Dabur’s Hajmola faces GST heat over candy vs. ayurvedic tag

Hajmola, a popular product of Dabur known for its digestive properties, is back in the news as the Directorate General of GST Intelligence (DGGI) has issued a show-cause notice regarding the issue of classification. The issue is whether this should be treated as a normal candy or an Ayurvedic preparation.

Officials confirmed to businessline that show cause notice has been issued post completion of investigation. Earlier, a summon was issued to the company. They made certain submissions before the investigation. The issue is whether this is a normal candy or an Ayurvedic preparation. For normal candy, the GST rate is 18 per cent, while for Ayurvedic preparations, it is 12 per cent.

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

In another ruling by Allahabad High Court in 2016, when Uttar Pradesh’s Commercial Tax Department appealed against a ruling by a tribunal which held that ‘Chyawanpras,’; ‘Hajmola’ and ‘Hajmola Candy’ are medicines for the proposes of tax. The Department challenged the ruling by questioning: “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 took note of the tribunal’s observation, which stated 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 held that for any product manufactured under a license for a drug, the nature of the product would be that of a medicine.

The court also highlighted 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 said while dismissing the appeal by the tax department.

Hajmola candy is the latest case of misclassification after donut. Mumbai-based MOD received a ₹ 100 crore tax notice from the DGGI for allegedly misclassifying its donut. The chain is charged with paying a 5 per cent GST rate on donuts, claiming they qualify as restaurant services, instead of the 18 per cent tax applicable to bakery items. The matter is pending in Bombay High Court, though the notice has been stayed.