Pharmaceuticals and medical devices: the concession and its boundaries
Life saving drugs, formulations, devices, nutraceuticals and cosmetics all live within a few tariff headings. The rate turns on which one.
Medicaments and specified life saving drugs attract concessional rates, with certain drugs exempt, while medical devices, diagnostics and consumables sit in different headings with their own rates. The rationalisation effective from 22 September 2025 changed several entries in this sector and the position for each product must be verified against the notification in force. The disputes concentrate on the boundary between a medicament and a food supplement or cosmetic, on device classification, and on free samples and expiry returns.
Classification boundaries
Medicament or food supplement. A product with therapeutic or prophylactic use, sold under a drug licence with a stated dosage and indication, is a medicament. A nutritional product sold as a supplement is not, even where it contains the same ingredients. The drug licence, the label, the dosage and the marketing material are the evidence.
Medicament or cosmetic. The Supreme Court's line of authority on medicated products turns on whether the product is used for the treatment of an ailment or for care and appearance, and on how the trade understands it.
Device or consumable. Diagnostic kits, reagents, implants, disposables and instruments sit in different headings, and the same procedure can involve items at three rates.
Where a product is genuinely borderline and the volumes are material, an advance ruling before launch is cheaper than a demand three years later.
The transaction level disputes
Physician samples and free supplies, where credit is blocked by Section 17(5)(h) and the output treatment must be documented.
Expiry returns and destruction, where credit reversal, the credit note mechanism and the evidence of destruction all interact. The destruction certificate and the regulatory record are the file.
Trade schemes, bonus quantities and secondary discounts, which raise the valuation and credit note questions dealt with in Circular 92/11/2019-GST.
Contract manufacturing, where the job work versus supply characterisation determines the rate and the credit position for both parties.
Clinical trial services and regulatory support to overseas principals, where the export of services and intermediary questions arise.
The controls
A product master mapping each stock keeping unit to its heading, licence category, rate and effective date.
A sample and free supply register reconciled to a credit reversal every month.
An expiry and destruction file with the regulatory certificate, the credit note and the reversal working.
For exports to related parties, a valuation file under Rule 28 with the credit eligibility position recorded.
Authorities relied on
The functional utility and predominant therapeutic use of a product, and its understanding in trade, determine whether it is a medicament.
A product with therapeutic properties, understood and used for the treatment of ailments, is a medicament notwithstanding that it also has cosmetic effect.
What to do on Monday
Map every stock keeping unit to its heading, licence category and rate, with effective dates.
Reconcile samples and free supplies to a credit reversal monthly.
Keep the destruction certificate and the credit note together for every expiry batch.
Obtain an advance ruling before launching a product at a genuinely uncertain boundary.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Are all life saving drugs exempt?
Specified drugs are exempt or concessionally rated by entry. Verify the entry for the product and the period; a general characterisation as life saving is not the test.
Is credit available on physician samples?
No. Section 17(5)(h) blocks credit on goods disposed of by way of free sample, and the reversal must be tracked monthly.
How are expiry returns treated?
Through the credit note mechanism with the recipient's reversal linkage, and with a reversal on destruction supported by the regulatory record.
Is a nutraceutical a medicament?
Usually not, unless it is licensed, labelled and sold as a drug with dosage and indications. The licence and the label decide most of these cases.
Does contract manufacturing attract the job work rate?
Where the arrangement is genuine job work on goods belonging to the principal, yes. Where the manufacturer buys the inputs and sells the output, it is a supply of goods.
In this cluster
- GST 2.0: two slabs did not end classification litigation, they moved the battle line
- Rate change transition: time of supply, credit notes and stock in hand
- Classification disputes under GST: the principles the courts apply
- Westinghouse Saxby: the sole or principal use test and the end of easy classification
- HSN, common parlance and the General Rules of Interpretation
- Composite supply versus mixed supply: the test, and the tax
- Principal supply in bundled contracts: getting the rate right
- Food, beverages and the restaurant service rate maze
- Textiles and apparel: the rate structure and the disputes it produces
- Automobiles and auto components: the rate bands and the component question
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.