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2025 (5) TMI 303 - HC - GSTJursidcition to issue order - it is contended that the order is wholly without jurisdiction and has been passed in an arbitrary manner by invoking extended period of limitation - reclassification of the petitioner s products from tariff item 2106 90 99 (extruded or expanded products savoury or salted) attracting 12% GST to tariff item 1905 90 30 attracting 18% GST - pleas raised by the petitioner in reply to the show cause notice have not at all been considered and the order impugned has been passed by replicating the show cause notice - violation of principles of natural justice - HELD THAT - Having considered the submissions made by counsel for the parties and the fact that the CBIC had issued specific circular indicating the applicable rate which alone has formed the basis for issuing the notice under Section 74 of the Act and the GST Council has required the Fitment Committee to look into the matter pertaining to the past period as noticed and the fact that in similar circumstances Karnataka High Court has granted interim order the respondents may file their counter affidavit within a period of four weeks. In the meanwhile and till further orders recovery pursuant to the order dated 03.02.2025 (Annexure No. 1) shall remain stayed.
Issues Presented and Considered
The core legal questions considered by the Court include:
Issue-wise Detailed Analysis Issue 1: Validity of GST Demand Based on Reclassification and Applicable Rate The legal framework governing GST classification and rates is primarily derived from the SGST/CGST Act, 2017, and the notifications issued thereunder, including Notification No. 1/2017 - Central Tax (Rate) dated 28.06.2017. The classification of goods under the correct tariff item is essential for determining the applicable GST rate. The CBIC Circular dated 13.01.2023 clarified that the petitioner's products fall under tariff item 1905 90 30, attracting GST at 18%, superseding the earlier classification under tariff item 2106 90 99, which had a lower GST rate of 12%. The Court noted that the initial inspection in 2018 did not raise any demand or dispute regarding the GST rate, as the petitioner was paying GST at 12%. However, subsequent circulars dated 27.07.2023 and 01.08.2023 inserted Serial No. 99B in the Notification, effectively regularising the issue for the past period concerning un-fried or un-cooked snack pellets. Based on these circulars, a fresh inspection was conducted, and a show cause notice under Section 74 was issued proposing a demand of over Rs. 16 crore, alleging wilful suppression by the petitioner in misclassifying the product and paying lower GST. The Court observed that the CBIC circulars form the basis for reclassification and demand. The petitioner disputes the applicability of the higher rate retrospectively and denies wilful suppression, asserting that the classification and GST rate applied earlier were consistent with the understanding at the time. Issue 2: Invocation of Extended Period of Limitation and Allegation of Wilful Suppression Section 74 of the Act permits issuance of a show cause notice beyond the normal limitation period if there is evidence of wilful suppression of facts or fraud. The petitioner contends that there was no wilful suppression, as the GST Council's 54th meeting minutes dated 09.09.2024 indicate that the Fitment Committee recommended reducing the GST rate prospectively and examining the possibility of regularising past periods. This, the petitioner argues, negates any inference of suppression. The Court considered that the GST Council's recommendation to examine past period regularisation suggests recognition of ambiguity in classification and rate application. Thus, the petitioner's contention that invoking Section 74 on grounds of suppression is not justified gains some support. However, the respondent maintains that the petitioner deliberately misclassified the goods to evade higher GST. The Court noted the competing arguments: the respondent's reliance on the classification change and the petitioner's reliance on the GST Council's prospective approach and absence of suppression. This issue remains contentious and requires further factual elucidation. Issue 3: Compliance with Procedural Requirements under Section 75(6) of the Act Section 75(6) mandates that the adjudicating authority must consider the petitioner's reply to the show cause notice before passing an order. The petitioner submitted that several pleas raised in its reply were not considered, and the impugned order merely replicated the allegations in the show cause notice without independent adjudication. The Court acknowledged this procedural lapse as a serious concern. The failure to consider detailed replies undermines the fairness and legality of the order. This procedural irregularity casts doubt on the validity of the demand order. Issue 4: Maintainability of the Petition and Availability of Alternative Remedy under Section 107 The respondent argued that the petitioner has an alternative remedy of appeal under Section 107 of the Act and that bypassing this remedy by approaching the High Court is impermissible. The petitioner countered that the impugned order is heavily influenced by CBIC circulars, which the appellate authority would be bound to follow, rendering the appeal a mere formality and imposing a huge pre-deposit burden. The Court observed that while alternative remedies exist, the peculiar facts and the procedural irregularities justify interim relief and consideration of the petition. The Court directed the respondents to file a counter affidavit and stayed recovery pending further orders. Significant Holdings The Court held that the GST Council's clarifications and CBIC circulars form the foundation for the reclassification and demand but also recognized the petitioner's contention that the Council's recommendations contemplate prospective application and possible regularisation of past periods, thereby weakening the case for wilful suppression under Section 74. On procedural grounds, the Court emphasized: "Several pleas, raised by the petitioner in reply to the show cause notice, have not at all been considered and the order impugned has been passed by replicating the show cause notice and therefore, the same being contrary to the provisions of Section 75(6) of the Act, cannot be sustained." The Court, noting the similar interim relief granted by another High Court in analogous circumstances, stayed the recovery of the demand pending further proceedings and directed the respondents to file their counter affidavit within four weeks. Core principles established include the necessity of:
Final determinations on the issues were reserved for further consideration after the filing of the counter affidavit, with interim relief granted by staying recovery of the disputed demand.
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