2021 (5) TMI 742 - HC - Customs

Court Invalidates IGST on Imported Oxygen Concentrators as Gifts

The Court declared the imposition of IGST on oxygen concentrators imported as gifts for personal use unconstitutional, quashing the relevant notification. ... Violation of Article 14-Unreasonable classification in taxation - Right to health under Article 21-positive obligation in times of pandemic - Judicial review of exemption notifications issued under Section 25 of the Customs Act - Distinct and noticeable burdensomeness test for tax impugned under Article 21 - Interpretation of 'drug' under the Drugs and Cosmetics Act to include medical equipmentViolation of Article 14-Unreasonable classification in taxation - Imposition of IGST on oxygen concentrators imported as gifts for personal use, as effected by the impugned notifications, discriminated unreasonably between identical classes and was arbitrary. - HELD THAT: - The notification dated 03.05.2021 created an exclusionary class by exempting IGST only for oxygen concentrators imported through a canalising agency while denying the same benefit to individuals who received identical goods as gifts. The Court found that this distinction lacked an intelligible differentia and adequate determining principle, rendering the classification manifestly arbitrary and violative of Article 14. The existence of prior notifications (notably the 24.04.2021 exemption of BCD) recognising public interest in facilitating import of oxygen concentrators reinforced that persons similarly circumstanced ought not to have been excluded merely on the mode of importation. Differential treatment in taxation is permissible only if reasonably related to the object; that nexus was absent here. [Paras 13, 14]The distinction effected by the notification dated 03.05.2021 is arbitrary and in breach of Article 14; imposition of IGST on oxygen concentrators imported as gifts for personal use cannot be sustained.Right to health under Article 21-positive obligation in times of pandemic - Distinct and noticeable burdensomeness test for tax impugned under Article 21 - Article 21 (right to life and health) bears on judicial scrutiny of taxation in extraordinary circumstances and the petitioner demonstrated that IGST imposed a distinct and noticeable burdensomeness on persons similarly placed during the pandemic. - HELD THAT: - The Court recognised that while taxation ordinarily attracts deference, in overwhelming public emergencies the impact of a tax on the right to health must be considered. In the pandemic context, the petitioner established that levy of IGST on imported oxygen concentrators produced a direct and immediate adverse effect on access to life saving medical equipment and therefore involved a 'distinct and noticeable burdensomeness.' The State was required to demonstrate, by broad brush figures or rationale, that collection of IGST in such cases served a public interest outweighing the burdens; the counter affidavit did not supply such justification. The Court emphasised that Article 21 can entail positive obligations and a humanistic approach in exceptional times. [Paras 15]In the circumstances of the COVID-19 pandemic, the levy of IGST on oxygen concentrators imported as gifts imposes a burdensomeness directly affecting the right to health under Article 21 and the State failed to justify that burden in the public interest.Judicial review of exemption notifications issued under Section 25 of the Customs Act - Interpretation of 'drug' under the Drugs and Cosmetics Act to include medical equipment - Relief and remedial measures: the Court quashed the notification reducing IGST (notification no. 30/2021 dated 01.05.2021) insofar as it permitted imposition on gifted oxygen concentrators for personal use; preserved and read down the notification dated 03.05.2021 by interpreting General Exemption No. 190 to include oxygen concentrators as falling within the exemption for life saving drugs/medicines; and directed a simplified compliance regime pending designation of officers. - HELD THAT: - The Court held that it could not command the executive to issue an exemption but could judicially strike down or read down delegated exemption notifications that are arbitrary. It declared the imposition of IGST on imported oxygen concentrators received as gifts unconstitutional and quashed notification no. 30/2021 (01.05.2021). To avoid creating a lacuna and to serve public welfare, the Court interpreted entry no. 607A, Tariff Item no. 9804 of General Exemption No. 190 (issued under Section 25(1)) to include oxygen concentrators as 'drugs'/medical equipment within the exemption for life saving drugs/medicines supplied free of cost by overseas suppliers. The Court found the formal certification condition (condition no. 104) impractical in an emergency and directed that a letter of undertaking that the device will not be put to commercial use shall suffice, to be furnished to the officer designated by the State (or provisionally to the Joint Secretary, Customs or nominee) until formal designation. The Court also directed release of deposits made by the petitioner with interest. [Paras 17, 19, 21]Notification no. 30/2021 dated 01.05.2021 is quashed insofar as it permits IGST on oxygen concentrators imported as gifts for personal use; notification dated 03.05.2021 is preserved and read to operate so as to extend exemption to such imports by treating oxygen concentrators as life saving drugs/medical equipment under General Exemption No. 190, subject to a letter of undertaking in lieu of the certification procedure; deposit made by petitioner to be released with interest.Final Conclusion: The High Court held that imposition of IGST on oxygen concentrators imported as gifts for personal use during the COVID 19 pandemic was arbitrary and violative of Article 14 and, having regard to Article 21, caused a distinct burdensomeness which the State failed to justify; notification no. 30/2021 (01.05.2021) was quashed insofar as it upheld such levy, and the exemption framework was interpreted to treat oxygen concentrators as covered by the nil rate exemption for life saving drugs/medicines, subject to a letter of undertaking and administrative directions for release of deposits. Issues Involved:1. Imposition of IGST on oxygen concentrators imported for personal use.2. Violation of Article 14 of the Constitution.3. Violation of Article 21 of the Constitution regarding the right to health and affordable treatment.4. Relief to the petitioner.Issue-wise Detailed Analysis:Issue No. (i): Imposition of IGST on Oxygen Concentrators Imported for Personal UseThe petitioner, an 85-year-old individual, challenged the imposition of IGST on an oxygen concentrator gifted by his nephew. The State had issued several notifications to mitigate the impact of the COVID-19 pandemic, including exempting oxygen concentrators from BCD but not from IGST for personal use. The notification dated 03.05.2021 exempted IGST for oxygen concentrators imported through a canalizing agency but not for individuals. This distinction was deemed 'manifestly arbitrary and unreasonable,' violating Article 14 of the Constitution as it created an artificial and unsustainable distinction between similarly circumstanced users based on the method of importation.Issue No. (ii) and (iii): Violation of Article 14 and Article 21 of the ConstitutionThe right to health, a second-generation right flowing from the right to life under Article 21, requires the State to ensure affordable treatment, especially during extraordinary times like a pandemic. The Court emphasized that taxation must bend to equity in such times. The State failed to demonstrate that the revenue from IGST on personal imports of oxygen concentrators would outweigh the administrative costs of collection. The petitioner showed that the IGST imposed a 'distinct and noticeable burdensomeness,' directly impacting his right to health. The Court highlighted the State's positive obligation to take ameliorative measures to protect public health.Issue No. (iv): Relief to the PetitionerThe Court declared the imposition of IGST on oxygen concentrators imported as gifts for personal use unconstitutional, quashing the notification dated 01.05.2021. The Court held that individuals receiving oxygen concentrators as gifts should not be equated with commercial importers. The notification dated 03.05.2021 was preserved but interpreted to include oxygen concentrators under the exemption for life-saving drugs/medicines, supplied free of cost, under General Exemption No. 190. The cumbersome certification procedure under condition no. 104 was deemed impractical, and a letter of undertaking was deemed sufficient to prevent commercial misuse.Conclusion:The Court held that the imposition of IGST on oxygen concentrators received as gifts for personal use was unconstitutional, quashing the relevant notification. It mandated that individuals furnish a letter of undertaking to prevent commercial misuse, ensuring equitable treatment and upholding the right to health under Article 21. The Court's decision emphasized the need for a humanistic approach in times of calamity, aligning legal principles with societal needs.