M/S Shree Renuka Sugars LTD vs. The Joint Commissioner Of Central GST And Central Excise
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Cause title — parties, addresses and appearances
CAV JUDGMENT (PER: HON’BLE S.G. PANDIT)
This intra-Court appeal under Section 4 of the Karnataka High Court Act, 1961 is directed against order dated 15.04.2024 passed in WP No.104541/2021, by which petitioner’s challenge to demand-cum-show-cause dated 23.09.2021 calling upon the petitioner to show-cause as to why demand for GST at Rs.16,23,82,230/- should not be levied, is rejected.
Parties would be referred to as they stood before learned Single Judge. Appellant herein was the petitioner before learned Single Judge.
Brief facts of the case are that, the petitioner is a company engaged in manufacture and sale of white crystal sugar and its allied products. It is stated that in the process of manufacture of sugar, a product known as Extra Neutral
- 3 - Alcohol1 which contains 95% of alcohol emerges. ENA is also used for manufacture of alcoholic liquor for human consumption. It is the case of the petitioner that ENA supplied to the industries would attract GST at the rate of 18%, whereas it is exempted for supply to human consumption i.e., manufacture of liquor. Respondent No.1/Joint Commissioner of Central GST and Central Excise issued demand-cum-show- cause notice dated 23.09.2021 (Annexure-G) calling upon the petitioner to show-cause within thirty days, as to why GST at Rs.16,23,82,230/- should not be demanded in terms of Section 74(1) of the Goods and Services Act, 20172 along with interest and penalty. The petitioner said to have submitted reply on 2.11.2021 requesting for additional time. In the meanwhile, the petitioner approached this Court in the above stated WP No.104541/2021 questioning said demand-cum-show-cause notice dated 23.09.2021 on the ground that demand-cum- show-cause notice is without juri iction. In that, there is no notification as required under law to impose GST and also on the ground that ENA supplied to human consumption is exempted from GST. Learned Single Judge under impugned order rejected the aforesaid writ petition holding that the 1 ‘ENA’, for short 2 ‘GST Act’ for short
- 4 - petitioner could not have rushed to this Court questioning impugned demand-cum-show-cause notice without availing an opportunity to submit his written explanation. Aggrieved by rejection of writ petition, the petitioner is in appeal.
Heard the learned counsel Sri. Manamohan P.N. for Sri. Vishwanath Hegde, learned counsel for the appellant, Sri. G.S.Hulmani, learned counsel for respondent No.1 Sri. M.B. Kanavi, learned CGSC for respondent No.2, Sri. M.M. Khannur, learned AGA for respondent No.3 and perused writ appeal papers.
Learned counsel Sri. Manamohan P.N. for the appellant/petitioner would submit that impugned demand-cum- show-cause notice dated 23.09.2021 is one without juri iction, since there is no notification authorizing levy of GST to ENA supplied for human consumption. Learned counsel would further submit that the petitioner supplied entire ENA to Karnataka State Beverages Corporation Limited, which is a manufacturer of alcohol for human consumption. He further submits that since ENA supplied to Karnataka State Beverages Corporation is for the purpose of human consumption, respondent No.1 could not have raised demand-cum-show-
- 5 - cause notice calling upon the petitioner to show-cause as to why GST in a sum of Rs.16,23,82,230/- should not be levied. Learned counsel invites attention of this Court to Section 9 of GST Act and submits that unless notification prescribing rate of GST is issued, authorities would not get juri iction to impose or demand GST. Further, learned counsel would submit that the authorities are pre-determined and issuance of show-cause notice is only a formality.
Learned counsel Sri. Manamohan further invites attention of this Court to letter dated 19.07.2017 (Annexure-A) of the Finance Department of the State Government, to contend that it clarified that supply of ENA to bottling units for manufacture of liquor would be outside the purview of GST and no GST will be leviable on such supplies. Learned counsel further invites attention of this Court to Annexure-I and submits that GST Council recommended to keep ENA used for manufacture of alcoholic liquor for human consumption outside GST in its 52nd Meeting held on 7.10.2023. Further, learned counsel would submit that respondents have raised demand- cum-show-cause notice based on notification dated 28.06.2017 (Annexure-R1). Pointing out Annexure-R1, it is submitted that GST could be imposed and demanded only on Ethyl alcohol and
- 6 - other spirits, denatured of any strength, which finds place at Sl.No.25 under the heading Tariff item 2207. It is submitted that ‘denatured of any strength’ would mean that ENA supplied to industries and not for human consumption. Referring to notification dated 28.06.2017 (Annexure-R1), learned counsel would submit that it would not provide GST demand for ENA supplied to human consumption. Therefore, he submits that challenge to show-cause notice would be maintainable, when the petitioner establishes that the authorities have no power to issue demand notice or show-cause notice and when it is shown that show-cause notice is a nullity. He further submits that in terms of Section 9 of the GST Act, in the absence of notification prescribing rate of GST, respondent No.1 would not get juri iction or competence to demand or issue show-cause notice. Thus, he prays for allowing writ appeal.
