ITC Limited Vs Union of India
Date: July 21, 2024
Subject Matter
Interim Stay granted in GST Snack Classification Dispute Challenging Union Circular
Summary
The Karnataka High Court granted an interim order staying further proceedings against ITC Limited, including a show cause notice and a corrigendum, related to the classification of “extruded snack pellets in ready-to-eat form” under GST. ITC Limited challenged these proceedings, arguing that the classification of its products should fall under HSN 2106, whereas the respondents sought to classify them under HSN 1905, which ITC disputes. The core of the dispute revolved around a circular issued by the Union Government on August 1, 2023, which ITC claimed contradicted legal precedents established by court judgments. ITC's counsel emphasized that a circular cannot override judicial rulings and cited relevant case law to support this claim. Additionally, they argued that the authority to classify goods does not rest with the Tax Research Unit or the GST Council, making the circular illegal. Respondents defended the show cause notice, asserting it was based on the Customs Tariff Act. However, they did not address ITC's jurisdictional challenges or precedents during the hearing. The court recognized that State GST Authorities were initiating parallel actions based on the disputed circular, which contradicted its earlier interim order. The court then expanded its interim stay to prevent any central or state authorities from proceeding based on the circular in question. The court found ITC's arguments compelling enough to warrant the stay, citing a strong prima facie case, and set a hearing date for continuing the process. The interim order effectively protects ITC from simultaneous actions by different tax authorities regarding the same matter until the next hearing.
FULL TEXT OF THE INTERIM ORDER OF KARNATAKA HIGH COURT
Heard.
2. Accepting the reasons stated in the affidavit accompanying the application, I.A.No.1/2024 is allowed and production of originals of Annexures-A, B, E and J are allowed.
3. Learned counsel for the respondents seek time to file Statement of Objections.
4. Learned Senior counsel for the petitioner submits that despite this Court passing an interim order dated 29.07.2024 staying all further proceedings pursuant to the impugned show-cause notice and corrigendum at Annexures-B1 and B2, the respective State GST Authorities have started initiating proceedings pursuant to paragraph 2.2 of the impugned circular issued by the respondent and the same would tantamount to circumventing the interim order passed by this Court.
5. It is submitted that once respondent No.4 has already initiated proceedings against the petitioner by issuing show-cause notice and corrigendum which have been stayed, the State GST authorities could not have initiated proceedings on the same cause of action in view of the specific bar contained in Sub Section (2)(b) of Section 6 of the Central Goods and Services Tax Act, 2017 (for short “the CGST Act”).
6. Per contra, learned counsel for the respondents submits that the respondents submits that the respondents have no control or connection over any proceedings initiated by the respective State GST authorities.
7. In the present petition, the petitioner had sought for the following interim reliefs:
“(i) Stay operation of, and any further proceedings initiated pursuant to, paragraph 2.2 of Circular No.200/12/2023-GST dated 01.08.2023 issued by 1st Respondent (Annexure-A) insofar as it relates to classification of extruded snack pellets in ready-to-eat form under sl.no.16 of Schedule III of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017;
(ii) Stay operation of and all further proceedings pursuant to the impugned Show Cause Notice bearing No.25/2024-25 DGGI BZU dated 18.06.2024 read with corrigendum thereto dated 15.07.2024 issued by the 4th Respondent (Annexure-B1 and B2) for the period July 2017 to February 2024;
(iii) Pass an ad-interim ex-parte order of stay in terms of (i) and (ii) above; and
(iv) Pass such order or further orders as this Hon’ble Court may deem fit in the facts and circumstances of the case, in the interests of justice and equity.”
8. After hearing the learned Senior counsel for the petitioner and learned counsel for the respondents, the interim order dated 29.07.2024 was restricted only to grant of interim relief No.(ii) sought for by the petitioner. However, in the light of the specific bar contained in Section 6(2)(b) of the CGST Act as well as the respective State GST Acts and the submission made on behalf of the petitioner that the respective State GST authorities have started initiating proceedings against the petitioner on the same cause of action despite the earlier interim order dated 29.07.2024 passed by this Court, I deem it just and appropriate to stay the operation of the operation of paragraph No.2.2 of the Circular issued by respondent No.1 as sought for in interim prayer No.(i) to the writ petition.
