N.V.K. Mohammed Rowther and Sons VS Joint Commissioner of GST and Central Excise

The proceedings began with presentations from both the counsel representing the writ petitioner and the respondent. The petitioner, engaged in the manufacturing of betel nut products under the brand name “Roja Pakku,” has been active in the industry for a significant duration. Notably, there are numerous other players in this field.

An important point of contention arose regarding the classification of the petitioner’s product under the Central Excise Tariff Act of 1985. While other manufacturers argued that the product should fall under Chapter 8 of the Act, the department contended that it should be classified under Chapter 21. This disagreement led to legal proceedings, with various manufacturers choosing to contest the department’s classification, resulting in a prolonged litigation process.

However, distinctively, the petitioner, despite being similarly positioned to other manufacturers, opted not to contest the matter and agreed to be classified under Chapter 21. Eventually, the litigation concluded in favor of the manufacturers. A significant legal precedent supporting the manufacturers’ stance was established in a landmark decision by the Hon’ble Supreme Court in 2007 (210) E.L.T. 171 (S.C) (Crane Betel Nut Powder Works Vs. Commissioner of Customs and Central Excise, Tirupathi). The Supreme Court held that the mere crushing of betel nuts into smaller pieces and subsequent sweetening did not transform the product into a new entity.

This decision provided crucial clarity on the classification of betel nut products, reinforcing the position taken by the manufacturers. Consequently, it laid the foundation for the resolution of similar disputes in the industry.

The hearing involved the representation of both the petitioner and respondent. The petitioner, engaged in the manufacturing of betel nut products under the name “Roja Pakku,” has a longstanding presence in the industry. The dispute arises from the classification of the petitioner’s product under the Central Excise Tariff Act, 1985. Initially, the department classified the product under Chapter 21, a decision challenged by other manufacturers who argued for classification under Chapter 8. While the matter was under litigation, the petitioner refrained from contesting and accepted classification under Chapter 21, despite subsequent judicial decisions favoring classification under Chapter 8.

With the advent of the Goods and Services Tax (GST), products under Chapter 21 are subject to higher taxation rates compared to those under Chapter 8, leading to a controversy over the applicable tax rates. The petitioner, however, seeks to avoid involvement in classification or tax rate debates and solely requests that the respondent not hold their past actions against them.

The court raised doubts regarding the validity of the writ petition, suggesting that it might have been prematurely filed as no formal order had been passed by the respondent. However, the petitioner cited a communication from the respondent dated 08.07.2020, demanding a substantial tax payment of Rs. 2,76,94,921. This amount was calculated based on the applicable tax rates, indicating the existence of a dispute between the petitioner and respondent.

In summary, the case revolves around the petitioner’s classification under the Central Excise Tariff Act and subsequent taxation under GST. Despite past legal developments favoring their position, the petitioner seeks relief from potential adverse consequences resulting from their compliance with previous classifications.

The case presented before the court involves the petitioner, a manufacturer of betel nut products under the brand “Roja Pakku.” The petitioner, who has been in the business for several years, faced a classification issue under the Central Excise Tariff Act, 1985. Initially, there was a dispute regarding whether the product falls under Chapter 8 or Chapter 21 of the Act. While other manufacturers contested the department’s classification under Chapter 21, the petitioner opted to be classified under Chapter 21, although the litigation eventually favored the manufacturers.

Post the implementation of GST, products classified under Chapter 21 are taxed at CGST 9% and SGST 9%, while there is ambiguity regarding the taxation rate for products under Chapter 8. The petitioner, however, does not wish to delve into the classification or taxation rate issue; rather, the petitioner seeks assurance that their past choice of classification won’t be used against them.

The court expressed doubts regarding the maintainability of the writ petition since the respondent hadn’t issued any formal order yet. However, the petitioner referenced a communication from the respondent dated 08.07.2020, demanding a significant tax amount based on the classification under Chapter 21. This suggests a predetermination by the respondent to classify the petitioner’s product under Chapter 21 and levy taxes accordingly.

The petitioner argues that their product, “Roja Pakku,” is similar to other products like “Nizam Pakku” and “Crane Pakku,” which are taxed at a lower rate and haven’t been classified under Chapter 21. The petitioner contends for parity in treatment, citing Article 141 of the Indian Constitution, which declares the law laid down by the Supreme Court as the law of the land. Additionally, the petitioner’s past choice of classification under Chapter 21 should not be a bar to seeking equitable treatment.

Overall, the petitioner seeks fair treatment and argues against the imposition of higher taxes based on a classification that disregards the similarity of their product to others taxed at a lower rate.

The case revolves around a writ petition filed by a manufacturer, referred to as the petitioner, who produces betel nut products under the name “Roja Pakku.” The petitioner has been in this business for several years and initially faced a classification dispute regarding the appropriate tariff classification for their product under the Central Excise Tariff Act, 1985. While other manufacturers contested the classification under Chapter 21, the petitioner chose not to contest and opted for classification under Chapter 21, though the litigation eventually favored the classification under Chapter 8.

Following the implementation of GST, products classified under Chapter 21 are taxed at a higher rate compared to those under Chapter 8. Despite the favorable judgment regarding classification under Chapter 8, the petitioner did not revisit the issue, possibly due to minimal financial implications.

The petitioner now faces a tax demand based on the classification under Chapter 21, which carries higher tax rates under CGST and SGST. The respondent has communicated this demand, indicating a preconceived intention to classify the petitioner’s product under Chapter 21.

The petitioner, through their counsel, asserts that their product is similar to other products like “Nizam Pakku” and “Crane Pakku,” which are taxed at a lower rate under Chapter 8. They argue for parity in treatment and emphasize that their past classification choice should not be held against them.

The court acknowledges the petitioner’s argument, noting that past conduct should not act as an estoppel, especially considering the principle that the law declared by the Supreme Court is binding. Consequently, the court disposes of the writ petition, granting liberty to the respondent to proceed with the demand but without considering the petitioner’s past conduct. The issue is to be approached with a clean slate, and no costs are awarded. The connected miscellaneous petition is also closed.

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