CAAR Mumbai Ruling: Applicability of 5% IGST on Imported Bulk Drugs and APIs by Pharmaceutical Companies
The Customs Authority for Advance Rulings (CAAR) in Mumbai recently delivered a comprehensive order regarding the appropriate Integrated Goods and Services Tax (IGST) rate applicable to imported Active Pharmaceutical Ingredients (APIs) and bulk drugs. The core issue deliberated was whether these imported raw materials and testing substances qualify for a concessional tax rate under specific exemption notifications. The advance ruling was sought by Sun Pharma Laboratories Limited, a prominent pharmaceutical entity, to clarify the tax treatment of its imported inventory used for manufacturing, clinical research, and testing.
This detailed analysis breaks down the factual background, the statutory framework, the arguments presented by the assessee, and the final determination by the CAAR.
Background and Factual Matrix
Sun Pharma Laboratories Limited (the assessee) is engaged in the business of manufacturing and supplying pharmaceutical products. To facilitate its manufacturing processes and research and development activities, the assessee regularly imports a wide variety of Active Pharmaceutical Ingredients (APIs), commonly referred to as bulk drugs. These imported substances are primarily utilized in formulating final dosage medicines. Additionally, a portion of these imports is dedicated to clinical research, examination, testing, and bioequivalence or bioavailability studies.
Historically, these bulk drugs have been classified under Chapter 28 (inorganic chemicals) or Chapter 29 (organic chemicals) of the Customs Tariff. The assessee had been discharging IGST at the rate of 18% upon the importation of these APIs. However, the assessee contended that the correct applicable IGST rate should be 5%, relying on specific entries in the prevailing tax rate notifications.
To achieve certainty on this tax position, the assessee filed an application before the CAAR, Mumbai, under Section 28H of the Customs Act 1962. The assessee held a valid Importer-Exporter Code (IEC), fulfilling the eligibility criteria of an "applicant" as defined under Section 28E(c) of the Customs Act 1962.
The Questions Raised for Advance Ruling
The assessee presented the following questions before the Authority:
- Whether Integrated Goods and Services Tax is leviable at 5% for the import of bulk drugs in terms of Sl. No. 226 of Schedule I of Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025?
- If the answer to the first question is negative, what would be the correct rate of IGST leviable on the import of bulk drugs falling under Chapter 28 or 29 of the Schedule to the
Customs Tariff Act 1975?
Statutory Framework and Relevant Notifications
The levy of IGST on imported goods is governed by Section 3(7) of the Customs Tariff Act 1975, which stipulates that imported articles are liable to an integrated tax equivalent to the rate leviable under the Integrated Goods and Services Tax Act 2017 on a like article supplied within India.
The dispute centered around two specific notifications:
- Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025: Sl. No. 226 of Schedule I of this notification prescribes a 5% IGST rate for goods described as "All drugs and medicines including their salts and esters and diagnostic test kits; formulations manufactured from bulk drugs", falling under Chapter 30 or any other Chapter. This entry specifically excludes goods that are subject to a nil rate under a separate notification.
- Notification No. 10/2025-Integrated Tax (Rate) dated 17.09.2025: Sl. No. 113 of this notification grants a full exemption (nil rate) to specific drugs or medicines explicitly listed in Annexure I, falling under Chapter 30 or any other Chapter.