GST on Herbal Smoke Sticks: Why Certification Matters
The Gujarat Appellate Authority for Advance Ruling (AAAR) has reaffirmed that herbal smoke sticks, if not certified by the Ministry of AYUSH, do not qualify for a lower GST rate. This ruling highlights the importance of regulatory compliance for businesses dealing in herbal and Ayurvedic products.
The Case of Aorom Herbotech
Aorom Herbotech, a manufacturer of Aorom Herbal Smoke, sought to classify its product under a lower GST bracket, arguing that it was based on Ayurveda. The firm claimed that its nicotine-free smoke sticks were made from natural ingredients such as tendu leaves, nutmeg, fennel powder, and menthol, and had therapeutic benefits similar to Dhummapana, a traditional Ayurvedic practice.
However, both the Gujarat Authority for Advance Ruling (GAAR) and the AAAR rejected the firm’s appeal on the following grounds:
- The product does not fall under the category of medicinal cigarettes.
- The company failed to provide references from authoritative Ayurvedic texts proving its medicinal benefits.
- It lacked an Ayurveda manufacturing license from a recognized regulatory body.
- The Ministry of AYUSH had already refused to categorize it as an Ayurvedic medicine.
Since the firm could not substantiate its claims with proper regulatory backing, the 28% GST slab remained applicable.
Understanding GST on Herbal and Ayurvedic Products
GST rates on herbal and Ayurvedic products vary based on their classification:
| Product Type | Applicable GST Rate |
|---|---|
| Ayurvedic medicines (traditional) | 5% |
| Proprietary Ayurvedic medicines | 12% |
| Medicinal cigarettes (licensed) | 18% |
| Tobacco products | 28% + Compensation Cess |
| Non-medicinal herbal smoke sticks | 28% |
To qualify for the lower GST rate applicable to Ayurvedic products, a company must:
- Obtain AYUSH certification confirming its medicinal nature.
- Be licensed to manufacture Ayurvedic medicines under relevant regulatory guidelines.
- Ensure its product is listed in authoritative Ayurvedic texts recognized by regulators.
Without these approvals, businesses risk higher tax burdens and compliance challenges.
Key Takeaways for Businesses
- Regulatory Compliance is Key
- To enjoy tax benefits, herbal products must meet AYUSH certification standards.
- Proper Classification Avoids Tax Disputes
- Misclassification can lead to higher GST rates and legal complications.
- Licensing Affects GST Rates
- Ayurvedic certification and licensing determine whether a product qualifies for 5% or 28% GST.
- Medicinal Claims Must Have Backing
- If a product is marketed as medicinal, it must have scientific and regulatory validation.
- GST Authorities are Strict on Interpretation
- Businesses should not assume their products qualify for lower tax slabs without clear regulatory approvals.
Final Thoughts
The Aorom Herbotech case serves as a crucial lesson for businesses in the herbal product sector. Without the right certifications, licenses, and regulatory approvals, companies may face higher GST rates and legal setbacks.