Gujarat HC quashes GST notice over HSN classification dispute, orders past period regularization at nil rate under section 74

Gujarat HC quashed SCN u/s 74 of GST Act challenging classification of petitioner's product under HSN 19059040 versus 19059030. Court held that per GST Council minutes and Board circular dated 1.08.2023, past period regularization should be on "as is where is" basis up to 22.07.2023. Since petitioner claimed exemption under HSN 19059040 and filed returns at nil rate, respondents misinterpreted by imposing 18% GST under HSN 19059030, ignoring binding Gujarat Appellate Authority ruling. Court directed regularization of past returns at nil rate as filed.

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Issues Involved:
1. Jurisdiction of the show cause notice.
2. Classification of the product under the GST Act.
3. Applicability of GST rate on unfried fryums.
4. Binding nature of Advance Ruling Appellate Authority's order.
5. Interpretation of "as is" basis for past GST returns.

Detailed Analysis:

1. Jurisdiction of the Show Cause Notice:
The petitioners challenged the show cause notice dated 07.02.2024 under section 74 of the GST Act as being wholly without jurisdiction. They argued that the notice was issued to levy GST at 18% on unfried fryums, which they classified under HSN 19059040 instead of HSN 19059030. The court found that the notice was without jurisdiction as it ignored the binding decision of the Advance Ruling Appellate Authority.

2. Classification of the Product under the GST Act:
The main issue was whether unfried fryums should be classified under HSN 19059040 (exempt from GST) or HSN 19059030 (subject to 18% GST). The petitioners argued that their product, similar to papad, should be classified under HSN 19059040. The court referred to the Gujarat Appellate Authority for Advance Ruling's decision, which classified the product under HSN 19059040, considering the ingredients, manufacturing process, and common parlance understanding.

3. Applicability of GST Rate on Unfried Fryums:
The petitioners contended that the GST rate applicable to their product should be 5% as per the circular dated 1st August 2023, which regularized the past period on an "as is" basis. The court noted that the GST Council, in its 50th meeting, had recommended reducing the GST rate to 5% and regularizing past transactions on an "as is" basis due to genuine doubts regarding the classification.

4. Binding Nature of Advance Ruling Appellate Authority's Order:
The petitioners argued that the Advance Ruling Appellate Authority's order, which classified their product under HSN 19059040, was binding under section 103 of the GST Act. The court upheld this argument, stating that the binding nature of the Advance Ruling Appellate Authority's order must be followed by the jurisdictional officer.

5. Interpretation of "As Is" Basis for Past GST Returns:
The court interpreted the "as is" basis mentioned in the circular dated 1st August 2023 to mean that the past GST returns filed by the petitioners at Nil rate should be regularized as they are. The court found that the respondents had misinterpreted this phrase by issuing notices to levy GST at 18%, ignoring the binding decision of the Advance Ruling Appellate Authority.

Conclusion:
The court allowed the petitions, quashing the impugned notice dated 07.02.2024 issued under section 74 of the GST Act. The respondents were directed to regularize the past returns filed by the petitioners on an "as is" basis, accepting them at Nil rate up to 22.07.2023. The court emphasized the binding nature of the Advance Ruling Appellate Authority's order and the correct interpretation of the "as is" basis for past GST returns.

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