2024 (12) TMI 1078 - HC - GST

Petition challenging GST show cause notice for product classification dismissed for not exhausting alternate remedies first

The Bombay HC dismissed a petition challenging a GST show cause notice regarding product classification. The petitioner classified their product as DDGS ... Maintainability of petition - Exhaustion of alternate remedies before approaching the High Court - Jurisdiction of the Central Government to levy GST on alcoholic liquor for human consumption - HELD THAT:- The impugned show cause notice is not restricted only to the issue of production overhead charges. The Petitioner has classified their product as “DDGS, Husk & Cattle Feed (Spent Grain) under HSN 1104 instead of HSN 2303 and clearing/supplying the same on `Nil’ GST rate while HSN 2303 attracts GST @5%.” There is a serious issue with this classification. The show cause notice alleged that this is nothing but misclassification. Detailed though tentative reasons have been given in support of this allegation. Indeed, this is a matter that requires a thorough investigation. In Whirlpool Limited [1998 (10) TMI 510 - SUPREME COURT] the Hon’ble Supreme Court has held that alternate remedy would not operate as a bar in at least three contingencies, namely where the Writ Petition has been filed for the enforcement of any of the fundamental rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. In the present case, there is no question of enforcement of any fundamental rights. This is also not a case of violation of principles of natural justice. The show cause notice is quite clear and provides the basis for issuing the same. This is also not a case where the proceedings are wholly without jurisdiction. Recently, in Oberoi Constructions Ltd. [2024 (11) TMI 588 - BOMBAY HIGH COURT], this Court surveyed the precedents about exhaustion of alternate remedies. By adopting the reasoning therein, no case is made to interfere with the impugned show cause notice or issue a declaration sought by the Petitioner without verifying the crucial factual aspects. Thus, no case is made to interfere with the impugned show-cause notice - petition is liable to be dismissed, and it is hereby dismissed with no costs order. Issues Involved:1. Jurisdiction of the Central Government to levy GST on alcoholic liquor for human consumption.2. Applicability of an Advance Ruling to the Petitioner.3. Classification and misclassification of products for GST purposes.4. Exhaustion of alternate remedies before approaching the High Court.Detailed Analysis:1. Jurisdiction of the Central Government to levy GST on alcoholic liquor for human consumption:The Petitioner challenged the show cause notice issued by the Directorate General of Goods & Services Tax Intelligence, arguing that the Central Government lacks jurisdiction to levy GST on the supply of alcoholic liquor for human consumption. The Petitioner contended that such taxation is beyond the legislative competence of the Central Government as per Section 9(1) of the CGST Act 2017 and the Constitutional Scheme, which reserves this power for State Authorities. The Court, however, determined that the show cause notice did not prima facie demand GST on the sale of alcoholic liquor for human consumption, thus not falling under the jurisdictional bar claimed by the Petitioner.2. Applicability of an Advance Ruling to the Petitioner:The Petitioner argued that an Advance Ruling in favor of United Breweries Limited (UBL) should also apply to them, as they operate under a license agreement with UBL. However, the Court noted that the Advance Ruling was specific to UBL and could not be mechanically applied to the Petitioner. The Court highlighted that the Petitioner was not a party to the original Advance Ruling case, and the agreements between UBL and the Petitioner differed from those considered in the Advance Ruling. Therefore, the Court found no basis to declare the show cause notice as ultra vires based on the Advance Ruling.3. Classification and misclassification of products for GST purposes:The show cause notice alleged that the Petitioner misclassified their product under HSN 1104 instead of HSN 2303, resulting in GST evasion. The Petitioner contended that the production overhead charges did not constitute consideration for a taxable supply. The Court emphasized that the classification issue required a detailed factual investigation, which was beyond the scope of the current proceedings. The Court concluded that the show cause notice was not wholly without jurisdiction or ultra vires, as it involved complex factual determinations.4. Exhaustion of alternate remedies before approaching the High Court:The Court reiterated the principle that writ jurisdiction should not be used to bypass statutory remedies unless exceptional circumstances exist, such as violation of fundamental rights or proceedings being wholly without jurisdiction. The Court cited precedents emphasizing the necessity of exhausting alternate remedies before seeking judicial intervention. The Court found that the Petitioner had not demonstrated any such exceptional circumstances and that the issues raised involved disputed factual matters requiring adjudication by the appropriate authority. Consequently, the Court dismissed the Petition, directing the Petitioner to respond to the show cause notice within four weeks, allowing the statutory process to proceed.