Per contra, learned counsel Sri. G.S. Hulmani for respondent No.13 supports the impugned order passed by the learned Single Judge and submits that the petitioner could not have rushed to this Court without even submitting his reply to Demand-cum-Show-cause notice dated 23.09.2021, which is under challenge. Further, learned counsel would submit that 3 Joint Commissioner of Central GST and Central Excise
- 7 - demand-cum-show-cause notice is rightly issued to the petitioner, since the petitioner has not furnished particulars of ENA supply. Moreover, he submits that ENA i.e., supply for manufacture of alcohol liquor is not consumed directly and it indicates process of manufacture, hence, GST would be attracted. Referring to Annexure-R1, notification dated 28.06.2017, learned counsel Sri. G.S. Hulmani submits that ‘Ethyl alcohol and other spirits, denatured of any strength’ would attract GST. Further, he submits that since the petitioner’s challenge is to show-cause, petitioner may be directed to submit his reply, which would be considered by the authorities and appropriate orders would be passed. He further submits that all contentions raised by the petitioner could be raised before the authorities, which would consider the same and pass appropriate orders in accordance with law. Thus, he prays for dismissal of writ appeal.
Having heard the learned counsel for the parties and on perusal of writ appeal papers, the only point that falls for consideration in this appeal is as to, whether the impugned order passed by the learned Single Judge rejecting challenge to the demand-cum-show-cause notice dated 23.09.2021 requires interference at the hands of this Court?
- 8 - Answer to the above point would be in the “negative” for the following reasons:
Normally, writ Court would not entertain writ challenging show-cause notice. Show-cause notice would not affect the rights of the parties. No person would be aggrieved on receiving show-cause notice. A person would be aggrieved only when show-cause notice is translated into adverse order. It is not that show-cause notice cannot be challenged at all. Show-cause notice could be challenged, if one establishes that authorities which issued show-cause notice lacks inherent juri iction and is not competent to issue such show-cause notice.
The Hon’ble Apex Court in the case of Special Another4, while considering appeal arising out of show-cause notice issued under the provisions of Foreign Exchange Regulation Act, 1973 and Foreign Exchange Management Act, 1999, has held at paragraph-5 of its judgment as under:
“5. This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the 4 (2004) 3 SCC 440
- 9 - presence of the parties. Unless, the High Court is satisfied that the show cause notice was totally non est in the eye of law for absolute want of juri iction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine, and the writ petitioner should invariably be directed to respond to the show cause notice and take all stands highlighted in the writ petition. Whether the show cause notice was founded on any legal premises is a juri ictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the Court. Further, when the Court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is accorded to the writ petitioner even at the threshold by the interim protection, granted.”
Keeping in mind the principles laid down by the Hon’ble Apex Court in the aforesaid judgment, facts of the present case are to be examined.
Learned counsel for the petitioner has put in all his efforts to make out a case that the demand-cum-show-cause notice dated 23.09.2021 issued demanding GST for ENA supplied by the petitioner is non-est and without juri iction. But, at this stage, we refrain from going into the questions raised by the petitioner including question of juri iction. It is not the case of petitioner that authorities which issued demand- show-cause notice lacks inherent juri iction, but it is the submission of learned counsel for the petitioner that in terms of Section 9 of the GST Act, notification prescribing rate of GST as
- 10 - recommended by the Council is not notified and that petitioner supplied ENA for manufacture of alcohol for human consumption. Moreover, question of juri iction also could be raised before the Authority. Whether notification is issued prescribing rate of GST including ENA supplied for human consumption or not; whether GST Council’s recommendation as at Annexure-I recommending to keep ENA used for manufacture of alcohol liquor for human consumption outside GST is a question of fact, which are to be examined by the authority on the basis of material on record and by examining the material that would be placed on record by the petitioner.
The contention of learned counsel for the petitioner that notification dated 28.06.2017 would not include demand of GST for ENA supplied for manufacture of alcoholic liquor for human consumption and it only permits GST on denatured ethyl alcohol, is not clear. Further, the petitioner’s reliance on Annexure-A, letter dated 19.07.2017 cannot be the basis for claiming exemption from GST, since the State Government is not the authority with regard to prescribing and to include or exclude any item from GST. It is only GST Council, which could recommend inclusion or exclusion of any item from GST and on
- 11 - the basis of recommendation of Council, Central Government has to issue notification.
By following the principles laid down by the Hon’ble Apex Court in the case of Mohd. Ghulam Ghouse (supra), we decline to entertain writ appeal and we relegate the petitioner to approach the authorities by replying to the demand-cum- show-cause notice dated 23.09.2021. It is open for the petitioner to raise all contentions raised here before the authorities and authorities shall consider the same and pass appropriate orders in accordance with law.
Hence, we proceed to pass the following: ORDER a) Writ Appeal stands disposed off. b) The appellant/petitioner is granted two weeks time from the date of uploading of this judgment, to file his reply to the demand-cum- show-cause notice dated 23.09.2021. c) The respondents/authorities shall hear the petitioner, consider the objections, if any, and pass appropriate orders in accordance with law.
- 12 - d) Till orders are passed, respondents/authorities shall not precipitate any action in pursuance of demand-cum-show-cause notice dated 23.09.2021. e) If the petitioner fails to submit his reply within stipulated time, the respondents/authorities are at liberty to proceed in accordance with law. Pending applications, if any, are disposed off as not surviving for consideration. JUDGE JUDGE JTR
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.