. 1000 per piece [ other than Worn clothing and other worn articles; rags]

12%

Schedule II – 6%

28

UV DISINFECTANT BOXES

28.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

8543.70.

99

394

Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this Chapter

18%

Schedule III – 9%

 

Comment: UV disinfectant process is also used in medical establishments for disinfecting of medical instruments, etc. but UV Disinfectant boxes does not find any specific mention in Chapter 90 which contains medical or surgical instruments and apparatus.

29

TEST KITS/Instruments and Apparatus used in Diagnostic Test – Diagnostic reagents based on polymerase chain reaction (PCR) nucleic acid test.

29.1

Notification No.1/2017- Central Tax (Rate) dated 28th June, 2017

3822.00

80

All diagnostic kits and reagents

12%

Schedule II – 6%

30

SWAB & VIRAL TRANSPORT MEDIUM SET

30.1

Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017

3006.10

65

Pharmaceutical goods specified in Note 4 to this Chapter [i.e. Sterile surgical catgut, similar sterile suture materials (including sterile absorbable surgical or dental yarns) and sterile tissue adhesives for surgical wound closure; sterile laminaria and sterile laminaria tents; sterile absorbable surgical or dental haemostatics; sterile surgical or denatal adhesion barriers, whether or not absorbable; Waste pharmaceuticals] [other than contraceptives]

12%

Schedule II – 6%

31

FUMIGATION SERVICES

31.1

Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017

9983.00

21

(ii) Other professional, technical and business services other than (i) and (ia) above and serial number 38 below.

18%

Schedule III – 9%

Comment: The physical/chemical features, use of the product/service i.e. the actual facts and circumstances of the case shall be the ultimate determinants of the correct classification of the product. The appropriate classification of a product/service might differ from the list provided.

 

  1. http://dgft.gov.in/sites/default/files/TradeNotice17_0.pdf
  2. https://cbic.gov.in/resources//htdocs-cbec/customs/cs-act/notifications/notfns-2020/cs-tarr2020/cs20-2020.pdf.
  3. https://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-circulars/cs-circulars-2020/Circular-No-18-2020.pdf
  4. https://apps.who.int/iris/bitstream/handle/10665/251426/9789241549721-eng.pdf?sequence=1&ua=1
  5. https://www.who.int/docs/default-source/searo/bangladesh/2019-ncov/home-made-maskiv.pdf?sfvrsn=a5f05f58_8
  6. https://www.mohfw.gov.in/pdf/GuidelinesonrationaluseofPersonalProtectiveEquipment.pdf
  7. Number N311621 concerning classification of face shields imported from the United Kingdom dated May 13, 2020 and Number G89437 concerning classification of face shields imported from South Korea dated April 11, 2001.
  8. https://www.who.int/publications/i/item/guide-to-local-production-who-recommended-handrub-formulations
  9. Concerning the tariff classification of Hand Sanitizer from Netherlands dated April 7, 2020.
  10. Concerning the tariff classification of Hand Sanitizer from China dated May 21, 2019.
  11. https://www.mha.gov.in/sites/default/files/MHAOrderextension_1752020_0.pdf; https://mha.gov.in/sites/ default/files/MHA%20Order%20Dt.%201.5.2020%20to%20extend%20Lockdown%20period%20for%202%20weeks%20 w.e.f.%204.5.2020%20with%20new%20guidelines.pdf
  12. https://www.mha.gov.in/sites/default/files/MHA%20order%20dt%2015.04.2020%2C%20with%20Revised%20Consolidated%20Guidelines_compressed%20%283%29.pdf

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