GST Dispute Hits Dabur’s Hajmola: Ayurvedic Medicine or Candy?

 

The Directorate General of GST Intelligence (DGGI) has issued a show-cause notice on Hajmola, a popular product of Dabur known for its digestive properties, for the issue of classification. The problem is whether the same must be deemed as a normal candy or an Ayurvedic preparation.

After the investigation, the Show Cause Notices (SCN) have been issued. The company had received a summons earlier. Before the investigation, they made specific submissions. The problem is that if this is a normal candy or an Ayurvedic preparation.

There is an 18% GST for normal candy and a 12% on Ayurvedic preparations. The company does not respond to new developments till the time of proceeding to the press.

An identical issue was introduced in the pre-GST regime when the Supreme Court in 2002 had dismissed an appeal of the Commissioner of Central Excise, Chandigarh, against a ruling by the erstwhile CEGAT (Central Customs, Excise & Gold Appellate Tribunal, now known as the Customs Excise and Service Tax Appellate Tribunal or CESTAT), which CEGAT repeated that Hajmola Tablets are Ayurvedic medicines.

In another ruling by the Allahabad High Court in 2016, when Uttar Pradesh’s Commercial Tax Department appealed against a ruling via a tribunal which ruled that ‘Chyawanpras,’ ‘Hajmola’ and ‘Hajmola Candy’ are medicines for tax.

The Department contested the ruling by asking: “Whether, on the facts and circumstances of the case, the tribunal was legally justified in holding ‘Chyawanprash,’, ‘Hajmola’ and ‘Hajmola Candy’ to be medicines even though they are not sold in the medical shops but rather in general stores?”

The court observed the tribunal’s statement, which expressed that Dabur India has manufactured all three products for many years under a license granted to it by the licensing officer of Ayurvedic and Unani Services under the Drug and Cosmetics Act, 1940.

The tribunal ruled that for any product manufactured under a license for a drug, the nature of the product would be that of a medicine.

The court, the matter of Lal Dant Manjan, which is manufactured based on a license issued under the Drugs and Cosmetics Act and would be treated as a medicine or drug.

“The place of sale of any product is not a relevant criteriona for determining its nature as to whether it is a drug/medicine or an item of general use;, rather, the relevant criteriona is the license under which such a product is being manufactured, and if the license is for the purposes of manufacturing a drug or medicine under the relevant statute, the product would essentially be a drug/medicine,” it expressed while dismissing the appeal by the tax department.

After doughnuts, Hajmola candy is the latest case of misclassification. DGGI imposes Rs 100 crore tax notice on Mumbai-based MOD for allegedly misclassifying its doughnut.

A 5% GST rate on doughnuts, the chain has been charged, asserting they are entitled to restaurant services rather than the 18% tax applicable on bakery items. The notice has been stayed, but the case is pending in the Bombay HC.