In a significant ruling, the Bombay High Court has declared that the executive cannot retroactively clarify the intent of tax law through a press release, especially when it impinges on judicial interpretation. The court, comprising Justice M.S. Sonak and Justice Jitendra Jain, quashed a 2020 press release from the Ministry of Finance that attempted to classify alcohol-based hand sanitizers as “disinfectants” for Goods and Services Tax (GST) purposes. This classification, which set the GST rate at 18%, was contested by Schulke India Pvt. Ltd. in the case Schulke India Pvt. Ltd. v. Union of India and Others (Writ Petition No. 11583 of 2023), on the grounds that their products should be classified as “medicaments,” attracting a lower GST rate.
Background of the Case
The petitioner, Schulke India Pvt. Ltd., a company engaged in trading hand sanitizers, challenged the Ministry of Finance’s press release issued on July 15, 2020. The release classified all alcohol-based hand sanitizers as “disinfectants” rather than “medicaments,” thereby mandating an 18% GST rate. Following this release, the Directorate General of GST Intelligence issued a demand notice in April 2023, requiring the petitioner to pay the differential duty, which they complied with under protest. In response, Schulke India filed a writ petition, asserting that the press release unlawfully influenced the classification and exceeded executive powers.
Legal Issues
Key legal questions arose in this case, prompting the court to examine:
1. Limits of Executive Clarification through Press Release: Whether the executive could issue a retrospective clarification through a press release that effectively determines the classification of goods under GST.
2. Separation of Powers and Judicial Independence: The validity of executive action impacting judicial or quasi-judicial bodies, especially concerning tax law interpretation and classification.
3. Scope of Article 73: The permissible extent of executive power under Article 73 of the Indian Constitution in matters that inherently require judicial interpretation.
Court Observations
The court made pointed observations about the limitations of executive power in interpreting tax law:
– Overreach of Executive Power: Justice Sonak noted that the classification of goods is a judicial function that should remain independent of executive influence. The court stated, “The Union, in exercising executive power, cannot direct judicial authorities to classify goods in a particular manner,” underscoring the judiciary’s role in interpreting tax laws.
– Doctrine of Separation of Powers: The court highlighted the importance of maintaining distinct roles for each government branch. While acknowledging that executive functions may support legislation and administration, the court emphasized that interpreting law is the judiciary’s exclusive domain, remarking, “Even if the executive exercises its powers under Article 73, such power does not extend to influencing judicial or quasi-judicial determinations.”
– Implications for Judicial and Quasi-Judicial Bodies: The court cited precedents, including Parle Agro Pvt. Ltd. v. Union of India and Bengal Iron Corporation v. Commercial Tax Officer, reinforcing that only judicial bodies can interpret and apply classification criteria under tax laws. Executive attempts to guide judicial authorities through press releases or circulars contravene the separation of powers and judicial independence.
Decision of the Court
The Bombay High Court’s judgment outlined several key directives:
1. Quashing of the Press Release: The court set aside the Ministry of Finance’s July 2020 press release, preventing it from being used to influence the classification of sanitizers as “disinfectants.” The court emphasized that adjudicatory bodies should not rely on the press release when determining GST rates.
2. Demand Notice Unaffected but to Be Reviewed Independently: Although the court did not invalidate the April 2023 demand notice, it directed that further proceedings should be conducted independently, with judicial authorities free from influence by the 2020 press release.
3. Reaffirmation of Judicial Authority: The court underscored that the classification and taxation of goods, such as alcohol-based sanitizers, must be determined based on judicial and quasi-judicial processes, which the executive cannot direct through clarification attempts.
