Court Rules on GST Classification of Hand Sanitizers

Background

In a significant ruling, the Bombay High Court addressed the classification of alcohol-based hand sanitizers in relation to Goods and Services Tax (GST). The case involved M/s Schulke India Pvt. Ltd., which argued that its products should be classified as 'medicaments' attracting a lower GST rate, while the Union of India contended they were 'disinfectants' subject to a higher rate of 18%. The dispute arose from a Press Release issued by the Ministry of Finance, which classified these products as disinfectants.

Arguments

Petitioner’s Arguments

The petitioner, represented by Mr. Bharat Raichandani , contended that the Press Release was arbitrary and lacked legal authority. They argued that the classification of their products should be determined by judicial authorities, not through executive fiat. The petitioner also cited previous clarifications from the Directorate General of Health Services, which recognized hand sanitizers as drugs under the Drugs and Cosmetics Act, thus supporting their claim for a lower GST rate.

Respondents’ Arguments

The respondents, represented by Mr. Subir Kumar, defended the Press Release as a legitimate exercise of executive power under Article 73 of the Constitution. They argued that the classification was necessary to maintain a consistent tax structure and prevent an inverted duty structure that could disadvantage domestic manufacturers.

Court's Analysis and Reasoning

The court evaluated the arguments and determined that the classification of products falls within the jurisdiction of judicial and quasi-judicial authorities. It emphasized that the executive cannot dictate how these authorities should interpret the law. The court found that the Press Release effectively precluded fair adjudication by directing authorities to classify hand sanitizers in a specific manner, which infringed upon the separation of powers doctrine.

Decision

The Bombay High Court quashed the impugned Press Release dated July 15, 2020, ruling that it overstepped the executive's authority. The court directed that any further proceedings regarding the show cause notice must be conducted independently, without influence from the now-invalidated Press Release. This decision underscores the importance of judicial independence in tax classification matters and preserves the integrity of the adjudicatory process.