Md. Israil vs. Union Of INDIA

Held

The Court did not decide the merits of the case. Instead, the parties mutually agreed to dispose of the writ petition. The petitioner was permitted to prefer an appeal against the impugned order/notice within seven working days. The State agreed not to raise the issue of limitation for the appeal and to treat the approximately Rs. 23 lacs already recovered as pre-deposit against the condition of pre-deposit. The Court directed the de-freezing of the petitioner's bank accounts if attached. The Appellate Authority was directed to afford an opportunity of hearing to all parties, decide the appeal on merits expeditiously (preferably within two months), and pass a speaking order. The Court explicitly stated that it had not expressed any opinion on the merits of the case, and all issues were left open. Any excess deposit by the petitioner was to be refunded within two months of the Appellate Authority's order.

Facts

The petitioner, Md. Israil, challenged a demand notice dated December 12, 2020, issued by the Assistant Commissioner of State Tax, Kishanganj, Purnea, Bihar. This notice demanded Rs. 50,71,432/- for the financial year 2017-18, alleging short payment of tax. The revenue calculated the tax at 18% by treating the mining settlement as a lease of land and building under Schedule-II of the GST Act, whereas the petitioner contended that the applicable rate for sand, as per HSN Code 2505, is 5%. The petitioner also challenged a show cause notice dated August 27, 2020, for being vague. The petitioner sought a writ of certiorari to quash the demand notice and a writ of mandamus to charge tax at the rate applicable to sand. The petitioner also stated that approximately Rs. 23 lacs had already been recovered by the State. The parties agreed to dispose of the petition with specific directions.

Key Issues

1. Whether the settlement of a 'balughat' (sand mining area) for the dominant purpose of selling sand constitutes a supply of goods, taxable at the rate applicable to sand (5%), or a lease of land and building under Schedule-II, taxable at 18%, under Section 7 of the CGST Act, 2017? Petitioner's arguments: The petitioner argued that the settlement of the balughat is for the sale of sand, which is a supply of goods. Therefore, the specific GST rate for sand (5%) should apply. They contended that the general provision of treating it as a lease of land and building under Schedule-II is not applicable as the dominant purpose is the sale of goods. They also argued that the sale price of sand is regulated by the State Government, making the 18% tax rate inequitable and unjust, especially without a provision for adjustment or reimbursement. Revenue's arguments: The judgment records no specific arguments from the revenue regarding the classification of the transaction. However, their action of issuing a demand notice at 18% implies they considered it a lease of land and building.