2020 (10) TMI 1003 - HC - VAT and Sales Tax

Stay on Attachment of Bank Account of petitioner - taxability of Extra Neutral Alcohol (ENA) and Rectified Spirit - levy of VAT or GST? - HELD THAT - As an interim measure that the impugned notice dated 30th September, 2020 provisionally attaching the bank account of the petitioner shall be stayed subject to petitioner furnishing bank guarantee of a nationalized bank to the extent of 50% of the differential amount i.e., the difference between the amount of GST paid and the amount of VAT quantified, to respondent No.2 within three weeks from today. Stand over to 3rd December, 2020 for further consideration.

Summary

Issues:
Challenge to notice provisionally attaching bank account under Maharashtra Value Added Tax Act, 2002 regarding taxability of Extra Neutral Alcohol and Rectified Spirit under GST or VAT.

Analysis:
The High Court of Bombay heard a writ petition challenging a notice issued under the Maharashtra Value Added Tax Act, 2002, provisionally attaching a bank account. The petitioner, a company engaged in manufacturing Extra Neutral Alcohol and Rectified Spirit, raised a dispute on whether GST or VAT should be levied on these products. The core issue revolved around the taxability of Extra Neutral Alcohol (ENA) and Rectified Spirit (RS), specifically whether they should fall under GST or VAT. The petitioner argued that ENA and RS, containing 95% alcohol by volume, are not fit for human consumption. The confusion arose following the introduction of the GST regime, prompting the matter to be taken up by the GST Council for a final decision.

The State of Maharashtra classified ENA/RS as a VAT leviable item, effective from August 24, 2017, pending the decision of the GST Council. The petitioner referred to an opinion by the Attorney General of India, stating that GST cannot be levied on ENA used for manufacturing alcoholic liquor for human consumption. The Attorney General opined that ENA, not fit for human consumption, is used in the manufacturing process and thus not directly consumed. The court also referenced previous judgments emphasizing the limitations on states to levy taxes on alcoholic liquor for human consumption.

The court, after hearing both parties, directed that the impugned notice provisionally attaching the petitioner's bank account be stayed upon the petitioner furnishing a bank guarantee of 50% of the differential amount between GST paid and VAT quantified within three weeks. The matter was scheduled for further consideration on December 3, 2020.