Himalaya searches highlight issue of classifying products under GST regime

Initial apprehensions over the classification of items in the GST regime are coming true, at least in some cases. The recent action against Himalaya Drug Company, whose offices were searched by tax authorities, emanates from this very problem. 

Bengaluru-based Himalaya was allegedly paying 12 per cent GST on wet baby wipes by claiming the item is non-cosmetic. On the other hand, the Centre demanded a rate of 18 per cent. The rate on wet baby pipes was earlier 28 per cent.

When contacted, the company said in a statement, “This product, Baby Wipes, has been in the market since 2007. The company confirms that the product is rightly classified as per the applicable law, and taxes are paid as per GST regulations. We shall continue to extend our cooperation to the officials concerned in case of any clarification sought.”

The company said it takes appropriate advice from tax experts to ensure compliance. 

“Since our inception in 1930, we have had a wide range of products. The company has no intention to misclassify or evade tax for even a single product,” it said. 
 

The company sells products ranging from fast moving consumer goods to pharmaceuticals. 

Abhishek Rastogi, partner at Khaitan & Co, said proceedings against Himalaya are a result of a classification issue. “This is not a new dispute in the tax framework. Even under the pre-GST regime, there were classification disputes on whether an ayurvedic product qualifies as a medicament or a cosmetic product. We have seen similar charges against companies such as Vicco Labs and Baidyanath,” he said.  According to him, disputes arise due to a difference in rates. 

Currently, the companies file self-assessed sale returns and summary input-output returns. Rastogi said every company, under a self-assessment framework, is free to decide the classification of products and pay applicable tax based on such classification. 

Experts said in many such cases, allegations have been found to be frivolous by higher courts and it will be unfair to treat them as incidents of tax evasion. In the past, these kinds of disputes have even gone up to the Supreme Court, they said, adding that this case will also pan out into a long-drawn litigation. 

In the initial debates over GST, these kinds of fears were raised. For instance, some of them were whether Vicks tablets should be treated as medicament or confectionery, or, whether Kitkat is a chocolate or biscuit.