The Bombay High Court recently held that the Union government/ executive cannot retroactively clarify a law’s intent via press release, especially since even the legislature which enacted the law does not have such powers.

The Court held that when even the legislature has become functus officio (no further official authority) when it comes to the interpretation of the law made by it, the Union government can by no means exercise its powers to clarify such law.

"It is apparent that where the Legislature, after enacting a law, is functus officio in matters of interpretation of such law, the executive cannot claim such power when, admittedly, the executive power of the Union is only coextensive with its legislative powers," the Court said.

It emphasised that interpretation of a law is within the province of the judiciary, and to that extent, the doctrine of separation of powers would apply.

Therefore, a Bench of Justices M S Sonak and Jitendra Jain quashed a 2020 press release issued by the Ministry of Finance that classified alcohol-based hand sanitizers as “disinfectants” for the purpose of Goods and Services Tax (GST) thereby subjecting them to 18% tax.

The Court ruled that such classifications should be determined by judicial or quasi-judicial authorities and cannot be influenced by executive directives.

“This means that the legislature cannot simply issue a press release to explain, post facto, what it meant or intended to do when it enacted the law. Thus, whatever even the Legislature could possibly not do cannot be done by the Union, purporting to exercise its executive power under Article 73 of the Constitution," the judgment said.

The Court further observed that the executive's powers are limited to areas where parliament has legislative authority and it cannot overstep or claim powers beyond those of parliament, particularly in interpreting laws once enacted.

"As noted earlier, the executive power of the Union shall extend to the matters with respect to which parliament has the power to make laws. The executive power of the Union is only co-extensive with the Union’s legislative powers. Therefore, if the parliament becomes functus officio when it comes to the interpretation of the law made by it, without undertaking the whole process of law-making, undoubtedly, the Union, in the exercise of its executive powers, cannot claim some powers which even transgress the powers of the parliament in this regard.”

The judgment was rendered in a petition was filed by Schulke India Pvt. Ltd., a company engaged in trading hand sanitizers and antiseptics.

The company had moved the Court challenging the validity of the Ministry’s press release issued on July 15, 2020.

The press release had classified alcohol-based hand sanitizers as disinfectants, subjecting them to a GST rate of 18%.

Schulke India had consistently classified its hand sanitizers under as “medicaments,” which attract a lower GST rate of 8-12%.

Following the press release, the Directorate General of GST Intelligence issued a show cause notice in April 2023 demanding differential taxes, interest and penalties, asserting that sanitizers should be treated as disinfectants.

The petitioner argued that the classification of their products as "medicaments" had been consistent under the law, with a prior clarification from the Directorate General of Health Services in September 2020, which classified hand sanitizers as “drugs” under the Drugs and Cosmetics Act, 1940.

This, the petitioner contended, contradicted the classification in the press release.

However, the Union’s counsel defended the press release and said that it was a valid exercise of the executive’s powers under Article 73 of the Constitution (executive powers of the Union) and the press release was meant to provide clarity on the GST rates for sanitizers.

But the High Court disagreed with the government's and ruled that the executive cannot direct judicial or quasi-judicial authorities on how to interpret the law.

The Bench observed that the classification of goods was a matter for adjudication by the relevant authorities under the GST Act, who must make decisions based on facts and legal interpretation without any external influence.

“The issue of whether a product falls within a particular class after the law is already enacted and the classification is already made falls within the province of the judicial and quasi-judicial authorities created under the Act. Such powers must be exercised by the judicial and quasi-judicial authorities independently and without any goading from any party, including the executive,” the Court stated.

It further noted that even if the press release was a form of executive action, it could not encroach upon the judicial or quasi-judicial process. It emphasized that the executive powers of the Union do not extend to directing the courts or adjudicating authorities on legal classification, which is the sole responsibility of the judiciary and quasi-judiciary bodies.

“We cannot lightly accept that the Union, in the exercise of executive power, has such authority because the issue of classification, which is essentially an issue of interpretation, must be undertaken by the various judicial and quasi-judicial adjudicatory authorities under the Statute,” the Bench observed.

In light of these observations, the Court set aside the press release and directed that if the show cause notice against the company has to be pursued, it must be decided based on its own merits, independent of the press release.

Advocate Bharat Raichandani along with advocates Priyanka Rathi, Prasad Avhad and Ashwini Chandrasekaren instructed by Advocate Kuldeep Nikam appeared for Schulke India.

Advocate Subir Kumar along with Advocates Ram Ochani, Abhinav Palsikar and Ashita Aggarwal appeared for Union of India.

[Read Judgment]