Judicial review under Article 226 maintainable; flavoured milk in GST Tariff Heading 0402; Sections 122(2)(b) and 74 penalties not imposed

HC allowed the petition and set aside the impugned order, holding that judicial review under Article 226 is maintainable despite alternative remedies. Flavoured milk falls under GST Tariff Heading 0402 (milk and milk products, including milk containing added sugar or sweetening matter) rather than 2202, and the general beverage entry in 2202 yields to the special entry 0402. Consequently, penalties under Section 122(2)(b) and Section 74 of the CGST Act do not arise; the court left open whether penalty could ever be imposed solely for reclassification between tariff entries.

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Issues Involved:

1. Classification of "flavoured milk" under GST Tariff Heading 0402 or 2202.
2. Applicability of penalty under Section 122(2)(b) and Section 74 of the Central GST Act.
3. Maintainability of the writ petition in the context of alternative remedies.

Issue-wise Detailed Analysis:

1. Classification of "flavoured milk" under GST Tariff Heading 0402 or 2202:

The primary issue was whether "flavoured milk" should be classified under GST Tariff Heading 0402 or 2202. The petitioner, a registered dealer under the GST Act dealing with milk and milk products, initially classified "flavoured milk" under 0402, which pertains to "Milk and cream, concentrated or containing added sugar or other sweetening matter." However, the 1st respondent reclassified it under 2202, which pertains to "Beverages containing milk," arguing that the addition of Badam flavour transformed it into a beverage rather than milk.

The court examined the descriptions under both headings and found that the 1st respondent's interpretation was flawed. The court noted that Heading 0402 includes not only plain milk but also milk products like cream and milk food for babies, which are not merely milk. The court concluded that the addition of 0.5% Badam flavour does not remove "flavoured milk" from the ambit of 0402. The court also applied the principle of "Nocitur a Sociis," determining that beverages under 2202 typically include water, which is not a component of "flavoured milk." Therefore, the court held that "flavoured milk" should be classified under 0402, as it is a special entry compared to the general entry of 2202.

2. Applicability of penalty under Section 122(2)(b) and Section 74 of the Central GST Act:

The 1st respondent imposed a penalty on the petitioner, alleging deliberate tax evasion by reclassifying "flavoured milk" under 0402. The court, however, found that since "flavoured milk" is correctly classified under 0402, the basis for imposing a penalty was invalid. The court noted that the mere change in classification by the petitioner, without any change in the manufacturing process, does not constitute an attempt to evade tax. Consequently, the court set aside the penalty imposed under Section 122(2)(b) and Section 74 of the Central GST Act.

3. Maintainability of the writ petition in the context of alternative remedies:

The respondents raised a preliminary objection regarding the maintainability of the writ petition, arguing that classification issues should be addressed by tribunals established under taxation statutes. The court acknowledged this contention but decided to hear the petition since it had been pending for a year and the period for filing an appeal had lapsed. The court emphasized that the existence of an alternative remedy does not bar judicial review under Article 226 of the Constitution of India and chose to exercise its discretion to hear the case.

Conclusion:

The court allowed the writ petition, setting aside the impugned order that classified "flavoured milk" under 2202 and imposed penalties. The court concluded that "flavoured milk" should be classified under 0402 and that the penalties were unjustified. The court also dismissed the preliminary objection regarding the maintainability of the writ petition, allowing it to proceed under its jurisdiction. There was no order as to costs, and any pending miscellaneous petitions were closed.

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