The Government vide the Union Budget 2025-26 has introduced major amendments to Customs Tariff & Customs Law in an effort to fuel the growth engines of the country by simplifying the law and rationalising the tariffs in an attempt to boosting domestic manufacturing.
This present article focuses on one such change made in the Budget: regarding laboratory chemicals. Laboratory Chemicals is covered under Heading 9802 of the Customs Tariff in India, a part of Chapter 98 which is unique to India. Article available here provides a broad overview of classification of laboratory chemicals under the Customs Tariff.
To understand the significance of amendment made to laboratory chemicals in Budget 2025-26, it is essential to revisit the amendments made to the Heading 9802 in 2024, all of which were significant. In a gist, the amendments made to laboratory chemicals, in the Customs Tariff, in 2024 were as follows:
1. The Government, in the Union Budget 2024-25, had increased the Tariff Rate of Basic Customs Duty (‘BCD’) on the laboratory chemicals from 10% to 150% w.e.f 24 July 2024.
2. This steep hike resulted in major backlash from the laboratories and research.[1] As a result of the feedback received, in July 2024 itself, Notification 50/2017-Cus. was amended, new entry was inserted i.e., Sr No. 606A capping the BCD @ 10% for all laboratory chemicals except for ‘Undenatured ethyl alcohol of any alcoholic strength’.
3. However, for availing benefit of the lower duty, the importer had to give an undertaking to the Deputy/Assistant Commissioner of Customs that the goods imported will be for his own use in the laboratory or for research & development purposes and will not be further sold or traded post import and in case of violation of the condition he would be liable to pay duty on such goods not used for specified purposes.
4. Thereafter, in September 2024 Chapter Note 3 to Chapter 98 was amended by the Government in September 2024 restricting the applicability to Heading 9802 (laboratory chemicals) to laboratory chemicals for own use only and not for further trading, sale/distribution, etc[2]. The amended Note 3 to Chapter 98 is captured below:
“For the purpose of Heading 9802, ‘laboratory chemicals’ means all chemicals, organic or inorganic, whether or not chemically defined, imported and intended only for own use (i.e. other than purposes like trading, further sale etc.) in packings not exceeding 500 gms or 500 millilitres and which can be identified with reference to the purity, markings or other features to show them to be meant for use solely as laboratory chemicals
Thus, by virtue of aforementioned amendment in Chapter Note 3 to Chapter 98 laboratory chemicals imported for trading, sale, etc will be classified in their respective Chapters 28/29/38, while laboratory chemicals imported for actual use will be classified under Heading 9802.
Amendment in the Budget 2025-26:
The Government, vide the Union Budget 2025-26, has now reduced the Customs Duty on laboratory chemicals. The tariff rate of BCD has been reduced from 150% to 70%, and Agriculture Infrastructure Development Cess (‘AIDC’) has been imposed @ 70%. As AIDC too is levied on value, the effective reduction on duty is only from 150% to 140%.
However, the TRU Circular notes the laboratory chemicals imported for specified end use will continue to attract BCD @ 10% under Sr. No. 606A of the Notification. The same is evident from the following extracts of the Budget documents:
1. TRU Circular: “Chapter 98: The tariff rate is being reduced from 150 % to 70% on Laboratory Chemicals…. There is no change in the existing rate of 10% BCD + 10% SWS on Lab Chemicals imported on actual user condition”
2. Notification No. 06/2025-Cus: Imposes AIDC on Laboratory Chemicals (other than those attracting 10% BCD for specified end use)
3. Notification No. 07/2025-Customs: Exempts Laboratory Chemicals under CTH 9802 00 00 (other than those attracting 10% BCD for specified end use) from levy of Social Welfare Surcharge (‘SWS’)
It is evident from the above extracts that import of laboratory chemicals for specified end use is being treated the same as import by an actual user.
As discussed above, since the amendment to the Chapter Note 3 to Chapter 98 (supra) in September 2024, there is no possibility of importing laboratory chemicals by classifying the same under Heading 9802, for uses other than actual use. Given the same, the manner in which the Budget documents keep distinguishing laboratory chemicals from laboratory chemicals imported for specified end use / actual use, makes one question if the amendment made to Note 3 in Chapter 98 in September 2024, has missed the attention of the legislators. The repeated manner in which distinction is being drawn between laboratory chemicals based on its use, is causing unnecessary confusion.
As the law stands today, only actual users can import laboratory chemicals by classifying the same under Heading 9802. Given the same, there is effectively only 2 rates of customs duty for goods falling under the definition of ‘Laboratory Chemicals’ under Heading 9802:
1. Undenatured ethyl alcohol: 140%[3]
2. Laboratory chemicals other than Undenatured ethyl alcohol: 10%.
However, considering the language used in the Budget documents, it is unclear if this was the intended outcome of the Government when making the current amendment.
[The authors are Partner and Senior Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
[1] The Times of India news report, as available here.
[2] Notification No. 62/2024-Customs (N.T.) dated 19 September 2024.
[3] The higher rate of tax for undenatured ethyl alcohol only seems to be because Undenatured ethyl alcohol is alcohol generally consumed as beverage, and thus product is subject to tax @ 140%. Most consumers of this product being actual users, it would have been easy to take advantage of the subsidised duty on laboratory chemicals.
