The Gujarat High Court has quashed the show cause notice issued to J.K. Papad which proposed the levy of 18% GST on uncooked/unfried extruded snack pellets manufactured through extrusion process.
The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta has observed that when the petitioners have claimed exemption under the Tariff Item no. 19059040 by claiming exemption to pay GST on the product manufactured by them, the same is required to be regularised on ‘as is’ basis as per the minutes of the meeting of GST Council as well as the notification issued by the Board on 1st August, 2023 coupled with binding ruling of appellate authority of advance ruling.
The bench interpreted ‘as is’ basis by directing the department to regularise the past returns filed by the petitioners on ‘as is’ basis accepting the same as it is filed at Nil rate upto 22.07.2023.
Background
The petitioner/assessees are a private limited company and is engaged in the business of edible food products and is duly registered under the GST Acts. One of the products manufactured and sold by the petitioners are unfried fryums. The manufacturing process involves different cereals and pulses like wheat, adad, rice etc. added with edible starch, salt preservatives and water.
The same are then packaged in retail packs for onward supply. Pre-formulated mixes of raw materials are weighted separately and mixed well. Mixed formulation is cooked and mixed by steam cooker or extruder machine to prepare dough of desired consistency. Dough is then passed through the sheeting machine/dye to give it desired shape.
These products of different shapes are directly fed into the drying machine to be dried. Thereafter they are cooled by passing through a cooling conveyor. The finished products are packed in bags or cartons and then sold.
When the GST regime was implemented with effect from 1.7.2017, there was confusion prevailing in the State of Gujarat with regard to classification of ‘Fryums’, however, a manufacturing unit by the name of M/s Sonal Product filed an application for advance ruling under section 97 of the GST Act seeking ruling on applicable rate of tax on supply of ‘Papad’ of different shapes and sizes which were commonly known as unfried fryums wherein it was held that unfried fryums are not ‘papad’ and therefore, exempt from tax and further it was held that unfried fryums are taxable at the rate of 18% under the GST Act.
The petitioner also filed application in the year 2019 for advance ruling in respect of applicable tax rate on unfried fryums.
The Advance Ruling Authority held that the unfried fryums attracted tax rate of 18%.
The petitioner therefore, filed an appeal challenging the advance ruling order. The Advance Ruling Appellate Authority vide order dated 28.06.2021 allowed the appeal and held that ‘papad’ of different shapes and sizes are classifiable under heading 1905 which is covered by Entry no. 96 of the exemption notification and therefore, chargeable to Nil rate of tax.
While the issue of classification was settled in case of the petitioners, the Central Board of Indirect Taxes and Customs issued impugned circular dated 13.01.2023 wherein it was clarified in para 5 that snack pellets such as fryums would be classifiable under Custom Tariff Heading 19059030 and they would be taxable at the rate of 18%.
The authorities of Central GST department conducted audit of the returns of the books of accounts of the petitioner under the GST Act on different dates from February to April 2023 and the issue of classification of unfried fryums was raised in audit and it was alleged that tax was payable under the GST Act on supply of unfried fryums at the rate of 18% by relying upon the impugned circular dated 13.01.2023.
In the 50th Council meeting held on 11.07.2023 it was decided to recommend that the tax rate for uncooked/unfried snack pellets manufactured through extrusion process was to be fixed at 5% and it was recommended that the issue for past period was to be regularised on ‘as is where is’ basis.
Despite such express clarification and direction by GST Council as well as Central Board of Indirect Taxes and customs, the respondent authority issued intimation in Form GST DRC-01A proposing to demand tax on unfried fryums for the past period from 1.7.2017 to 31.3.2020.
The petitioner has challenged the show cause notice dated 07.02.2024 under section 74 of the Central/Gujarat Goods and Services Tax Act, 2017 as being wholly without jurisdiction.
The show cause notice is issued to levy GST at the rate of 18% as the petitioner is engaged in manufacture of un-fried or uncooked snack pellets through the process of extrusion and supplying the same without payment of GST by classifying it under HSN 19059040 instead of HSN 19059030.
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Conclusion
The court while allowing the petition held that the department has misinterpreted the words “as is” basis by issuing the impugned notices to levy GST at 18% on applicability of Tariff Item No. 19059030.
Case Title: J. K. Papad Industries & Anr. Versus Union Of India
Case No.: R/Special Civil Application No. 16172 Of 2021
Date: 11/09/2024
Counsel For Petitioner: Uchit N Sheth
Counsel For Respondent: Hetvi Sancheti
