2024 (4) TMI 555 - HC - GST

GST Council must reconsider excluding small ice cream manufacturers from composition scheme under Section 10(1)

Small Scale Ice Cream Manufacturer Association and Vivek Mishra Vice President – All Inida Small Scale Ice Cream Manufacturer Association Versus Union of India, GST Council, New Delhi.

The Chhattisgarh HC directed the GST Council to reconsider excluding small-scale ice cream manufacturers from the composition scheme under Section 10(1) ... Eligibility for Composition scheme - ice-cream - limited grievance of the petitioners is that the ‘Ice Cream’ has been placed on par with Pan Masala and Tobacco - proper reason assigned by the Council for the inclusion of Ice Cream Manufacturers in the negative list - HELD THAT:- From a perusal of the resolution passed by the GST Council, it is evident that the goods and services have been divided into 05 Tax slabs for collection of the tax, that is (i) 0%, (ii) 5%, (iii) 12%, (iv) 18% and (v) 28%. It was discussed in the meeting that the Small Scale Ice Cream Industries have been put out of the composition scheme and the Manufacturers have been put under the category of 18% of the GST Scheme. It was also discussed that except for the big brands of Ice Cream Industries, 80-90% of Ice Cream Industries fall under the Small Scale Industries and are low in their turnover and transaction business. The Council after discussion, put Pasta, Macaroni, Cakes, Malt, Mineral Water, Tobacco, Pan Masala etc. under the category of 18% GST and at the same time, kept the rate of tax for Human Hair (dressed, Thinned, and Bleached), Agarbatti at nil. The Council kept the rate of tax for certain items at 5% or 12%, though those were the Luxurious items. In the matter of Ayurveda Pharmacy [1989 (3) TMI 187 - SUPREME COURT] while dealing with the levy of sales tax on Ayurvedic drugs and medicines, the Hon'ble Supreme Court held that the Legislature is authorized to select different rates of tax for different commodities, but for the same class or category, there must be a rational basis for discrimination - From a perusal of the decision taken by the Council in the meeting, it appears that no reason has been assigned by the Council to exclude the Ice Cream Manufacturers from the benefit of Section 10(1) of the GST Act. The Council ought to have taken into consideration the socio-political effect while putting the Ice Cream within the tax regime of 18%. The taxation law should pass the test of Article 14 of the Constitution of India and there should be reasonable classification. Admittedly, Ice Cream is being widely consumed by the people of India. It cannot be termed a luxurious item as all kinds of people use to taste Ice Cream. The Council ought to have taken into consideration the socio-economic effect as mentioned in the Constitution. This petition is disposed of with a direction to respondent No. 2/GST Council to reconsider the exclusion of Small-Scale Manufacturers of Ice Cream from the benefit of Section 10(1) of the GST Act. Issues Involved:1. Production of records by respondents.2. Quashing of GST Council recommendations.3. Striking down of impugned notification as ultra vires.4. Classification of Ice Cream Manufacturers under GST.Summary:1. Production of Records by Respondents:The petitioners sought a writ/order/direction for the respondents to produce the entire records before the Hon'ble Court.2. Quashing of GST Council Recommendations:The petitioners requested the Court to quash the GST Council's recommendations, arguing they were void ab initio. The GST Council had excluded Ice Cream Manufacturers from the Composition Scheme, which allowed businesses to pay tax at a flat percentage of turnovers every quarter. The Council's decision was based on concerns over revenue loss and potential tax evasion.3. Striking Down of Impugned Notification as Ultra Vires:The petitioners sought to strike down Notification No. 8/2017-Central Tax dated 27.06.2017, holding it to be ultra vires. The GST Council had placed Ice Cream Manufacturers in the 18% tax bracket, excluding them from the Composition Scheme, which was seen as unjust, illegal, and arbitrary.4. Classification of Ice Cream Manufacturers under GST:The petitioners argued that the exclusion of Ice Cream Manufacturers from the Composition Scheme was erroneous and illegal. They contended that Ice Cream, being milk-based, should not be treated on par with Pan Masala and Tobacco products. The petitioners cited judgments from the Hon'ble Supreme Court emphasizing that taxation laws must pass the test of Article 14 of the Constitution of India and that classification must be reasonable.The respondents, represented by the Deputy Solicitor General, argued that the negative list aimed to place products with physical and social hazards in a higher tax slab. They noted that raw materials for Ice Cream production, like milk, were minimally taxed, and the decision was made considering all aspects of the GST Council.Judgment:The Court observed that the GST Council had not provided reasons for excluding Ice Cream Manufacturers from the Composition Scheme. The Court highlighted the need for reasonable classification under Article 14 of the Constitution and noted that Ice Cream is widely consumed and not a luxury item. The Court directed the GST Council to reconsider the exclusion of Small-Scale Ice Cream Manufacturers from the benefit of Section 10(1) of the GST Act in light of the judgments passed by the Hon'ble Supreme Court. The Council was expected to take a decision within three months from the date of receipt of the order. The petition was disposed of with these observations and directions.