Bombay High Court quashes Centre's release categorising hand sanitisers as disinfectants attracting 18% GST

Mumbai: The Bombay High Court on Monday quashed the Centre's 2020 press release classifying hand sanitisers as disinfectants attracting 18 per cent GST, noting that the issue of classification lies with the judicial and quasi-judicial adjudicatory authorities.

A division bench of Justices M S Sonak and Jitendra Jain said the press release virtually expresses a firm view on the classification of alcohol-based hand sanitisers as "disinfectants" and not "medicaments".

The court, in its judgment, said the Ministry of Finance, by issuing the press release, "virtually issued a fiat to the adjudicatory judicial and quasi-judicial authority to classify all alcohol-based hand sanitisers as disinfectants attracting a GST rate of 18 per cent".

The bench held that the issue of whether a product falls within a particular class or category falls within the province of the judicial and quasi-judicial authorities created under the provisions of the Central Goods and Services Tax Act.

Such powers must be exercised by the judicial and quasi-judicial authorities independently and without any goading from any party, including the executive, it said.

"Any press release or executive instruction meant to influence or, worse still, require the judicial or quasi-judicial authorities to exercise their functions in a particular manner would interfere with their functions. This cannot be allowed. The executive powers of the Union do not extend to this," the high court said.

It said, "The executive cannot transgress on the functions within the exclusive province of the judicial or even quasi-judicial authorities." The court was hearing a petition filed by a city-based company, Schulke India Pvt. Ltd, manufacturing hand rubs/sanitisers, challenging the press release and pursuant demand notice.

The company claimed that sanitisers and antiseptics have been sold as a "medicament", which has a lesser GST rate.

However, in July 2020, the Union Ministry of Finance issued a press release purporting to classify alcohol-based hand sanitisers as "disinfectants", attracting a GST rate of 18 per cent.

Pursuant to this release, the Directorate General of GST Intelligence issued a show cause notice to the petitioner company in April 2023 as to why the differential tax/duties with interest and penalties should not be recovered from it.

The company, in its plea in the high court, sought that the press release and the notice be quashed.

As per the plea, the issue of whether the products being dealt with by the company constituted medicaments or disinfectants can be adjudicated by judicial and quasi-judicial authorities and not by the government.

The bench questioned if in the purported exercise of executive power, the Union government was competent to direct judicial and quasi-judicial authorities to decide the classification of products in a particular manner.

"We cannot lightly accept that the Union, in the exercise of executive power, has such authority, as the issue of classification, which is essentially an issue of interpretation, must be undertaken by the judicial and quasi-judicial adjudicatory authorities," the court said.

It held that though there may not be a very distinct line separating legislative and executive functions, the line separating the judicial functions from the executive and legislative functions is clear.

The court refused to quash the show cause notice issued to the petitioner company, noting that it had an alternate remedy to challenge the same.

"We are, however, satisfied that the petitioner has made out a case for quashing the press release so that the judicial and quasi-judicial authorities under the Act can decide on the issue of classification and, consequently, the rate of tax independently without even remotely being influenced by the press release," it said.