Notice issued: Whether GST Council has the authority to change the classification of the product

The Allahabad High Court has placed a stay on a show cause notice concerning the GST classification of "flavoured and coated elaichi". The petitioner, Dharampal Satyapal Limited, was reclassified from Chapter 20 to Chapter 21 by the GST Council, increasing the GST rate from 12% to 18%. The court's interim order requires a deposit of INR 10 crores and a bank guarantee for the balance amount, preventing the revenue department from enforcing the new classification or issuing further demands without court permission.

The Hon'ble Allahabad High Court in M/s. Dharampal Satyapal Limited v. Union of India [Writ Tax No. 979 of 2023 dated August 21, 2023] granted the stay on show cause notice provided the deposits INR 10 Crores with the Revenue Department in a separate account within three weeks and submits a bank guarantee of the balance amount.

Facts

M/s. Dharampal Satyapal Limited ("the Petitioner") isinteraliaengaged in the business of manufacturing, supplying and distribution of silver coated elaichi, mouth freshner and silver coated dates.

The Revenue Department ("the Respondent") investigated the premises of the Petitioner and found that the Petitioner is classifying the "flavoured and coated elaichi" under Chapter 20 of the GST Tariff and paying GST @ 12%. 

According to the Respondent the new rate has been recommended by the GST Council meeting dated September 17, 2021 and consequential press release has clarified the classification of the "flavoured and coated elaichi" is under Chapter 21 and attract GST@18%.

The Petitionerin order to buy peace of mind paid INR 5 Crores under protest during the Investigation. The Respondent further issued 2 Show Cause Notice both dated March 02, 2023 ("the SCNs") ordering to deposit the GST of INR 25,36,60,985/- besides interest and penalty.

Aggrieved by the SCNs the Petitioner filed a writ before the Hon’ble Allahabad High Court.

Issue

Whether the GST Council has the authority to change the classification of the product and whether the circulars based on Council’s recommendations are legally valid?

Held

The Hon’ble Allahabad High Court in Writ Tax No. 979 of 2023 held as under:

• As an interim measure the court put stay on the effect and operation of Circular No. 163/19/2021-GST dated October 06, 2021 and on the SCNs and stated that the stay is subject to deposit of INR 10 crores with the Respondent within three weeks which shall be kept in separate bank account and provides a bank guarantee for the remaining amount.
• Clarified that, the Respondent may adjudicate the matter but will not give effect without the permission of the Court.