Allahabad High Court Stays GST Council's Decision To Reclassify Silver-Coated Products To Attract 18% GST

The Allahabad High Court recently suspended the effect of the GST Council's decision to reclassify silver-coated products under Chapter 21 of the GST Tariff, which attracts a 18% GST rate.

The Division Bench comprising of Chief Justice Pritinker Diwaker and Justice Ashutosh Srivastava observed that “as an interim measure, it is provided that the effect and operation of the Circular dated 6.10.2021 impugned show cause notices bearing file No. DGGI/INT/INTL/848/2021-Gr.-MO/o DD-DGGI-RU-Udaipur/714 dated 2.3.2023 and file No. DGGI/INT/INTL/848/2021-Gr.-M-O/oDD-DGGI-RUUdaipur/713/ dated 2.3.2023 shall remain stayed provided the petitioner deposits a sum of Rs.10 crores”.

Advocate Rahul Agarwal appeared for the Petitioner, whereas ASGI Dhananjay Awasthi & Gaurav Mahajan appeared for the Respondent.

The brief facts of the case were that the petitioner, a manufacturer & distributor of silver-coated illaichi, mouth fresheners, and silver-coated dates, contended that their products were classified under Chapter 20 of the GST Tariff and previously attracted a GST rate of 12%. However, the GST Council reclassified the products under Chapter 21, imposing a 18% GST rate. The petitioner therefore approached the High Court challenging said decision made during the GST Council Meeting and subsequent clarification in a Press Release and Circular No. 163/19/2021-GST dated Oct 06, 2021. The petitioner asserted that this classification was contrary to the provisions of the Central Goods and Services Tax Act (CGST Act).

After considering the submission, the Bench considered the submission of the petitioner seeking quashing of the show cause notices and an injunction sought to prevent the Additional/Joint Commissioner (Adjudication) CGST, NOIDA, from proceeding with the adjudication process.

The Bench noted that during the investigations, the petitioner has deposited a sum of Rs.5 crores under protest which is liable to be refunded to the petitioner with interest.

However, since the respondents are insisting for deposit of the balance amount of GST demanded under the impugned notices to the tune of Rs.25,36,60,985/- besides interest and penalty, the Bench observed that the matter requires reconsideration.

Accordingly, the Bench ordered the suspension of the effect and operation of the challenged Circular and the show cause notices issued by the GST Department.

This stay, however, was contingent upon the petitioner depositing Rs. 10 crores with the Department within three weeks, which shall be kept in a separate account, added the Bench.

The Bench also clarified that the adjudication proceedings can continue but should not be enforced without the court's permission.

Cause Title: Dharampal Satyapal Limited v. Union of India and Ors.

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