2023 (8) TMI 1218 - HC - GST

Flavoured Illaichi Tax Classification Battle: High Court Grants Interim Relief with Deposit Condition and Stays Show Cause Notices

HC ruled on GST classification dispute involving flavoured and coated illaichi. Petitioner challenged GST Council's classification under higher tax rate ... Interim stay - classification of goods for GST - authority of the GST Council to issue clarifications on classification - stay subject to deposit and bank guarantee - adjudication proceedings to continue but not given effect without leave of courtInterim stay - classification of goods for GST - stay subject to deposit and bank guarantee - adjudication proceedings to continue but not given effect without leave of court - Interim effect of Circular dated 6.10.2021 and the impugned show cause notices stayed subject to specified deposits and guarantees - HELD THAT: - The High Court, while not adjudicating the merits of the petitioner's challenge to the GST Council's classification and consequential Circular, granted an interim stay on the operation and effect of the Circular dated 6.10.2021 and the two impugned show cause notices. The stay is conditional: the petitioner must deposit Rs. 10 crores with the respondents within three weeks to be kept in a separate account and furnish a bank guarantee for the balance amount within the same period. The Court clarified that adjudication proceedings may continue but no adjudicatory order shall be given effect to without the leave of the Court. This interim arrangement preserves the status quo subject to the financial security furnished by the petitioner and does not constitute a final determination on the legality of the classification or Circular. [Paras 7]Effect and operation of the Circular dated 6.10.2021 and the impugned show cause notices stayed on the terms that the petitioner deposits Rs. 10 crores and furnishes a bank guarantee for the balance within three weeks; adjudication may proceed but cannot be given effect without the Court's leave.Procedural timetable for pleadings - Time granted to respondents to file counter affidavit and to petitioner to file rejoinder; listing fixed - HELD THAT: - The Court allowed the respondents four weeks to file a counter affidavit and granted the petitioner two weeks thereafter to file a rejoinder. The matter was directed to be listed after the expiry of six weeks. These directions structure the interlocutory timetable for further adjudication of the petition and preservation of parties' rights pending final disposal. [Paras 5, 6]Respondents granted four weeks to file counter affidavit, petitioner granted two weeks for rejoinder, and matter listed after six weeks.Final Conclusion: Interim relief granted: operation of the impugned Circular and show cause notices stayed on the petitioner furnishing a cash deposit of Rs. 10 crores and a bank guarantee for the balance within three weeks; adjudication may continue but no order shall be given effect without leave of the Court; procedural timetable for filing of pleadings and listing is fixed. Issues Involved:The issues involved in the judgment are the classification of 'flavoured and coated illaichi' under GST, authority of the GST Council to change classification and increase GST rate, refund of deposited amount under protest, and validity of show cause notices.Classification of Goods under GST:The petitioner challenged the decision of the GST Council classifying 'flavoured and coated illaichi' under heading 21:06 and attracting GST at 18%. The petitioner contended that their products fall under Chapter 20 and attracted 12% GST. They argued that the GST Council exceeded its authority by changing the classification and increasing the GST rate. The petitioner sought a declaration that the decision and subsequent circulars are ultra vires the CGST Act, 2017.Refund of Deposited Amount:The petitioner deposited Rs. 5 crores under protest during investigations and requested a refund with interest. However, the respondents demanded an additional amount of Rs. 25,36,60,985/- along with interest and penalty. The petitioner claimed that the deposited amount should be refunded as it is liable to be returned with interest.Validity of Show Cause Notices:The petitioner sought to quash two show cause notices dated 2.3.2023 and restrain the Addl./Joint Commissioner from proceeding with adjudication. The petitioner argued that the notices were unwarranted and insisted on the refund of the deposited amount. The Court stayed the operation of the show cause notices and circulars subject to the petitioner depositing Rs. 10 crores and providing a bank guarantee for the balance amount.The High Court of Allahabad heard the case regarding the classification of goods under GST and the validity of show cause notices. The petitioner challenged the decision of the GST Council classifying their products under a higher GST rate, contending that the classification was incorrect and exceeded the Council's authority. The petitioner also sought a refund of the amount deposited under protest during investigations. The Court granted time for filing counter affidavit and ordered a stay on the operation of show cause notices pending further proceedings.