2025 (5) TMI 552 - HC - GST

Levy of Compensation Cess at the rate of 22% - Passenger vehicles- N/N. 3/2023-CC (Rate) dated 26th July 2023 have retrospective effect or not - measurment of ground clearance in an un-laden condition - HELD THAT - The only basis for confirming the Compensation Cess at the rate of 22% against the Petitioner is by considering Notification No. 3/2023-CC (Rate) dated 26th July 2023 to be retrospective in its application. Now the Board itself albeit based on the GST Council recommendation and clarification has clarified that the amendment carried out vide Notification No. 3/2023-CC (Rate) dated 26th July 2023 is prospective in nature. This clarification issued by the Board is binding on the Respondents. The disputed period in the present case is from September 2017 to July 2022. Hence for the aforesaid period the ground clearance of motor vehicles for the purpose of determining applicable Cess rate under the Cess Notification had to be considered in a laden condition as was being done by the Petitioner. Conclusion - Ground clearance under Sr. No. 52B of the Cess Notification means measurement in a laden condition prior to 26th July 2023. Petitioners liable to pay Compensation Cess at 20% for the period September 2017 to July 2022. Petition allowed.

2019 (11) TMI 421 - AAAR

The core legal questions considered in this judgment revolve around the correct interpretation and application of the Compensation Cess rates under the Goods and Services (Compensation to States) Act, 2017, specifically concerning the measurement of "ground clearance" for passenger vehicles under the relevant Cess Notification. The principal issues are:

(a) Whether the ground clearance for vehicles falling under Sr. No. 52B of the Cess Notification is to be measured in a laden (fully loaded) or unladen (empty) condition for the period prior to 26th July, 2023.

(b) Whether the Petitioners were liable to pay Compensation Cess at 20% or 22% for the disputed period from September 2017 to July 2022 based on the correct interpretation of the ground clearance measurement.

(c) The retrospective or prospective applicability of Notification No. 3/2023-CC (Rate) dated 26th July, 2023, which amended the Cess Notification to clarify the measurement of ground clearance as in an unladen condition.

(d) The validity of the impugned Order-in-Original dated 21st January, 2025 and Rectification Order dated 13th March, 2025, including the penalty imposed on Petitioner No. 2.

Issue-wise Detailed Analysis:

1. Measurement of Ground Clearance (Laden vs. Unladen Condition)

The relevant legal framework includes the Goods and Services (Compensation to States) Act, 2017, and the Notification No. 1/2017-CC (Rate) dated 28th June, 2017, as amended by Notification No. 05/2017-CC (Rate) dated 11th September, 2017. Sr. No. 52B of the Cess Notification imposes a 22% Compensation Cess on passenger vehicles meeting certain criteria, including ground clearance of 170mm or above.

Prior to 26th July, 2023, the law did not explicitly specify whether ground clearance should be measured in a laden or unladen condition. The Petitioners contended that the accepted industry practice, regulatory requirements under the Motor Vehicles Act, and prior rulings, such as the Appellate Authority for Advance Ruling in Tata Motors Ltd., supported measurement in a laden condition. They argued that their vehicles bore ground clearance less than 170mm in the laden condition, thus attracting only 20% Cess under Sr. No. 52A.

The Respondents argued that in the absence of specific legal guidance, the ground clearance should be measured in an unladen condition, which would place the Petitioners' vehicles within the 22% Cess bracket under Sr. No. 52B.

The Court examined the Minutes of the 50th GST Council Meeting held on 11th July, 2023, where the GST Council agreed to amend the Cess Notification to clarify that "ground clearance" under entry 52B means ground clearance in an unladen condition. This amendment was effected by Notification No. 3/2023-CC (Rate) dated 26th July, 2023.

The Court also noted the 55th GST Council Meeting on 21st December, 2024, and Circular No. 247/04/2025-GST dated 14th February, 2025, which clarified that the amendment regarding ground clearance measurement applies only prospectively from 26th July, 2023.

Applying these findings, the Court concluded that for the disputed period (September 2017 to July 2022), the ground clearance must be measured in the laden condition, consistent with the Petitioners' practice and accepted industry standards.

2. Applicability of Notification No. 3/2023-CC (Rate) dated 26th July, 2023

The Respondents contended that the impugned Order was rightly passed without the benefit of the Circular dated 14th February, 2025, which clarified the prospective nature of the amendment. The Petitioners argued that the amendment cannot be applied retrospectively.

The Court analyzed the impugned Order's reliance on the Notification dated 26th July, 2023, as being retrospective. It held that the Board's subsequent clarification that the amendment is prospective is binding on the Respondents. Therefore, the Notification cannot be applied to the disputed period prior to 26th July, 2023.

3. Liability for Compensation Cess and Validity of Impugned Orders

Based on the above interpretation, the Court found that the Petitioners were correctly paying Compensation Cess at 20% for vehicles with ground clearance measured in the laden condition during the disputed period. Consequently, the impugned Order-in-Original and the Rectification Order imposing Cess at 22% and penalty on Petitioner No. 2 were set aside.

The Court issued writs declaring the correct interpretation of ground clearance measurement prior to 26th July, 2023, the liability of the Petitioners to pay 20% Cess for the disputed period, and quashing the impugned orders and penalty.

Significant Holdings:

"The Board itself [albeit based on the GST Council recommendation and clarification] has clarified that the amendment carried out vide Notification No. 3/2023-CC (Rate) dated 26th July, 2023 is prospective in nature. This clarification issued by the Board is binding on the Respondents."

"The disputed period in the present case is from September 2017 to July 2022. Hence, for the aforesaid period, the ground clearance of motor vehicles for the purpose of determining applicable Cess rate under the Cess Notification had to be considered in a laden condition, as was being done by the Petitioner."

The Court established the core principle that where a statutory amendment clarifying a tax liability is silent on retrospective application, the amendment is to be applied prospectively unless explicitly stated otherwise. Further, in the absence of specific legislative guidance, established industry practice and prior authoritative rulings on technical measurements (such as ground clearance) are to be respected.

Final determinations included:

(a) Ground clearance under Sr. No. 52B of the Cess Notification means measurement in a laden condition prior to 26th July, 2023.

(b) Petitioners liable to pay Compensation Cess at 20% for the period September 2017 to July 2022.

← Previous Next →