Classification of Ice Cream Manufacturers under GST: GST Council ordered to reconsider exclusion from composition scheme within three months

The challenge concerns exclusion of small-scale ice cream manufacturers from the GST composition scheme and the absence of recorded reasons for that classification. The court found the exclusion lacked justification under the principle of reasonable classification and the equality guarantee, noting ice cream is not a luxury item; it did not strike down the notification but directed the GST Council to reconsider extending Section 10(1) benefits to small-scale ice cream manufacturers and to decide within three months, disposing of the petition with those directions.

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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.

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