In what is hurting the manufacturers of hand sanitizers, paints, and some life-saving drugs, the industry has sought clarity from the Central Board of Indirect Taxes and Customs (CBIC) on the applicable import duty for imports of “denatured ethyl alcohol".

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On industry demand, CBIC is currently relooking at the applicable duty on denatured ethyl alcohol, sources told CNBC-TV18. Denatured ethyl alcohol is a major raw material used in the manufacturing of hand sanitizers, paints, life-saving drugs such as Remdesivir.

In July 2017, CBIC notification said denatured ethyl alcohol to be imported at 2.5 percent, if imports were being used for manufacturing excisable products. However, the input is not used in any excisable product. Again in 2021, CBIC issued a fresh notification and removed the special categorisation, increasing the tax rate on all imports of denatured ethyl alcohol to 5 percent.

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With new notification, the indirect tax division started doing scrutiny of old and new payments, where it observed that there was an alleged duty evasion by the industry.

Challenging the duty evasion notices sent by revenue enforcement agencies, the industry approached Gujarat High Court in March 2021 and Bombay High Court in January 2022 challenging the alleged duty evasion for the period from July 2017 till January 2021. The industry also asked the courts to direct CBIC to come up with clarity on rate applicability.

The industry in its plea in the courts also said rates should be revised back to 2.5 percent in the public interest and to direct the revenue department agencies not to take any coercive action. The industry has also demanded to form a high-level committee to revise the rates.

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Highlighting the public interest, the industry said manufacturers and customers pay GST on finished products thus leading to an increase in overall costs. Meanwhile, the industry has delayed imports of denatured ethyl alcohol leading to a raw material shortage for the manufacturing of hand sanitizers, paints, and drugs in the country.

The Bombay HC has already asked the tax department not to take any coercive action and disposed a writ petition on January 17, 2022, which challenged the restrictive interpretation adopted by tax authorities vis-à-vis concessional rate of customs duties extended to the import of denatured ethyl alcohol under the notification issued on June 30, 2017.

"The dispute arises due to the usage of the words 'excisable products' mentioned in the tariff entry which is an unintended inclusion borrowed from the earlier regime. This will be tested in writ courts before the matter attains finality," said Abhishek A Rastogi, partner at Khaitan & Co.

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"Any coercive action which impacts the imports of any essential raw material without following the due process of law must be tested in writ courts. Similarly, any summons which are issued without jurisdiction must also be tested before the writ court to endure the fair process of adjudication against the taxpayers," Rastogi added.

(Edited by : Jomy Jos Pullokaran)