Levy of GST on Compounded Basis Challenged: Allahabad HC says this issue May have Wider Ramifications, stays Proceedings [Read Order]
A prima facie jurisdictional issue indeed arises, as the GST Act does not provide for taxation based on compounded or assumed manufacturing capacity, said the bench
Levy of GST
Levy of GST
The Allahabad High Court recently stayed adjudication proceedings initiated under the Goods and Services Tax ( GST ) Act, wherein the department sought to levy GST on a compounded basis linked to manufacturing capacity.
The Court observed that such a method of tax computation prima facie lacks statutory sanction under the GST Act.
The petitioner, M/s Maa Vindhya Vasini Tobacco Private Limited engaged in the manufacture of tobacco products, challenged the show cause notice dated 4 December 2024, contending that there is no legal provision under the Central Goods and Services Tax Act, 2017 or allied laws that permits the levy of GST on a deemed or compounded basis a mechanism that was prevalent under the erstwhile Central Excise Act for specific commodities.
Appearing on behalf of the petitioner, counsel argued that the pre-GST concept of “compounded levy” or “deemed manufacture based on assumed capacity” finds no parallel under the current GST law.
He submitted that the authorities lacked jurisdiction to proceed on such an assumption, as GST is a transaction-based tax dependent on actual supply of goods or services, not on installed capacity or deemed production.
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The Bench comprising Justice Saumitra Dayal Singh and Justice Indrajeet Shukla took note of the contention and observed that a prima facie jurisdictional issue indeed arises, as the GST Act does not provide for taxation based on compounded or assumed manufacturing capacity.
The Court further noted that the issue raised is of wider legal importance, likely to impact multiple industries and cases, and may lead to repetitive litigation if not addressed conclusively.
The bench said that “Prima facie jurisdiction issue does appear to exist. Also, the issue is purely legal and further it is such as may have wider ramifications in other cases as well besides being such as may potentially lead to repetitive cause of actions”.
Thus, the Court decided to entertain the writ petition and issued notice to the revenue authorities. The Revenue was granted four weeks’ time to file a counter affidavit, and the petitioner was allowed two weeks thereafter to file a rejoinder.
Additionally, the Court directed that till the next date of listing, the adjudication proceedings initiated under the impugned show cause notice shall remain stayed, halting further departmental action.
The matter has been directed to be listed immediately after the completion of pleadings for further hearing.
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