Rate classification, Goods and Services Tax - GST

[Shrikanth Parmarthy]

Dear experts,

Facts:

1. There is ambiguity in the industry relating to rate classification of a particular product. The industry is of the view of applying a HSN where the GST rate is lower whereas the GST department is contending a HSN where GST rate applicable will be higher than the one claimed by Industry

2. There a 2 high court decisions where rate of the product is passed in favour of the Industry. Against one of the high court decision the GST Department has approached the supreme court and court has rejected the plea made by department.

Queries:

1. Should the industry wait for the GST council/CBIC to release a rate amendment notification based on the Supreme court rejection as mentioned above. OR

2. Should the industry proceed with apply the HSN with lower GST rate based on the supreme court rejection.

Kindly provide your inputs on how to proceed further.

Posts / Replies

[KASTURI SETHI]

Dear Querist,

     In this context, you should wait for CBIC's Circular. 

   Whether to file review petition or accept the Order of Hon'ble Supreme Court is to be decided by CBIC after approval  from the Ministry of Law, Govt. of India. If accepted, the CBIC will issue circular as usual.

[YAGAY andSUN]

In this scenario, there are a few important considerations that can guide the industry’s next steps. Let’s break down your queries:

1. Should the industry wait for the GST Council/CBIC to release a rate amendment notification based on the Supreme Court rejection?

• Uncertainty & Delays: Waiting for a formal notification from the GST Council or CBIC could take a while. The process of issuing such a notification can sometimes be slow, and there’s no guarantee that the council will promptly take action based on the Supreme Court's rejection.

• Dependence on Legislative Action: Notifications issued by the GST Council or CBIC are typically binding and authoritative. However, in this case, the Supreme Court has already given its judgment, which provides significant clarity. The court’s decision often takes precedence over administrative notifications, so the industry may not need to wait for a new notification.

• Risk of Retrospective Adjustments: The industry should be cautious of any potential retrospective amendments that might come after they have proceeded with their own interpretation. If the GST Council decides to issue a new rate notification in line with the Supreme Court's ruling, that would provide formal clarity, but it could take time.

2. Should the industry proceed with applying the HSN with the lower GST rate based on the Supreme Court rejection?

• Supreme Court Judgment as Precedent: Since the Supreme Court has rejected the GST Department’s plea, this essentially means that the higher rate under the department’s suggested HSN classification is not valid. Therefore, the industry is within its rights to proceed with the lower rate, especially if the High Court’s earlier decision was in favor of this classification.

• Legal Precedent: The High Court ruling, supported by the Supreme Court’s dismissal of the department’s appeal, creates a strong legal precedent in favor of the industry’s position. This makes it relatively safer for the industry to apply the lower GST rate, as the law (based on the court's interpretation) supports this.

• Risk of Dispute: However, there is always the risk of further scrutiny or action from the GST Department. The department may still take action, especially if they believe there is ambiguity in the classification. If they proceed with an audit or issue a notice, the industry can defend its position based on the court rulings.

Recommendations:

1. Proceed with the Lower Rate: Based on the Supreme Court's rejection of the GST department’s appeal, and considering the favorable High Court rulings, the industry can reasonably apply the HSN code with the lower GST rate. The legal position is clearly in their favor.

2. Document the Legal Precedents: It would be prudent for the industry to keep detailed documentation of the High Court rulings and the Supreme Court's rejection to ensure they have a strong defense in case of any future scrutiny by the GST Department.

3. Monitor for Notifications: While they don’t necessarily need to wait for a notification, it’s wise for the industry to keep an eye on any official updates from the GST Council or CBIC, as a formal rate amendment may be issued in the future. If a notification is issued that conflicts with the Supreme Court’s decision, the industry would need to reassess.

4. Consider Legal Advice: In complex matters like this, it could be beneficial to seek legal counsel to ensure full compliance and to further clarify any risks the industry may face, particularly in case of any future challenges from the GST Department.

Overall, the industry is likely safe to apply the lower GST rate as per the court's rulings, but it’s essential to stay informed of any new developments or notifications.