Petition Challenging GST Council’s Power to Change Classification of Commodity: Allahabad HC Stays CBIC Circular and Notices as Interim Relief [Read Order]

On a petition challenging the Goods and Service Tax (GST) Council power to change the classification of a commodity and increasing the GST rate, the Allahabad High Court stayed the effect and operation of Central Board Of Indirect Taxes & Customs (CBIC) Circular and notice as an interim relief.

Dharampal Satyapal Ltd, the Petitioner is engaged in the business of manufacturing, supplying and distributing silver-coated illaichi {under the brand name Rajnigandha Silver Pearls/RG illaichi (since 2013)}, Mouth Freshener {under the Brand name Pass Pass (since 1999)} and silver coated dates {under the brand name Tulsi Royal Khajoor (since 2018)} which fall within the ambit of Chapter 20 of the GST Tariff/erstwhile Central Excise Tariff and attracted GST of 12% (CGST and SGST @ 6% respectively).

It was contended that even after the migration of the indirect tax regime to the GST regime the products of the petitioner continued to be classified under Chapter 20 sub-heading 20:08 of the GST schedule. However, the GST Council under its Council Meeting dated 17.9.2021 and consequential press release has proceeded to classify the products of the petitioner company to fall under Chapter 21 and attract 18% GST.

It was submitted that the GST Council has no authority to change the classification of a commodity and increase the GST rate payable in respect of its supplies under a clarification. During the investigations, the petitioner has deposited a sum of Rs.5 crores under protest which is liable to be refunded to the petitioner with interest. However, the respondents are insisting on a deposit of the balance amount of GST demanded under the impugned notices to the tune of Rs.25,36,60,985/- besides interest and penalty.

Counsel for the respondent prayed for and was allowed four weeks to file a counter affidavit. Two weeks thereafter is granted to the petitioner to file a rejoinder affidavit.

 A division bench comprising Chief Justice Pritinker Diwaker and Justice Ashutosh Srivastava held that “the effect and operation of the Circular dated 6.10.2021 (Annexure 2 to the writ petition), impugned show cause notices shall remain stayed provided the petitioner deposits a sum of Rs.10 crores with the respondents within three weeks from today which shall be kept in a separate account and submits a bank guarantee of the balance amount other than cash within the same period. It is clarified that the adjudication proceedings may go on but shall not be given effect without the leave of the Court.”

To Read the full text of the Order CLICK HERE

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