5% GST on Nizam Pakku: Madras HC quashes DGGI’s Notice as Clear abuse of Law [Read Order]

The Madras High Court, while upholding the applicability of 5% GST ( Goods and Services Tax ) on “Nizam Pakku,” quashed show cause notice sought to reclassify the product under a higher tax bracket without considering the decisions rendered by the Supreme Court, CESTAT and AAAR on the classification.

The petitioner, M/s Azam Laminators Private Limited, challenged the notice dated 17.05.2022 on the ground that it revisits an issue that has already attained finality through decisions of the Supreme Court, CESTAT, and the Appellate Authority for Advance Ruling (AAAR).

The case is about the classification of “Nizam Pakku”, a scented and sweetened areca nut (betel nut) product. The Department had attempted to classify it under Chapter 2106 9030 of the Customs Tariff Act (CTA), thereby attracting 18% GST. However, the petitioner contended that the product rightfully falls under Chapter 0802, which carries a GST rate of just 5%.

The petitioner stated that “Nizam Pakku” consists of split betel nuts processed with vegetable oils, sugar syrup, menthol, and spices processing that does not alter the fundamental character of the product as a betel nut.

The petitioner relied on the Supreme Court’s ruling in Crane Betel Nut Powder Works v. CCE, where it was held that adding sweetening agents and essential oils to betel nut does not amount to manufacturing a new product. This decision, though under the Central Excise regime, is equally applicable under GST since the tariff entries under CETA and CTA remain identical, said the court.

Furthermore, the petitioner’s own case had been previously decided in their favour by the Supreme Court, and a subsequent decision of the CESTAT reaffirmed that position even after certain amendments were made to the tariff notes.

The High Court noted that despite the transition from excise to GST, the essential character of “Nizam Pakku” remains unchanged and that the same classification should apply.

The Court also noted that the brand owner had obtained an advance ruling and a subsequent ruling from AAAR confirming the classification under Chapter 0802 with 5% GST. These rulings were accepted by the Department and no appeal was filed against them.

In its detailed judgment, the Court observed that the show cause notice not only disregarded binding precedents but also failed to consider the AAAR ruling, thereby constituting an “abuse of process of law.”

The Court pointed out that when a matter has already been decided with finality, it cannot be reopened on the same facts and law. It concluded that there was no change in the product's composition or in the legal provisions justifying a reclassification.

The bench of Justice Krishnan Ramasamy observed that “the current proceedings initiated against the petitioner, despite the issue of classification of the impugned goods having attained finality in their own case in the Hon'ble Apex Court, in the first round, further decided by CESTAT and the said decision being accepted in the second round, and despite having an AAAR order for the impugned goods under GST regime, once again re-agitating the issue of classification with no change in material facts or circumstances or law, is nothing but an abuse of process of law, which warrants the interference of this Court.”

Accordingly, the Madras High Court quashed the impugned show cause notice and allowed the writ petition, reiterating that “Nizam Pakku” falls under Chapter 0802 of the CTA and is liable to GST at 5%.

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