GST - Twin test method - Preparations ‘Rupam' and 'Pailab'are offered for treatment or prevention of specific skin disorders and are, therefore, classifiable as Medicament, HSN 3004: AAR
By TIOL News Service
KOLKATA, APRIL 16, 2018: THE Applicant manufactures skin care preparations and wants an Advance Ruling on the Classification of thirty-three of its products.
They argue that its skin care preparations are Ayurvedic Medicaments; are meant for therapeutic or prophylactic uses, put up in packaging for retail sale and entirely correspond to the description of goods under HSN 3004 [serial no. 63 of Notification No. 1/2017-CT (Rate) dated 28/06/2017], and, therefore, taxable under Schedule II.
After going through the conclusions reached in Puma Ayurvedic Herbal Pvt Ltd - 2006-TIOL-18-SC-CX and followed by the AAR in M/s Guthy Renker Marketing Pvt Ltd - 2009-TIOL-04-ARA-CUS, the Authority observed that the same were based on earlier constructions of Notes 2 and 5 to Chapter 33 in the Excise Tariff Act, 1985 are, therefore, need to be revisited in the context of the GST Act.
Going further, the Authority noted -
+ Medicaments are not defined under the GST Act or in the First Schedule of the Customs Tariff Act, 1975 (hereinafter the Tariff Act), with which the GST Act has been aligned for the purpose of classification. The methods settled by the apex court for determining whether a product is to be classified as medicaments for fixing the tariff should be followed as the only lawful course. The Apex Court has settled for a twin test method. It means how the product is understood in common parlance and whether the product has been manufactured using ingredients and formula provided in the authoritative textbooks of Ayurveda are the two parameters for such classification.
+ In the absence of the restrictive phrases attributed to Notes 2 and 5 to Chapter 33, heading 3304 should now include all preparations for the care of skin, whether cosmetics or not or having therapeutic or prophylactic properties of whatever degree, excluding the ones that are medicaments covered by Chapter 30.
+ A preparation for care of skin, unless already specified under heading 3304, should, therefore, first be examined concerning its suitability for inclusion as a medicament in heading 3004 by applying the twin tests set out in Puma Ayurvedic Herbal Pvt Ltd (supra) and Baidynath Ayurved Bhawan Ltd (CA No. 4048 of 2001).
+ If it fails the test, it should be classified under heading 3304. On the other hand, if the skin care preparation is specifically included under heading 3304 (for example sunscreen or suntan preparations, talcum powder, face powder, moisturizing lotion etc.), it is not to be classified as a medicament under heading 3004 in terms of Note 1(e) to Chapter 30, even if it has therapeutic or prophylactic properties of whatever degree.
+ If the user consumes the product primarily for cure from or treatment or mitigation of or for prevention of a specific skin disease or disorder, it should be treated as a medicament classifiable under heading 3004 (unless, of course, it has been specifically included under heading 3304). The effect of enhancing appearance of the skin or beauty is not what the product is offered for or used by the consumer.
+ In the context of the present application, there is no dispute that the products are manufactured under valid drug license and following the formula prescribed in the authoritative textbooks of Ayurveda.
+ Finally, the Applicant has submitted the labels containing a description and use of the products and physical samples.The label contains indication and method of use for each of the products.
+ We are not to involve ourselves in examining efficacy of the Applicant's products. Our focus will be to ascertain from available materials what the Applicant is offering and consumer is using. A more objective way to examine it is to analyse the information contained in the labels attached to the product when offered in retail set up. The information provided on the labels may be considered as written communication from the manufacturer to the consumer as to what is being offered. If a customer purchases the product it may be presumed that he or she accepts the offer and believes in the information contained in the label.
RULING:
++ Preparations for the care of the skin namely, Rupam (Pimple Pack) and Pailab (Anti-Crack Cream), in the list submitted by the Applicant of the Application are are offered for treatment or prevention of specific skin disorders and are, therefore, classifiable as Medicament under heading 3004 of the Customs Tariff Act, 1975.
++ Preparations listed as Swarnajyoti, Sunayana and Tarumitra-60 have not yet come into existence, and, therefore, no rulings are pronounced on their classification.
++ The remaining products mentioned in the list submitted by them are not offered primarily as medicaments and, therefore, not to be included under heading 3004.
(See 2018-TIOL-04-AAR-GST)
