2022 (5) TMI 236 - HC - GST

Constitutional Validity of Section 103(1)(b) of the GST Acts - applicability of advance ruling appellate orders passed in the case of other taxable persons having identical facts and circumstances are binding on all authorities who are subordinate to the Chief Commissioners of CGST and SGST which constitute the advance ruling appellate authority - classification of goods - papad of different shapes and sizes - classifiable under Entry No.96 of the exemption notification no. 2/2017 Central Tax (Rate) dated 28.06.2017 or not - validity of initiation of proceedings against the Petitioners under Section 74 of the GST Acts - HELD THAT - It appears that the Appellate Authority took the view that the Papad are known in the market as fryums and not Papad . The observations or the view taken by the Appellate Authority for Advance Ruling, as above, will have some bearing on this litigation. There is a further challenge to the constitutional validity of Section 103(1)(b) of the GST Act on the ground that the same is manifestly arbitrary and violative of Articles 14 and 19(1)(g) respectively of the Constitution - Let Notice be issued to the respondents, returnable on 15.06.2022.

Summary

Issues:
1. Challenge to Section 103(1)(b) of the GST Acts
2. Binding nature of advance ruling appellate orders
3. Jurisdiction of authorities in issuing show cause notice
4. Classification of products under exemption notification
5. Initiation of proceedings under Section 74 of the GST Acts
6. Stay on further proceedings
7. Constitutional validity of Section 103(1)(b) of the GST Act

Issue 1: Challenge to Section 103(1)(b) of the GST Acts
The writ applicants sought to challenge Section 103(1)(b) of the GST Acts as discriminatory and arbitrary, violating Articles 14 and 19(1)(g) of the Constitution. The constitutional validity of this provision was also challenged in a separate case, J.K. Papad Industries vs. Union of India. The Court noted the challenge and issued Notice to the respondents, with the matter scheduled for hearing on a specific date.

Issue 2: Binding nature of advance ruling appellate orders
The writ applicants requested a declaration that advance ruling appellate orders passed for other taxable persons with similar circumstances should be binding on subordinate authorities. The Court took note of an order by the Gujarat Appellate Authority for Advance Ruling in a different case, which addressed the classification of products under GST. The observations made in that order were deemed relevant to the ongoing litigation.

Issue 3: Jurisdiction of authorities in issuing show cause notice
A show cause notice was issued by the Directorate General of GST Intelligence, calling upon the writ applicants to explain why certain tax amounts should not be demanded and recovered under the CGST Act. Despite the usual reluctance to entertain challenges at the show cause notice stage, the Court decided to issue Notice based on arguments presented by the applicants' counsel.

Issue 4: Classification of products under exemption notification
The dispute arose from the classification of products manufactured by the writ applicants, who believed their products fell under the exemption notification for Papad. However, the tax authorities disagreed, leading to the issuance of the show cause notice. The Court noted the differing views on the classification of the products as Papad or fryums, as discussed in the Gujarat Appellate Authority's order.

Issue 5: Initiation of proceedings under Section 74 of the GST Acts
The show cause notice demanded tax amounts, interest, and penalties under Section 74 of the CGST Act. The applicants contested the jurisdiction and legality of these proceedings, leading to the challenge before the High Court. The Court acknowledged the issues raised and decided to proceed with the case, issuing Notice to the respondents.

Issue 6: Stay on further proceedings
The writ applicants requested a stay on further proceedings pending the outcome of the petition. The Court granted interim relief in line with the prayer for a stay, allowing for a halt in the ongoing proceedings until the matter was resolved.

Issue 7: Constitutional validity of Section 103(1)(b) of the GST Act
Apart from the specific challenges raised by the applicants, the constitutional validity of Section 103(1)(b) of the GST Act was also under scrutiny in a separate case. The Court acknowledged this additional challenge and issued Notice to the respondents, scheduling the matter for a hearing along with the ongoing case. Additionally, Notice was directed to the Attorney General of India due to the challenge to a provision of the GST Act.