In a recent ruling, the Gujarat High Court quashed a Show Cause Notice (SCN) issued against J.K. Papad Industries, which had demanded an 18% Goods and Services Tax (GST) on the supply of uncooked extruded snack pellets.
It was noted that the petitioner had acted in good faith by classifying their product as per the earlier rulings and was entitled to the benefit of the lower 5% rate.
The case revolved around the classification of unfried snack pellets under the GST regime. J.K. Papad Industries, engaged in manufacturing these pellets through an extrusion process, had classified their product under Harmonized System of Nomenclature (HSN) 19059040, attracting a lower GST rate.
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However, a Show Cause Notice was issued by the Central GST authorities, asserting that the correct classification should be under HSN 19059030, which covers “extruded or expanded products” and carries an 18% GST. The authorities based their demand on a circular issued by the Central Board of Indirect Taxes and Customs (CBIC), dated January 13, 2023, which classified snack pellets such as fryums under the higher tax bracket.
The petitioner argued that there had been genuine confusion surrounding the applicable GST rate for these products. Previously, the Gujarat Appellate Authority for Advance Ruling had ruled in their favor, classifying the products under HSN 19059040, which was covered under the exemption notification and attracted a lower tax rate.
The petitioner further pointed out that the GST Council, in its 50th meeting held on July 11, 2023, had recommended reducing the GST rate for uncooked or unfried snack pellets to 5%. It was also decided that any pending issues related to the tax classification for the past period would be regularized on an “as is where is” basis due to the genuine doubts that had persisted.
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The Gujarat High Court bench of Justice Bhargav D Karia and Justice Niral R Mehta, after reviewing the case, held that the demand for 18% GST was unjustified. It found that the petitioner had acted in good faith by classifying their product as per the earlier rulings and was entitled to the benefit of the lower 5% rate.
The court also directed the authorities to regularize the past returns filed by the petitioner at the 5% rate, rejecting the imposition of 18% GST for the prior period.
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