2021 (10) TMI 60 - AAAR - GST

Appellate authority voids advance ruling for 'Un-fried Fryums' due to procedural errors.

In Re: M/s. J.K. Papad Industries,

The appellate authority declared the advance ruling by GAAR as void ab initio due to the appellant's suppression of material facts and the inadmissibility ... Scope of Advance Ruling - applicability of Section 98 of the CGST Act, 2017 - Classification of goods - rate of CGST and SGST - PAPAD of different shapes and sizes - classified under Chapter Tariff Heading - 1905 of the Customs Tariff Act, 1975 or otherwise? - exemption under Sr. No. 96 under Not. No. 02/2017CT (Rate) dated 28.06.2017 - HELD THAT:- The issue in the present case is not whether the application for advance ruling was ready or otherwise when the proceedings against the appellant were initiated by the DGGI, Surat and whether there was any ulterior motive or mala-fide intention in belatedly filing of such application before the GAAR. It is undisputed fact that the DGGI, Surat conducted search proceeding on 17.02.2020 and recorded a statement of the partner of the appellant on the very same issue in respect of which application was subsequently filed by the appellant before the GAAR on 04.03.2020. Therefore, the application filed by the appellant before the GAAR was covered under the first proviso to sub-section (2) of Section 98 of the CGST Act, 2017. The GAAR as well as this authority are the creature of the statute and are required to act and exercise the powers conferred in accordance with the provisions of the law. Once it is clear that the application of the appellant could not be admitted in view of the provisions of first proviso to sub-section (2) of section 98 of the CGST Act, 2017, neither the GAAR nor this authority has any discretion to allow such application - it is evident that the appellant has not informed the aforesaid material facts to the GAAR at any given point of time thereby willfully suppressing the fact from the Authority and obtaining the Ruling by suppressing the facts. Section 104 of the CGST Act, 2017 stipulates that any Ruling obtained by the applicant under Section 98(4) of the CGST Act, 2017 by “fraud or suppression of material facts or misrepresentation of facts” may be declared void ab-initio. The appellant has obtained the Advance Ruling by submitting application of advance ruling with suppression of material facts or misrepresentation of facts, and the application was not eligible to be admitted in view of proviso to sub-section (2) of section 98 of the CGST Act, 2017. Therefore, in terms of Section 104 of the CGST Act, 2017, and the GGST Act, 2017, the advance ruling pronounced by the Gujarat Authority of Advance Ruling is liable to be declared as void ab-initio. Issues Involved:1. Classification of 'Papad' of different shapes and sizes under the Customs Tariff Act, 1975.2. Applicable rate of CGST and SGST on the supply of such 'Papad'.3. Validity of the advance ruling given by GAAR in light of pending proceedings by DGGI.4. Admissibility of the application for advance ruling under Section 98(2) of the CGST Act, 2017.5. Alleged suppression of material facts by the appellant.Detailed Analysis:1. Classification of 'Papad':The appellant, engaged in manufacturing and trading 'Papad' of various shapes and sizes, contended that their product should be classified under Chapter Tariff Heading 1905 of the Customs Tariff Act, 1975. They argued that their product, being semi-cooked and needing further cooking, should be exempt from tax as per Notification No. 02/2017-CT (Rate) dated 28.06.2017.GAAR's Ruling:GAAR observed that 'Papad' has not been defined under the Customs Tariff Act, 1975, CGST Act, 2017, or relevant notifications. They applied the common parlance test and concluded that the product in question is 'Un-fried Fryums' and not 'Papad', classifiable under Tariff item 21069099.2. Applicable Rate of CGST and SGST:GAAR determined that the applicable GST rate for 'Un-fried Fryums' is 18% (CGST 9% + GGST 9% or IGST 18%) as per Sl. No. 23 of Schedule III of Notification No. 1/2017-Central Tax (Rate).3. Validity of Advance Ruling:The appellant challenged the advance ruling, arguing that GAAR wrongly applied the trade parlance theory, did not follow the Rules of Interpretation, and based its decision on incorrect legal precedents. They also claimed that the GAAR did not consider their submission regarding pending proceedings by DGGI.4. Admissibility of the Application:The appellate authority examined whether the application for advance ruling was admissible under Section 98(2) of the CGST Act, 2017. It was found that the appellant had not disclosed the ongoing proceedings by DGGI at the time of filing the application. The authority noted that the proceedings by DGGI, which started on 17.02.2020, were related to the same issue raised in the application filed on 04.03.2020. Hence, the application should not have been admitted as per the first proviso to sub-section (2) of Section 98.5. Alleged Suppression of Material Facts:The appellate authority found that the appellant had willfully suppressed material facts by not disclosing the ongoing DGGI proceedings. This suppression rendered the advance ruling obtained from GAAR void ab initio under Section 104 of the CGST Act, 2017.Conclusion:The appellate authority declared the advance ruling by GAAR as void ab initio due to the appellant's suppression of material facts and the inadmissibility of the application under Section 98(2) of the CGST Act, 2017. Consequently, the classification of the product as 'Un-fried Fryums' and the applicable GST rate of 18% stands, but the ruling itself is invalidated due to procedural impropriety.