[Update: in an order passed on June 1, 2021, the Delhi High Court’s judgment – discussed below – has been stayed by the Supreme Court. The only reason provided by the Supreme Court in its stay order is that “arguable issues have been raised” in the appeal. Needless to say, staying a carefully-reasoned High Court judgment that returned a finding of unconstitutionality against State action on the ground that “arguable issues” have been raised is problematic. This is a very low standard that keeps a High Court judgment in abeyance not because there is a prima facie error of law or fact, but because – presumably – it is possible to take another view. Furthermore, the fact that Court has issued notice returnable in four weeks means that the case has effectively been decided in favour of the union government, as – presumably – by the time the Supreme Court gets around to hearing the case, there will no longer be as pressing a need for oxygen concentrators.
One of the most frustrating parts about writing and analysing contemporary Indian constitutional law is the lack of accountability with which the Supreme Court stays High Court judgments. There is no uniform or consistent principle, and in a majority of cases, the Supreme Court does not accord the High Court judgment the courtesy of proper analysis before issuing a stay order. And, as pointed out above, in most cases – and especially in urgent cases – the stay effectively amounts to a decision in favour of the government, but without any judicial reasoning, as the delay between issuing notice and getting around to deciding the issue invariably renders the case infructuous.]
In an interesting judgment handed down on the 21st of May (Gurcharan Singh vs The Ministry of Finance), the High Court of Delhi struck down the levy of Integrated Goods and Services Tax [“IGST] on oxygen concentrators that had been imported into the country, as a gift, and for personal use. The judgment is notable because it is a relatively rare instance of a successful constitutional challenge to a tax levy, and one that succeeded on fundamental rights grounds, rather than on a demonstration that the tax was confiscatory.
The primary basis of the Court’s judgment was that under Notification 4/2021-Customs, imposition of IGST on oxygen concentrators was exempted, as long as they were free and for the purposes of Covid relief, and imported by a State government or by an entity authorised by any State government. This, then, created two categories of persons who were importing oxygen concentrators for Covid relief: those who were doing it through a government-approved entity (exempted from IGST), and those who were not (IGST leviable) – i.e., those who were receiving oxygen concentrators as a gift, for their personal use. The Court found this distinction to be arbitrary and irrational, and consequently, a violation of Article 14 (paragraph 13).
What is of greater interest, however, is the Court’s contextualisation of the issue within the Covid-19 pandemic. The bench of Shakder and Talwant Singh JJ noted that while ordinarily, “tax … does not recognise equity”, “it must, however, in our view, bend to the will of equity in times of calamity which causes wholesale degradation in the human ability to contribute to the coffers of the State.” (paragraph 15) In this case, therefore, the Court had to examine the tax on the anvil of the right to health under Article 21 of the Constitution, keeping in mind the global pandemic (paragraph 15.1). This, in turn, required the State to demonstrate that:
… the revenue, it would possibly garner, as IGST, in respect of oxygen concentrators which are imported in the circumstances, in which, the petitioner is put, would be appreciably more than the cost incurred to administer the collection of IGST on such transactions. These details need not have borne mathematical precision; a broad-brush approach would have sufficed-so that we could be persuaded to hold that denying relief to the petitioner and persons similarly circumstanced would be in public weal. The counter-affidavit filed by the State gives us no clue whatsoever concerning this vital issue. (paragraph 15. 4)
In the absence of any such counterveiling justification, the impact of the tax on the right to health under Article 21 was evidently onerous and burdensome. It also breached the State’s positive obligations under Article 21, which it could have discharged through “delaying its collections, granting rebates, or, as in this case, permitting, import of vital medical equipment, drugs, medicines, for a defined period, till such time, normalcy is restored” (paragraph 15.7) – and which, indeed, the State had done so for other categories involving the import of oxygen concentrators.
The Court’s judgment in this case is undoubtedly correct, and its desire to contain the scope of its reasoning to the extraordinary situation generated by the Covid-19 pandemic is understandable, as it is difficult to displace the many decades of established wisdom that requires a judicial hands-off approach when it comes to testing tax law and policy on the touchstone of fundamental rights. However, when we think about it, the Covid-19 pandemic has only revealed particularly starkly what has always been true: tax law is one of the most potent tools in the hands of the State to shape and direct behaviour (as potent as criminal law), and for that reason, there is no reason why taxation should be given any greater deference by courts when it is subjected to a fundamental rights challenge. Indeed, as the Colombian Constitutional Court’s judgment striking down a tampon tax, and the Canadian Supreme Court’s judgment upholding business deductions, both in the context of challenges on the touchstone of gender equality, show us, issues of taxation are deeply intertwined with issues around constitutional guarantees of equality and non-discrimination. The Covid-19 pandemic (to reiterate) has only revealed this truth, rather than create it.
The Delhi High Court’s judgment is nonetheless important, as it breaks judicial inertia and for the first time puts these questions on the table. Admittedly, the judgment suggests that the more exacting judicial review that it applied to the IGST Notification – especially on the right to health ground – was because of the extraordinary circumstances created by the pandemic, and that the normal policy of deference would continue to apply otherwise. That said, it is also clear that the Court’s analysis is not – and indeed, need not be – attached to the specific circumstances of the pandemic. Indeed, if we think of the “tampon tax” challenge, for example, one can easily see how the issue of menstrual hygiene – as a continuing concern – is as fundamentally important to the right to health and to equality as is the issue of importing oxygen concentrators to deal with Covid-19. I would suggest, therefore, that the High Court’s reasoning contains the beginnings of a more progressive – and constitutionally more just – approach to the intersection between tax and fundamental rights.
A final point on remedy: the Court refrained from touching the Notification itself, and instead, granted the petitioner relief by reading the term “oxygen concentrator” into separate exemption notifications involving tax exemptions for lifesaving drugs. However, I am not quite sure why this was necessary: would not the purpose have been served equally by simply severing the words “by a State Government or, any entity, relief agency or statutory body, authorised in this regard by any State Government” from the impugned Notification? This would ipso facto have extended the benefit of the exemption, then, to goods “imported free of cost for the purpose of Covid relief”, and would have covered the case of the petitioner.
In any event, the technical quibble aside, the High Court ended its judgment by noting that it was travering “over what was, somewhat, new and uneven terrain.” (paragraph 22) The Court ought to be complimented for doing so judiciously and with wisdom; it is now the task of future benches to chart a further path.