5% IGST on Imported Bulk Drugs and APIs: Key Takeaways from In re Sun Pharmaceutical Industries Limited (CAAR Mumbai)

1. Overview of the Ruling

The Customs Authority for Advance Rulings, Mumbai, in In re Sun Pharmaceutical Industries Limited (CAAR Mumbai), examined whether IGST at 5% is applicable on the import of bulk drugs/Active Pharmaceutical Ingredients (APIs) under Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025.

The Authority concluded that:

  • Bulk drugs/APIs proposed to be imported by Sun Pharmaceutical Industries Limited qualify as “All drugs and medicines” covered by Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate);
  • The concessional 5% IGST rate applies so long as the specific bulk drug/API is not included in the exclusion specified at Sl. No. 113 of Notification No. 10/2025-Integrated Tax (Rate) dated 17.09.2025 (which provides a NIL rate for certain listed drugs/medicines in Annexure 1);
  • Since Question 1 was answered affirmatively, the Authority held that Question 2, concerning the alternative applicable IGST rate, did not survive for consideration.

This ruling is particularly important for pharmaceutical assessees importing APIs and bulk drugs under Chapters 28 and 29 of the Customs Tariff and using them both for manufacture of formulations and for testing, clinical trials, bioavailability and bioequivalence studies.

2. Facts and Questions Before CAAR

2.1 Applicant and Nature of Imports

  • The applicant, M/s Sun Pharmaceutical Industries Limited (IEC No. 0392072823), is engaged in manufacture and supply of pharmaceutical products.
  • The assessee imports a variety of bulk drugs/APIs, generally classifiable under Chapter 28 or Chapter 29 of the Customs Tariff, which are:
    • Used as Active Pharmaceutical Ingredients in the manufacture of pharmaceutical formulations (dosage forms); and
    • In certain cases, imported for testing, clinical research, clinical trials, bioavailability and bioequivalence studies.

For these imports, the assessee has been discharging IGST at 18% but claimed that the correct rate should be 5% under the relevant IGST rate notification.

2.2 Questions on Which Advance Ruling Was Sought

  1. Whether IGST is leviable at 5% on the import of bulk drugs in terms of Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025?
  2. If the above is answered in the negative, what is the correct IGST rate on such bulk drugs falling under Chapter 28 or Chapter 29 of the Customs Tariff Act, 1975?

2.3 Eligibility and Admissibility

  • The applicant holds a valid IEC and therefore qualifies as an “applicant” under Section 28E(c) of the Customs Act, 1962.
  • The query relates to the applicability of a rate notification for IGST on imports, which is covered under Section 28H(2)(d) of the Customs Act, 1962.
  • The applicant also declared that no proceedings on the same issue were pending before any customs authority, appellate authority or court.
  • CAAR, Mumbai, therefore treated the applications as admissible under Section 28-I(2) of the Customs Act, 1962.

3.1 Levy of IGST on Imports

  • Under Section 3(7) of the Customs Tariff Act, 1975, any imported article is subject to IGST at the rate as is leviable under Section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article when supplied in India.

3.2 IGST Rate Notifications Examined

3.2.1 Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025

Sl. No. 226 of Schedule I (5%) reads:

226. 30 or any Chapter – All drugs and medicines including their salts and esters and diagnostic test kits; formulations manufactured from bulk drugs (other than those specified at nil at S. No. 113 of notification No. 10/2025-Integrated Tax (Rate) dated 17th September 2025)

The wording “30 or any Chapter” makes it description-based, not restricted to Chapter 30 alone.

3.2.2 Notification No. 10/2025-Integrated Tax (Rate) dated 17.09.2025

Sl. No. 113 provides:

113. 30 or any Chapter – Drugs or medicines listed in Annexure 1

  • This is a NIL rate entry applicable only to drugs/medicines specified in Annexure 1.
  • The products for which ruling was sought are admittedly not included in Annexure 1, and therefore this NIL rate does not apply.
  • However, Sl. No. 113 still operates as an exclusion from the 5% rate in Sl. No. 226 – if any bulk drug/API were to fall under Annexure 1, it would go to NIL, not 5%.

3.3 Competing Entries for Chapters 28 and 29

The Department’s standard rate grid for chemicals is contained in Schedule II of Notification No. 9/2025-Integrated Tax (Rate):

  • Sl. No. 35 – Chapter 28: “All inorganic chemicals [other than those specified in notification No. 10/2025-Central Tax (Rate) dated 17th September 2025 or other Schedules of this notification]”
  • Sl. No. 36 – Chapter 29: “All organic chemicals other than gibberellic acid”

The central question was whether APIs/bulk drugs falling under Chapter 28 or 29 should be taxed under these general chemical entries (higher rate) or under the more specific drugs and medicines entry at Sl. No. 226 (5%).

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