Bulk Drugs / APIs Eligible for 5% IGST Under Sl. No. 226 of Notification No. 9/2025-Integrated Tax (Rate) — CAAR Mumbai Advance Ruling
Case Overview
Case Name: In re Zydus Healthcare Limited (CAAR Mumbai)
Ruling Number: CAAR/MUM/ARC/76,77/2026-27
Date of Order: 24/08/2026
Forum: Customs Authority for Advance Rulings, Mumbai
The Customs Authority for Advance Rulings (CAAR), Mumbai delivered a significant ruling in favour of M/s Zydus Healthcare Limited (IEC No. 0389057274) on the question of the applicable IGST rate on imported bulk drugs or Active Pharmaceutical Ingredients (APIs). The applications, received on 28.04.2026, were filed under Section 28H(1) of the Customs Act, 1962 and sought clarity on whether imported bulk drugs would attract IGST at 5% under Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025.
Background and Business Context
Zydus Healthcare Limited, incorporated on 02.08.1989, is a pharmaceutical company engaged in manufacturing and supply of pharmaceutical products. As part of its operations, the company imports a variety of bulk drugs — which constitute Active Pharmaceutical Ingredients — after obtaining the requisite statutory licences. These APIs are primarily deployed in the manufacture of pharmaceutical formulations (dosage forms) and, in certain instances, for testing, clinical research, and bioequivalence studies.
From the standpoint of customs tariff classification, such bulk drugs typically fall under Chapter 28 (inorganic chemicals) or Chapter 29 (organic chemicals) of the Customs Tariff Act, 1975, not under Chapter 30 which ordinarily covers pharmaceutical products in finished form.
The assessee had been discharging IGST at 18% on such imports. However, it took the position that only 5% IGST was correctly leviable and filed the present advance ruling application to obtain a binding determination.
Questions Posed for Advance Ruling
Two questions were placed before the CAAR Mumbai:
Question 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?
Question 2: If the answer to Question 1 is in the negative, what is the correct rate of IGST applicable to bulk drugs falling under Chapter 28 or Chapter 29 of the Customs Tariff Act, 1975?
Statutory Framework
IGST on Imports
The charge of IGST on imported goods flows from Section 3(7) of the Customs Tariff Act, 1975, which provides:
"Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8) or sub-section (8A), as the case may be."
Relevant IGST Rate Entries
Sl. No. 226 of Schedule I to Notification No. 9/2025-Integrated Tax (Rate) dated 17.09.2025 reads as follows:
| Sl. No. | Chapter/Heading/Sub-heading/Tariff item | Description of goods |
|---|---|---|
| 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] |
Sl. No. 113 of Notification No. 10/2025-Integrated Tax (Rate) dated 17.09.2025 (NIL rate entry) reads:
| Sl. No. | Chapter/Heading/Sub-heading/Tariff item | Description of goods |
|---|---|---|
| 113 | 30 or any Chapter | Drugs or medicines listed in Annexure I |
The assessee confirmed that the bulk drugs proposed to be imported were not covered under Annexure I to Notification No. 10/2025-Integrated Tax (Rate), and therefore the NIL rate exclusion was not applicable to them.
General Entries for Chapters 28 and 29
By contrast, Sl. Nos. 35 and 36 of Schedule II to the IGST Rate Notification prescribe 18% IGST as follows:
| Sl. No. | Chapter | Description |
|---|---|---|
| 35 | 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] |
| 36 | 29 | All organic chemicals other than gibberellic acid |
The central dispute was therefore whether bulk drugs, which may be classified under Chapters 28 or 29 for tariff purposes, would attract the specific 5% entry at Sl. No. 226 or the general 18% entries at Sl. Nos. 35/36.
Licensing Framework Under Drug Laws
The assessee placed before the Authority the licences obtained for import of bulk drugs under the Drugs and Cosmetics Act, 1940 and rules framed thereunder, demonstrating that bulk drugs are regulated as drugs for licensing purposes:
| Form | Governing Provision | Nature of Licence |
|---|---|---|
| Form 10 | Rule 23 of the Drugs and Cosmetics Rules, 1945 | Licence to import drugs (excluding Schedule X substances) |
| Form 11 | Rule 33 of the Drugs and Cosmetics Rules, 1945 | Licence to import drugs for examination, test or analysis |
| Form CT-17 | Rules 68–72 of the New Drugs and Clinical Trials Rules, 2019 | Licence to import new drug or investigational new drug for clinical trials, bioavailability or bioequivalence studies, or examination, test and analysis |
The assessee noted that the CBIC itself has consistently directed that, in the context of import of drugs and medicines, the regulatory framework under Drugs and Cosmetics law and licences/registrations issued by CDSCO must inform the interpretation of tax provisions — evidenced through multiple circulars and instructions, including Circular No. 10/2016-Cus. dated 15-3-2016 and CBI&C Circular No. 44/2018-Cus. dated 13-11-2018.
Submissions of the Assessee
On the Definition of 'Drug' Under Applicable Laws
The assessee drew the Authority's attention to the definition of "active pharmaceutical ingredients or bulk drug" under the Drugs (Prices Control) Order, 2013:
"(b) 'active pharmaceutical ingredients or bulk drug' means any pharmaceutical, chemical, biological or plant product including its salts, esters, isomers, analogues and derivatives, conforming to standards specified in the Drugs and Cosmetics Act, 1940 (23 of 1940) and which is used as such or as an ingredient in any formulation;"
The assessee also relied upon Section 3(b) of the Drugs and Cosmetics Act, 1940, which defines "drug" to include: