Delhi High Court: The Division Bench of Rajiv Shakdher and Talwant Singh, JJ., disposed of the petition which was filed in order to decide the constitutionality of imposition of IGST on the imported oxygen concentrators. The Court in its prologue said,
“This is a George Floyd moment for the citizens of this country. The refrain is ―I can’t breathe‖, albeit, in a somewhat different context and setting; although in circumstances, some would say, vastly more horrifying and ghastlier. Chased and riven by the merciless novel Coronavirus, the citizenry has been driven to desperation and despair.”
The petitioner was 85 years old and had approached the Court against the imposition of IGST on the import of the oxygen concentrator which had been gifted to him by his nephew. The petitioner asserted that the imposition of tax was discriminatory, unfair, and unreasonable and that it impinges upon his right to life and health. The clearance of the oxygen concentrator from the customs barrier required payment of IGST at the rate of 12%. It is relevant to note that before 01-05-2021, an individual importer would have had to pay IGST at the rate of 28% qua oxygen concentrator gifted to him for personal use.
The State had issued an impugned notification dated 01-05-2021 whereby IGST on oxygen concentrators imported by individuals for personal use, that are supplied free of cost, was scaled down to 12% and it further issued a notification dated 03-05-2021 whereby it exempted, completely, oxygen concentrators imported for the purpose of COVID relief from the imposition of IGST in cases, where the importer was the ―State Government or, any entity, relief agency or statutory body, authorised in this regard by any State Government” till 30-06-2021.
Major submissions made on behalf of the Amicus and the petitioner: –
- The interplay of provisions of The Customs Act, 1962 [Customs Act],The Customs Tariff Act, 1975 [CTA], The Goods and Services Tax Act, 2017[GST Act], and The Integrated Goods and Services Tax Act, 2017[IGST Act] allows for the imposition of Basic Customs Duty [in short ―BCD‖] and IGST on goods imported into the country at the rates stipulated in the CTA.
- The source of power to levy and collect IGST on imports is rooted in the explanation appended to Article 269A (1) of the Constitution.
- With the enactment of the GST Act, it is now possible to levy simultaneously both Central GST as well as State GST. Excluding 6 items, Central Sales Tax Act, 1956 [CST Act] stands substituted by the IGST Act. Article 246A(2) gives Parliament the exclusive power to levy GST on the supply of goods and services that takes place in the course of inter-state trade and commerce.
- Section 3(7) of the CTA which allows for levy of IGST on imported goods pegs the ceiling rate at 40%. The provision for valuation is provided under Section 3(8) and 3(8A) of the CTA. Section 3(12) contains the power for exempting, inter alia, the levy of IGST.
- Thus, in effect, from 01.07.2017, BCD is levied on imported goods under the Customs Act and IGST is leviable under Section 3(7) of the CTA read with Section 5 of the IGST Act.
- A perusal of the Mega Exemption Notification no. 50/2017, dated 30.06.2017, (which superseded notification 12/2012 dated 17.03.2012) [General Exemption no. 190‖] would show that qua several items where BCD is exempt or reduced, the IGST is nil. This has been a longstanding practice even prior to the issuance of Mega Exemption Notification.
- In the notification issued by Directorate General of Foreign Trade, Department of Commerce, Ministry of Commerce and Industry [in short ―DGFT‖], whereby oxygen concentrators were exempted from customs duty/BCD, IGST, via a separate notification, i.e., notification no. 30 of 2021 dated 01-05-2021 was reduced from 28% to 12% qua imports made for personal use. An exception was, however, made insofar as oxygen concentrators imported by a canalising agency was concerned. In such cases, vide notification no. 4 of 2021 dated 03-05-2021, complete exemption from IGST was granted, albeit, subject to certain conditions.
- Furthermore, a perusal of entry no. 607A1 of General Exemption no. 190 would show that complete exemption from BCD and IGST is granted for life-saving drugs/medicines imported for personal use which are supplied free of cost by overseas supplier.
- Oxygen concentrators would fall within the ambit of Entry no. 607A, Tariff Item no. 9804 of the General Exemption no. 190, as the definition of drugs as provided in Section 3(b) of the Drugs and Cosmetics Act, 1940 [in short ―Drugs and Cosmetics Act‖] would include medical equipment used for treating and preventing human disease. Furthermore, since an oxygen concentrator is, undoubtedly, a piece of life-saving equipment, it should not be subjected to the rigour of certification by officials, named in condition no. 104 stipulated against entry no. 607A.
- The impugned notification violates not only the right to health but also the right to human dignity which is interwoven in Article 21 of the Constitution.
Major submissions advanced on behalf of the State: –
- Since GST rates and general exemptions are notified based on the recommendations of the GST Council, the request received by the Government of India for extending GST exemptions qua COVID-19 related supplies shall be placed before the GST Council. The GST Council will consider the same and take steps having regard to the relevant factors and the situation prevalent in the country.
- The Government of India has provided considerable relief insofar as oxygen concentrators imported for personal use are concerned- BCD hasbeen reduced from 38.5% to nil while IGST has been scaled down from 28% to 12%. The reduction in the rate of IGST from 28% to 12% has been brought about for bringing about parity between oxygen concentrators imported for commercial purpose as against those imported for personal use.
- The decision to impose a tax and/or the fixation of the rate at which tax is to be imposed cannot be subjected to judicial review.
- The imposition of IGST on imported oxygen concentrators, which are gifted, and are for personal use, does not violate Article 21 of the Constitution. If this argument of the petitioner is accepted, it will lead to absurd consequences in as much citizens will attempt to seek exemption from property tax, and food items since both housing and food items have been considered as a facet of the right to life as encapsulated in Article 21 of the Constitution.
Analysis and Decision
The Court laid down some immutable ground rules to examine challenge laid to tax legislations and levying of tax in extraordinary times and formed main issues to be dealt with.
- Whether the State’s action, of imposing IGST on oxygen concentrators, which were directly imported by individuals, albeit free of cost, without the aid of a canalising agency runs afoul of Article 14 of the Constitution?
- Whether Article 21 of the Constitution, which includes the right to health and affordable treatment, would require the State to demonstrate that levy and collection of the impugned tax in times of pandemic, war, famine, floods, and such like conditions would subserve public interest?
- Whether Article 21 of the Constitution, imposes on the State, a positive obligation to provide adequate resources for protecting and preserving the health and well-being of persons residing within its jurisdiction?
- What relief, if any, can be granted to the petitioner?
The Court found, The exclusion of individuals, such as the petitioner, from the benefits of the 03.05.2021 notification only because they chose to receive the oxygen concentrators as a gift, albeit directly, without going through a canalizing agency is, in our opinion, violative of Article 14 of the Constitution. While it is permissible for the State to identify a class of persons, to whom tax exemption would be extended, it is not permissible for the State to exclude a set of persons who would ordinarily fall within the exempted class by creating an artificial, unreasonable, and substantially unsustainable distinction.
Issue 2 &3
Exaction by the State, in the form of tax, in good and normal times, is, ordinarily, sustained by the Courts as they defer to the legislative wisdom that the imposition of the tax is for the greater good of the public; unless proved to the contrary. However, in times of peril, the Courts must examine the stand taken by the State to defend an action instituted to lay challenge to a tax – on anvil of Article 21 of the Constitution; as it is not the form but the impact of the tax which will determine its tenability. The Court said that in this context it must be said that there was a positive obligation on the State to take ameliorative measures so that adequate resources are available to protect and preserve the health of persons residing within its jurisdiction. The Court quoted from the Supreme Court verdict in Navtej Singh Johar v. Union of India, (2018) 10 SCC 1,
“―495. The jurisprudence of this Court, in recognising the right to health and access to medical care, demonstrates the crucial distinction between negative and positive obligations. Article 21 does not impose upon the State only negative obligations not to act in such a way as to interfere with the right to health. This Court also has the power to impose positive obligations upon the State to take measures to provide adequate resources or access to treatment facilities to secure effective enjoyment of the right to health. [ Jayna Kothari, ―Social Rights and the Indian Constitution‖, Law, Social Justice and Global Development Journal (2004).]‖”
In the same vein, the notification dated 03-05-2021 exempts imposition of IGST on oxygen concentrators which are imported free of cost, albeit, via canalizing agency up until 30-06-2021. The State could have, if it intended to treat, persons who are similarly circumstanced as the petitioner, at par with those who fall within the sway of the notification dated 03-05-2021- extended the exemption to them as well and withdrawn the same once normalcy was restored.
The Court opined that a declaratory relief can be accorded, to the effect, that imposition of IGST on oxygen concentrators, imported as gifts, i.e., free of cost, for personal use, is violative of Article 14 of the Constitution on the ground that an artificial, unfair and unreasonable distinction has been drawn between persons, who are similarly circumstanced as the petitioner and those who import oxygen concentrators through a canalizing agency.
The logical sequitur of this would be that persons who are similarly circumstanced as the petitioner, i.e., those who obtain imported oxygen concentrators as gifts, for personal use, cannot also be equated with those who import oxygen concentrators for commercial use. Therefore, notification bearing no. 30 of 2021-Customs, dated 01-05-2021, will also have to be quashed.
The State had argued that the Court cannot issue a writ of mandamus directing the State to issue an exemption notification in favour of the petitioner or persons similarly circumstanced. The power to issue an exemption notification under Section 25 of the Customs Act is vested in the State however the Court was not prevented from judicially reviewing an exemption notification once it is issued by the State.
The Court concluded that imposition of IGST on oxygen concentrators which were imported by individuals and were received by them as gifts [i.e. free of cost] for personal use, was unconstitutional.
[Gurcharan Singh v. Ministry of Finance, 2021 SCC OnLine Del 2312 , decided on 21-05-2021]
Suchita Shukla, Editorial Assistant has put this report together
For the petitioner: Mr Sudhir Nandrajog, Senior Advocate with Mr Siddharth Bambha, Mr Shyam D Nandan and Mr Chirag Ahluwalia
For the respondent: Mr Zoheb Hossain, Sr. Standing Counsel, Mr Arvind Datar, Senior Advocate as Amicus Curiae with Mr Rahul Unnikrishnan