GST classification and exemption disputes require reasoned adjudication and fair hearing before assessment is finalised.

GST liability depends on correct classification where competing exemption and taxable entries apply. The court noted that the adjudication failed to examine whether the product fell under Notification No. 2/2017-Central Tax (Rate) or the taxable entry in Notification No. 1/2017-Central Tax (Rate), even though classification was the core dispute affecting exemption entitlement. It also found that the assessee was not given an effective opportunity to place its written explanation, amounting to a procedural unfairness. On that basis, the demand order was set aside and the matter remitted for fresh adjudication after hearing the assessee.

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Issues: (i) Whether the product in question was properly classified for the purpose of determining entitlement to exemption under the relevant GST notifications. (ii) Whether the impugned order was sustainable when the classification issue and the assessee's claim to exemption were not dealt with and effective opportunity of hearing was not afforded.

Issue (i): Whether the product in question was properly classified for the purpose of determining entitlement to exemption under the relevant GST notifications.

Analysis: The dispute turned on whether the goods fell under the exemption entry in Notification No. 2/2017-Central Tax (Rate) or under the taxable entry in Notification No. 1/2017-Central Tax (Rate). The impugned order did not examine the classification issue or discuss the applicability of the exemption notification, even though that was the core controversy. Since classification determines the taxability of the product, the omission was material.

Conclusion: The classification and exemption claim required fresh consideration by the authorities.

Issue (ii): Whether the impugned order was sustainable when the classification issue and the assessee's claim to exemption were not dealt with and effective opportunity of hearing was not afforded.

Analysis: The order was found unsustainable because it proceeded without addressing the real dispute and without granting an effective opportunity to place the written explanation. The Court treated this as a violation of fair procedure and held that the assessee deserved another opportunity before finalisation of the assessment.

Conclusion: The impugned order could not be sustained and was quashed, with liberty to the assessee to respond and the authorities directed to redo the assessment after hearing.

Final Conclusion: The writ petition succeeded, the demand order was set aside, and the matter was sent back for fresh adjudication after providing opportunity of hearing.

Ratio Decidendi: An adjudication on GST liability is unsustainable where the authority fails to decide the core classification and exemption issue and does not afford effective opportunity of hearing before passing the order.

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