GST Rate on Ayurvedic Products: Medicines or Cosmetics?
West Bengal AAR ruled that herbal skin products are taxed as cosmetics under HSN 3304 unless primarily sold to treat specific skin diseases.
- Ruling
- 02/WBAAR/2018-19 dated 09/04/2018
- Dated
- 09 Apr 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Company asked if 33 Ayurvedic skin products fall under medicine or cosmetic GST codes.
- Authority ruled only 2 products treating specific skin disorders qualify as medicines under HSN 3004.
- 28 general skin care items were classified as cosmetics under HSN 3304.
- No ruling was given on 3 products that were not yet being manufactured.
- Having an Ayurvedic drug license does not automatically make products GST-exempt medicines.
In short
The company manufactured 33 herbal skin care items using Ayurvedic formulas under a valid drug license under the Drugs and Cosmetics Act, 1940. They argued that because these items cure skin issues, they should be classified as Ayurvedic medicaments under Harmonized System of Nomenclature (HSN) code 3004, which attracts lower Goods and Services Tax (GST). Tax officers needed to decide whether these items are medicines or cosmetic skin care products under HSN code 3304.
What has changed
How it worked before
Many herbal product manufacturers assumed that holding a valid Ayurvedic drug license and using traditional formulas was enough to classify their goods as medicines under GST.
What has changed
The Authority for Advance Ruling (AAR) decided that holding a drug license or using herbal ingredients does not automatically make a product a medicine under GST. To qualify under HSN 3004, a product's main intended purpose—as stated on labels and understood by buyers—must be to cure or prevent a specific disease. General items like face washes or sun creams remain cosmetics under HSN 3304 even if they offer secondary health benefits or contain Ayurvedic ingredients.
Who this affects
Manufacturers, distributors, and retailers of herbal, Ayurvedic, or therapeutic creams, skin care products, and cosmetics.
An example
A company manufactures a herbal neem face wash under a valid Ayurvedic drug license. The product label advertises daily skin care and beautification, but mentions that it helps reduce pimples as a minor benefit. Under this ruling, tax authorities would treat the face wash as a cosmetic product under HSN 3304 rather than an Ayurvedic medicine under HSN 3004 because its primary purpose is skin care. The manufacturer would need to charge the cosmetic GST rate.
What you should do
Review your product labels and promotional materials to see whether items are marketed primarily as medical treatments or as cosmetic care. Note that order 02/WBAAR/2018-19 binds only the company that asked and its specific tax officer. If you want legal certainty for your own herbal product range, you must apply for a separate advance ruling.
If you do nothing
If you pay the lower tax rate for medicines on products that are actually cosmetics, tax officers can demand the unpaid tax difference during an audit. You may also face mandatory interest payments and penalties for misclassifying goods under GST tariff headings.
The terms explained
- HSN Code
- A standardized numerical code used under GST to classify goods and decide their applicable tax rate.
- Ayurvedic Medicament
- A therapeutic product made using recognised Ayurvedic formulas that is primarily intended to cure or prevent a specific medical condition.
- Advance Ruling
- An official written decision given by tax authorities to a business about how GST rules apply to their specific products or operations.
The ruling in detail
Authority for Advance Ruling
Akansha Hair & Skin Care Herbal Unit Pvt Ltd
02/WBAAR/2018-19 dated 09/04/2018 · West Bengal
Questions before the authority
- What is the correct commodity classification under the GST Tariff for 33 skin care products manufactured by the applicant, specifically whether they qualify as Ayurvedic Medicaments under HSN 3004 or skin care/cosmetic preparations under HSN 3304?
Facts
The applicant manufactures 33 skin care and toilet preparations following Ayurvedic formulas under a valid drug license issued under the Drugs and Cosmetics Act, 1940. The applicant contended that the products have therapeutic/prophylactic properties, are put up in retail packing, and should be classified as Ayurvedic Medicaments under HSN 3004. During proceedings, the applicant acknowledged that three products (Swarnajyoti, Sunayana, and Tarumitra-60) were not yet manufactured or in existence.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of Rupam (Pimple Pack) and Pailab (Anti-Crack Cream) | Classifiable under heading 3004 as Medicament Offered primarily for treatment or prevention of specific skin disorders |
| Classification of Swarnajyoti, Sunayana and Tarumitra-60 | No ruling pronounced Products have not yet come into existence |
| Classification of remaining 28 skin care products | Classifiable under heading 3304 Not offered primarily as medicaments; functions are cosmetic or general skin care |
The Authority held that only **Rupam (Pimple Pack)** and **Pailab (Anti-Crack Cream)** qualify as medicaments under **heading 3004** as they are offered primarily for treatment or prevention of specific skin disorders. No ruling was pronounced on Swarnajyoti, Sunayana, and Tarumitra-60 as they were not in existence. The remaining 28 products are not offered primarily as medicaments and are classifiable under **heading 3304** as skin care or cosmetic preparations.
Reasoning
The Authority evaluated the **twin test** laid down by the Supreme Court in Puma Ayurvedic Herbal and Baidyanath Ayurved Bhawan, which considers common parlance/user perception alongside formulation from authoritative Ayurvedic texts. Under GST Chapter Notes, products specifically covered by heading 3304 (such as sunscreen, talcum powder, or face wash) or used primarily for care/beautification of skin remain under 3304 even if they have subsidiary therapeutic value or contain Ayurvedic ingredients. By analyzing product labels as written representations to retail consumers, the Authority found that only two products were represented and consumed primarily for curing specific skin disorders, placing them under **heading 3004**.
Provisions relied on
- Section 97(2)(a) of WBGST / CGST Act, 2017
- Section 103(2) of WBGST / CGST Act, 2017
- Section 104(1) of WBGST / CGST Act, 2017
- Heading 3004 of the Customs Tariff Act, 1975
- Heading 3304 of the Customs Tariff Act, 1975
- Note 1(e) to Chapter 30 of the Customs Tariff Act, 1975
- Note 3 to Chapter 33 of the Customs Tariff Act, 1975
- Notification No. 1/2017-CT(Rate) dated 28/06/2017
For the practitioner
Manufacturing under an Ayurvedic drug license using traditional ingredients is insufficient to claim classification as a medicament under **heading 3004**. The primary intended purpose as communicated via product labels and understood in common parlance must be the treatment/cure of a specific ailment rather than general skin care or cosmetic enhancement. Additionally, advance rulings will not be given for hypothetical or non-existent products.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/02-wbaar-18-19_west_bengal.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
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