Comprehensive Analysis: CAAR Delhi Affirms 5% IGST on Imported Active Pharmaceutical Ingredients (APIs) and Bulk Drugs

The classification of pharmaceutical ingredients and the determination of the applicable Integrated Goods and Services Tax (IGST) rate on their importation has been a subject of protracted litigation and interpretational disputes. The core of the controversy usually revolves around whether raw materials, specifically Active Pharmaceutical Ingredients (APIs) or bulk drugs, can be legally equated with finished "drugs and medicines" for the purpose of concessional tax rates.

In a highly anticipated legal development, the Customs Authority for Advance Rulings (CAAR), Delhi, delivered a pivotal order in Advance Rulings No.CAAR/Del/Mankind/44/2026 dated 19/08/2026 (referenced in certain administrative records as In re Volvo Auto India Private Limited). The authority was approached by Mankind Pharma Limited, a major player in the pharmaceutical industry, to resolve the ambiguity surrounding the IGST rate applicable to imported bulk drugs. The ruling decisively concluded that such imports attract a 5% IGST rate, providing immense relief to the pharmaceutical sector.

Factual Matrix of the Dispute

The assessee, Mankind Pharma Limited, is engaged in the extensive manufacturing and supply of pharmaceutical formulations. To sustain its manufacturing operations, the assessee routinely imports a wide array of bulk drugs, universally known as APIs. These imported chemical substances serve as the primary active ingredients in the manufacturing of finished medicinal dosages. Beyond commercial manufacturing, the assessee also imports these APIs for critical research and development activities, including testing, clinical research, clinical trials, bioavailability studies, and bioequivalence studies.

These bulk drugs are typically classified under Chapter 28 (inorganic chemicals) or Chapter 29 (organic chemicals) of the Customs Tariff. To facilitate these imports, the assessee meticulously procures statutory licenses mandated under the drug control framework of India. Specifically, the goods are imported under Form 10, Form 11, and Form CT-17.

Historically, out of abundant caution, the assessee had been discharging IGST at a higher rate of 18% during the customs clearance of these APIs. However, upon re-evaluating the statutory tax entries, the assessee formed a considered view that the legally applicable rate should be 5%. To attain legal certainty prior to future importations, the assessee filed an application before the CAAR under the provisions of the Customs Act, 1962.

Statutory Framework and Admissibility

Before diving into the merits of the classification, the CAAR first examined the jurisdictional validity of the application.

Admissibility Under the Customs Act, 1962

The provisions governing advance rulings are encapsulated within Chapter VB of the Customs Act, 1962. The authority noted that the assessee held a valid Importer-Exporter Code (IEC) granted under Section 7 of the Foreign Trade (Development and Regulation) Act, 1992, thereby satisfying the definition of an applicant under Section 28E. Furthermore, the questions raised pertained to the applicability of notifications issued in respect of duties, squarely falling within the ambit of Section 28H(2)(a).

Crucially, the CAAR verified that the application was not barred by Section 28I of the Customs Act, 1962. The specific question regarding the IGST rate on these bulk drugs was neither pending before any customs officer, Appellate Tribunal, or Court in the assessee's own case, nor had it been previously decided in a manner that would preclude the current application.