9. Accordingly, the operation and implementation of paragraph 2.2 of the Circular bearing No.200/12/2023-GST dated 01.08.2023 issued by respondent No.1 as sought for in interim prayer No.(i) is stayed, till the next date of hearing.
10. In addition thereto, the interim order granted earlier on 29.07.2024 is also extended till the next date of hearing.
11. Liberty is reserved in favour of respondents to seek vacation / modification of this order.
12. Re-list on 10.09.2024.
13. Statement of Objections, if any, to be filed by the next date of hearing.
Office objections are over ruled for the present.
Sri. Jeevan J. Neeralagi and Sri. Madhu N. Rao, learned counsel accepts notice for the respondents. Copies to be served.
Heard Sri. Ashok Haranahalli and Sri. V. Raghuraman, learned Senior Counsels for the petitioner and Sri. Jeevan J. Neeralagi and Sri. Madhu N. Rao, learned counsel for the respondents and perused the material on record.
2. Learned Senior Counsels for the petitioner invited my attention to the rate notification No.1/2017-CT(R) dated 28.06.2017 and the successive notifications dated 14.11.2017 and 26.07.2023, amending the aforesaid rate notification, in order to contend that the subject goods manufactured by the petitioner are classified under HSN 2106 (Entry No.1905 of Schedule III of rate notification) as against HSN 1905 (Entry No.16 of Schedule III of rate notification) claimed by the respondents. It is submitted that subsequently, the respondents have issued the impugned Circular at Annexure-A dated 01.08.2023 purporting to clarify GST rate, based on a recommendation of GST Council in its meeting held on 11.07.2023. It is their contention that the said Circular had been made the basis to issue the impugned show cause notice which is without jurisdiction and authority of law and contrary to the judgment of the Hon’ble Tribunal in the case of Globe Confectionery Vs. CCE, Allahabad-2005 (190) ELT 239 (Tri-del), affirmed by the Supreme Court in 2006 (197) ELT A191 and several other judgments. It is further pointed out that in relation to classification of betel nut, this Court passed an interim order dated 28.06.2023 in W.P.No.13280/2023, staying the show cause notice, which was issued based on a circular which sought to overreach the law laid down by the Apex Court in the case of Crane Betel Nut Powder Works Vs Comm. of Customs and Central Excise, Tirupathi & Anr (2007) 4 SCC 155 and that their case is on identical footing on the ratio that circulars cannot overturn court judgments on the subject matter. It is also submitted that the Tax Research Unit does not have jurisdiction or authority of law to issue any clarification as regards classification and the GST Council also does not have jurisdiction to determine the classification, which does not fall within the purview of GST Council and recommendation resulting in the impugned circular being wholly without authority of law. They have relied on several case laws to buttress their points. It is also submitted that since the impugned show-cause notice is also illegal, arbitrary and without jurisdiction and authority of law, the same deserves to be quashed.
3. Per contra, learned counsel for the respondents submits that apart from merely referring to the Circular at Annexure-A, respondents have placed reliance on Customs Tariff Act and assigned various cogent reasons for the purpose of issuing the impugned show-cause and does not warrant interference by this Court in the present petition.
4. By way of reply, learned Senior Counsels for the petitioner invited my attention to Note-6 of Chapter-21 of the Customs Tariff Act, which states that the classification of “namkeens and bhujia” falls under tariff item 2106 90 99 irrespective of the nature of the ingredients and the contention urged by the respondents as regards classification also cannot be accepted.
5. The aforesaid rival submissions indicate that matter requires consideration and at this stage, the petitioners have made out a strong prima-facie case considering the above discussions and case laws as also the ratio in interim order of the Court in WP No.13280/2023.
6. Hence, re-list this matter on 12.08.2024.
7. In the meanwhile, all further proceedings pursuant to the show-cause notice and corrigendum at Annexures-B1 and B2 dated 18.06.2024 and 15.07.2024, respectively, issued by respondent No.4, are hereby stayed till the next date of hearing.
8. Liberty is reserved in favour of respondents to seek vacation/modification of this order.
Re-list the matter on 29.07.2024.
Consideration of interim prayer is kept open.