Bombay High Court Quashes Government's Press Release on GST Rate for Hand Sanitizers.

The Court addressed a significant dispute over the classification and tax rate of alcohol-based hand sanitizers. The case revolved around whether these sanitizers should be categorized as "medicaments" with a lower GST rate or as "disinfectants" subject to an 18% GST. The petitioner, a trader in hand rubs and sanitizers, argued that their products had been consistently classified as medicaments under HSN Code 3004, which warranted a lower tax rate.

However, a press release from the Ministry of Finance dated July 15, 2020, classified alcohol-based sanitizers as disinfectants, setting their GST rate at 18%. This classification prompted a show-cause notice in 2023, demanding the petitioner pay back taxes at the higher rate. The petitioner, after paying the differential under protest, challenged the classification, arguing that the press release exceeded executive powers and violated the separation of powers by effectively dictating tax treatment.

The Petitioner: A company dealing in hand sanitizers argues that their products are "medicaments" attracting a lower GST rate (8-12%).

The Respondents: The Government of India argues that these sanitizers are "disinfectants" subject to a higher GST rate (18%).

Key Points:

• The Court avoids deciding whether the products are "medicaments" or "disinfectants" as this is for the designated authorities to determine.
• The Court focuses on the validity of a Press Release issued by the Ministry of Finance classifying all alcohol-based hand sanitizers as "disinfectants."
• The Court finds the Press Release problematic for the following reasons:
  • It potentially restricts the discretion of judicial and quasi-judicial authorities responsible for classification.
  • It doesn't comply with Article 77 of the Constitution regarding the issuance of executive orders.
  • The executive power cannot interpret laws, which is the judiciary's domain.

Court's Decision:

The Court ruled that the press release improperly influenced judicial and quasi-judicial functions. It emphasized that only adjudicative authorities can determine tax classifications independently. By setting aside the press release, the Court affirmed that classification issues must be resolved by judicial bodies without interference from executive directives. The show-cause notice may proceed, but adjudicators are to decide on the classification of sanitizers solely based on the law and facts, uninfluenced by the now-quashed directive.

GST Case Law Schulke India Pvt. Ltd. Versus Union of India

CItation-2024 TAXONATION 3062 (BOMBAY)

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