Md. Israil vs. Union Of INDIA

Held

The Court did not decide the issues on merits. Instead, the parties reached a mutually agreeable settlement. 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 and to treat the approximately Rs. 23 lacs already recovered as pre-deposit, provided the petitioner’s statement regarding recovery was correct. The Court directed the de-freezing of the petitioner's bank accounts and restrained coercive action until the appeal was filed. The Appellate Authority was directed to decide the appeal expeditiously, preferably within two months, after affording adequate opportunity to all parties and passing a speaking order. The Court explicitly stated that it had not expressed any opinion on the merits of the case, leaving all issues open.

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. 59,66,648/ for the financial year 2019-20, alleging short payment of tax. The revenue calculated the tax at 18% by treating a mining settlement as a lease of land and building under Schedule II, instead of the 5% applicable to sand as per GST rates. The petitioner also sought to quash a show cause notice dated August 27, 2020, and prayed for a declaration that the sale of sand, being a regulated commodity with a state-controlled price, should not be subjected to 18% GST. The petitioner stated that approximately Rs. 23 lacs had already been recovered by the State.

Key Issues

1. Whether the settlement of a mining balughat, with the dominant purpose of selling sand, constitutes a supply of goods taxable at 5% (HSN Code 2505), or a lease of land and building under Schedule II taxable at 18%, as per Section 7 of the CGST Act, 2017? Petitioner's arguments: The petitioner argued that the settlement of the balughat was for the sale of sand, which is a supply of goods and should be taxed at the specific rate of 5% applicable to sand. They contended that the general provision treating it as a lease of land and building under Schedule II was not applicable. Furthermore, they argued that since the sale price of sand is fixed by the State Government, imposing 18% GST would be inequitable, especially without a provision for reimbursement for sand suppliers. Revenue's arguments: The judgment records no specific arguments from the revenue regarding the classification of the supply or the rate of tax. However, their action of issuing the demand notice at 18% implies they considered it a lease of land and building.