2020 (10) TMI 149 - AAAR - GST

Classification of goods - preparation of Whole Wheat parota and Malabar parota - to be classified under Chapter heading 1905, attracting GST at the rate of 5% or otherwise? - challenge to AAR decision - seeking advance ruling when the matter was pending and under investigation - HELD THAT - It has been brought to our notice by the Department that the impugned advance ruling has been obtained by the Appellant by suppressing the fact of an investigation by the DGGI against them on the very same issue of classification of Whole Wheat Parota and Malabar Parota. It has been urged by the Department that the ruling of the lower Authority is to be held as void ab initio since the same has been obtained by suppression of the material fact of the ongoing investigation against them and is therefore in violation of the provisions of Section 98(2) of the CGST Act - the objection raised by the Department points to the very maintainability of the advance ruling in question. The Department has submitted that certain crucial facts have been brought to their notice by the DGGI, Chennai Zonal Unit which implies that the lower Authority had been misled into admitting the application in as much as the applicant (now Appellant) had withheld information regarding the commencement of investigations against them on the issue of classification of the impugned products. The process of investigation in tax administration is such a step towards the action of issuing a show cause notice which culminates in a decision. Investigation is activated when there is enough predication to show that there is an alleged tax evasion. The essence of investigation is to carry out an in-depth review of the taxpayer s records and activities to ensure that the tax due to the government is not lost in evasion. Therefore, commencement of investigation in terms of Section 67 of the CGST Act, can be said to be the start of a proceeding to safeguard the government revenue - the usage of the words any proceeding in the proviso to Section 98(2) of the CGST Act will encompass within its fold the investigation launched by the agencies. Appellant has also argued that the issue of classification of the disputed products was not raised specifically by DGGI in the summons - HELD THAT - It is found from the records that the DGGI, Chennai Zonal Unit had issued a summons dated 21St June 2019 under Section 70 of the CGST Act, to the Appellant calling for certain details/documents in connection with the enquiry undertaken by them. One such area on which documents were called for was Major input details with gist of manufacturing activity . Shri. Yugandhar J, appeared before the DGGI on 2nd July 2019 in response to the above summons and tendered a preliminary statement on the activities of the Appellant Company. Thereafter another summons dated 9th July 2019 was issued directing the Appellant to produce a write-up of the activities involved in manufacturing various types of parotas - the DGGI were conducting their investigation on the issue of classification of parotas and the eligibility of concessional rate of 5% as per entry SI.No. 99A - the argument of the Appellant that the classification of the disputed products was not raised specifically by the DGGI, cannot be accepted. The Appellant has also argued that the issue of jurisdiction cannot be raised at a belated stage before the Appellate Authority - HELD THAT - The view of the Appellant that the issue of jurisdiction could only have been raised before the lower Authority and not having been raised before it, the Department had waived its rights to raise the same is not entirely correct. We find that the proceedings before the lower Authority had been conducted without any participation of the jurisdictional officer. The jurisdictional officer was not asked to furnish comments nor was the jurisdictional officer present at the time of the personal hearing - it is well settled that reason to believe that the question on which an advance ruling was sought was not pending in any proceedings in the case of the applicant under the Act is a jurisdictional fact and only on its satisfaction, the lower Authority acquires jurisdiction to give a ruling on the question. An objection to it can be raised at any time even in appeal proceedings. The mere fact that no objection was taken before the lower Authority would not by itself bestow jurisdiction to the said Authority. Another argument of the Appellant is that any point raised by the Department in the absence of an appeal of their own cannot be entertained by the Appellate authorities - HELD THAT - Section 100 of the CGST Act provides for an appeal to be filed by any party who is aggrieved by the advance ruling given by the lower Authority. In this case, the Department is not aggrieved by the ruling given by the lower Authority. It is also observed that there is no provision in the statute for a cross appeal/cross objection to be filed before the Appellate Authority in the appeal against the advance ruling. While Section 112(5) of the CGST Act explicitly provides that the party against whom an appeal has been filed before the GST Appellate Tribunal may file a cross objection/cross appeal notwithstanding that they may not have appealed against that order, there is no such similar provision for filing a cross appeal in the case of an appeal against an advance ruling. The Department has brought to our notice the fact that the advance ruling has been obtained by suppression of material facts and we are inclined to take cognisance of this information placed before us. It is trite law that when one comes for justice one should come with clean hands. This is not the case here. The Appellant is indeed guilty of having not revealed the fact of an investigation pending against them by the DGGI, Chennai Zonal Unit on the issue of classification of Parota at the time of applying for an advance ruling - the provisions of Section 104 of the CGST Act is invoked, and it is declared that the advance ruling order dated 22 May 2020 as void ab initio. Having held that the order of the lower Authority is void ab initio, the question of addressing Whether the preparation of Whole Wheat parota and Malabar parota be classified under Chapter heading 1905, attracting GST at the rate of 5%? does not arise. Appeal dismissed.

Summary

Issues Involved:
1. Classification of Whole Wheat Parota and Malabar Parota under GST.
2. Applicability of GST rate of 5% under Chapter heading 1905.
3. Validity of advance ruling obtained amidst ongoing investigation.
4. Jurisdictional objections raised by the Department.

Detailed Analysis:

Classification of Whole Wheat Parota and Malabar Parota under GST:
The appellant, a food products company, manufactures ready-to-cook parotas and sought classification under Chapter heading 1905, attracting GST at 5%. The Authority for Advance Ruling (AAR) classified parotas under Chapter Heading 2106, not covered by entry No. 99A of Schedule I to Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended.

Applicability of GST Rate of 5% under Chapter Heading 1905:
The appellant argued that parotas should be classified under heading 1905, similar to 'Khakhra, plain chapatti or roti,' which attract 5% GST. They cited the ingredients and manufacturing processes similar to chapattis and other unleavened flatbreads. They also referenced judicial precedents and explanatory notes from the World Customs Organization (WCO) to support their claim. However, the AAR ruled that parotas require further processing (heating) before consumption, distinguishing them from products under heading 1905.

Validity of Advance Ruling Obtained Amidst Ongoing Investigation:
The Department raised an objection that the appellant obtained the advance ruling by suppressing the fact of an ongoing investigation by the Directorate General of GST Intelligence (DGGI) on the classification issue. Section 98(2) of the CGST Act prohibits admitting an application for advance ruling if the question is already pending in any proceeding. The appellant contended that mere investigation does not constitute a 'proceeding' under Section 98(2). However, the Appellate Authority held that investigation qualifies as a proceeding, thus invalidating the advance ruling obtained.

Jurisdictional Objections Raised by the Department:
The appellant argued that jurisdictional objections should have been raised at the initial stage and not during the appellate proceedings. The Appellate Authority dismissed this argument, stating that jurisdictional facts can be questioned at any stage, including appeal. The Department's representative highlighted that the AAR's ruling was obtained without informing about the ongoing investigation, making the ruling void ab initio.

Conclusion:
The Appellate Authority for Advance Ruling, Karnataka, dismissed the appeal by M/s ID Fresh Foods (India) Pvt Ltd, declaring the order of the lower Authority void ab initio due to suppression of material facts regarding the ongoing investigation. Consequently, the question of whether Whole Wheat Parota and Malabar Parota should be classified under Chapter heading 1905, attracting 5% GST, was not addressed.