The Finance Ministry has reversed a proposed customs duty increase on imported laboratory chemicals after the protests of the scientists.
Laboratory Chemicals
- About: The Customs Department defines laboratory chemicals as “all chemicals, organic or inorganic, whether or not chemically defined, imported in packings not exceeding 500 gms or 500 millilitres and which can be identified with reference to the purity, makings or other features to show them to be meant for use solely as laboratory chemicals.”
- Types and Uses: Laboratory chemicals include imported chemicals, reagents, and enzymes essential for experimental research in various scientific fields.
- These chemicals consist of oxidizers, corrosive acids, and compressed gases used in experiments and product development.
- They are also critical in the medical diagnostics industry.
- Laboratory chemicals are used with instruments like funnels, beakers, test tubes, and burners.
- Regulation and Cost: Due to their potentially hazardous nature and specialised use, these chemicals are regulated and their imports are scrutinised.
- Most are niche and can be quite expensive.
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Recent Issue
- Duty Increase: The Budget 2024-25 had increased the Basic Customs Duty (BCD) of chemicals under HS Code 9802 from 10% to 150%.
- Scientists discovered that this hike significantly raised the cost of chemicals, with prices jumping from ₹1,00,000 to ₹2,50,000 for certain products.
- Additional Hike: There was also a 25% increase in the duty on plastic components used in laboratories.
- Jurisdiction: Customs duty issues fall under the jurisdiction of the Ministry of Finance and the Commerce Ministry.
Reason for Duty Hike
- The customs department increased the duty to address the misuse of the ‘laboratory chemicals’ classification for importing ethanol, which was being used to avoid the 150% customs duty.
- Ethanol is available in two forms: ethanol for alcohol production and ‘denatured’ ethanol, which is mixed with additives and used in laboratories and commercial applications.
- Denatured ethanol is typically produced locally and does not usually need to be imported.
Importance of Imported Chemicals
- Local Demand and Investment: Despite India’s strong pharmaceutical and chemical manufacturing sectors, there is insufficient local demand for niche chemicals to justify the substantial capital investments needed for their production.
- Replication of Research: A key feature of experimental research is trying to replicate results of experiments conducted abroad and this often requires the exact materials used.
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Revised Notification
The Finance Ministry reverted to the original duty rate but introduced a requirement for a declaration that imported laboratory chemicals are for research use only and not for further commercial trade. This may still cause some delays in procurement.
Harmonized System (HS), HS Code 9802 and World Customs Organisation (WCO)
- Harmonized System (HS):
- The Harmonized System (HS), developed by the World Customs Organization (WCO), is an international product nomenclature designed for classifying goods.
- It includes over 5,000 commodity groups, each identified by a six-digit code, arranged in a structured manner with defined rules for uniform classification.
- Used by more than 200 countries and economies, the HS forms the basis for Customs tariffs and international trade statistics, covering over 98% of global merchandise.
- HS Code 9802:
- HS Code 9802 is used for laboratory chemicals.
- It is a part of the Harmonized System Code, which is used for tax purposes and is determined by subject (4 HS digits), sub-title (6 HS digits) and tax items (8 digits).
- Subject (4 HS Digits): The first four digits represent the general category or class of goods. This level provides a broad classification of the product.
- Sub-Title (6 HS Digits): The next two digits refine the classification, offering more detail about the product within the broader category. This level provides a more specific description.
- Tax Items (8 Digits): The final two digits further specify the product, detailing the exact item for taxation and customs purposes. This level is used to determine precise tax rates and duties.
- The HS code is used for both import and export purposes.
- World Customs Organisation (WCO):
- The World Customs Organization (WCO), established in 1952 as the Customs Co-operation Council (CCC) is an independent intergovernmental body whose mission is to enhance the effectiveness and efficiency of Customs administrations.
- It is the only international organisation with competence in Customs matters and can rightly call itself the voice of the international Customs community.
- The WCO has divided its Membership into six Regions.
- Each of the six Regions is represented by a regionally elected Vice-Chairperson to the WCO Council.
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August 6, 2024
