2021 (2) TMI 558 - HC - GST

Court directs GST Council to reconsider excluding ice cream from Composition Scheme, emphasizes need for comprehensive assessment.

The court entertained the challenge to the GST Council's decision excluding ice cream from the Composition Scheme under Section 10 of the CGST Act, 2017. ... Judicial review of policy decisions - Scope of executive discretion in taxation - Reasonableness, arbitrariness and mala fide grounds for interference - Power to exclude goods from composition scheme - Reconsideration and remand for fresh decisionJudicial review of policy decisions - Scope of executive discretion in taxation - Power to exclude goods from composition scheme - Validity of the GST Council's recommendation and the Government's notification excluding ice cream from the benefit of the composition scheme under Section 10(1) of the CGST Act and the extent to which courts may review that decision. - HELD THAT: - The Court recorded that Section 10(2)(e) vests power in the Government, on the recommendation of the GST Council, to notify goods which shall not be eligible for the composition scheme, and no statutory parameters are prescribed limiting that recommendation. The GST Council, being a constitutionally established, representative body with Central and State membership, exercises a high level policy function involving economic and fiscal considerations. Established principles were reiterated that courts do not sit in appeal over executive policy choices and will not substitute their own assessment of economic wisdom, unless the action transgresses law or fundamental rights or is tainted by mala fide, unreasonableness, arbitrariness or unfairness. Prior authorities were applied to emphasize the limited scope of judicial interference in executive fiscal policy. On the material before it (minutes of the GST Council), the Court found the Council had recorded concern about taxation impact and revenue loss as a reason for exclusion. The Court therefore recognised the wide executive discretion in selecting goods for exclusion and indicated that absent a showing of illegality or arbitrariness on the record before it, the Court would not substitute its own policy judgment for that of the GST Council. [Paras 12, 13, 14, 15, 18]The Court refrained from substituting its view for the GST Council's policy decision, recognising the broad executive discretion in tax policy and the limited scope of judicial review, but examined whether reconsideration was appropriate on the available material.Reconsideration and remand for fresh decision - Reasonableness, arbitrariness and mala fide grounds for interference - Whether the GST Council should be directed to reconsider the exclusion of ice cream from the composition scheme and, if so, the parameters for such reconsideration. - HELD THAT: - Although acknowledging the Council's policy discretion, the Court noted that the minutes before it emphasized revenue/taxation effect as the prevailing reason for exclusion and that it was not apparent from the minutes whether the Council had undertaken a detailed comparative study of components of ice cream (notably the GST treatment of constituent inputs such as milk and other assessable ingredients) or whether similarly placed goods with comparable tax effects had been treated consistently. The Court observed that the Council also considers socio political factors, but concluded that in the circumstances the appropriate remedy was to direct the GST Council to re examine the exclusion specifically addressing (a) the composition of ice cream and the GST payable on its components and (b) whether other similar goods with comparable tax impact continue to enjoy composition benefits, so as to ensure that the decision is taken after consideration of these material aspects. [Paras 19, 20, 21, 22, 23]Directed the GST Council to reconsider exclusion of small scale manufacturers of ice cream from the composition scheme, considering the components and GST payable thereon and the position of other similar goods, and to take a decision preferably within three months.Final Conclusion: The petition was disposed of by refusing to substitute the Court's policy view for that of the GST Council while directing the GST Council to reconsider, at its next meeting and expeditiously (preferably within three months), the exclusion of small scale ice cream manufacturers from the composition scheme having regard to component wise GST incidence and comparative treatment of similar goods. Issues:Challenge to GST Council's decision excluding ice cream from Composition Scheme under Section 10 of CGST Act, 2017.Analysis:1. The petitioner challenged the GST Council's decision excluding ice cream from the Composition Scheme under Section 10 of the CGST Act, 2017, citing violation of Articles 14 and 19 of the Constitution and principles of natural justice.2. The court entertained the petition and issued notice to the respondents.3. The respondent no.2 GST Council filed a counter affidavit, but it was not on record during the hearing.4. The court proceeded with the hearing due to the urgency, as the ice cream sales season was approaching, and both parties were ready to present arguments.5. Section 10(1) of the Act allows registered persons with turnover below specified limits to opt for a Composition Scheme, subject to conditions. Section 10(2)(e) empowers the Government, on GST Council's recommendation, to exclude specific goods from the Scheme.6. The respondent no.2 GST Council recommended excluding ice cream from the Scheme, affecting small ice cream manufacturers with turnover below a certain limit.7. Similar petitions on ice cream issue were pending in other High Courts, indicating a broader concern.8. No previous High Court decision existed on this issue.9. The court decided not to delay the judgment, as it could apply to similar petitions pending in other courts.10. The petitioner argued against clubbing ice cream with sin goods like pan masala and tobacco, questioning the rationale behind the exclusion.11. The petitioner contended that the reasoning for excluding ice cream based on GST on milk was flawed, as ice cream contains other taxable components.12. The court examined the broad discretionary powers of the GST Council under Section 10(2)(e) and questioned its authority to substitute the Council's decision.13. Citing legal precedents, the court emphasized limited judicial review over government economic decisions and policy matters.14. The respondents highlighted that aerated water was also excluded from the Composition Scheme, supporting the decision on ice cream.15. Legal precedents emphasized the state's discretion in taxation matters and limited judicial interference in economic policy decisions.16. Additional legal cases were referenced to support the respondents' arguments.17. The court reviewed the minutes of the GST Council meetings provided by the respondents.18. The minutes reiterated the taxation impact as a key factor in excluding ice cream from the Scheme.19. The court inquired about studies or considerations of tax effects on similar goods and services, which were not evident from the minutes.20. Lack of evidence of comprehensive study or consideration for similar goods was noted by the court.21. The respondents argued that socio-political factors also influenced such decisions.22. The court directed the GST Council to reconsider the exclusion of small ice cream manufacturers from the Composition Scheme, considering components used and GST implications compared to similar goods.23. The GST Council was instructed to address this issue in its next meeting and make a decision within three months.24. The petition was disposed of with this directive.