M/S.N.V.K.Mohammed Rowther And Sons vs. Joint Commissioner Of GST And Central Excise

Held

The Court held that the communication dated 08.07.2020, proposing a tax demand of Rs. 2,76,94,921/- by classifying the petitioner's product 'Roja Pakku' under Chapter 21, indicated an element of predetermination on the part of the respondent. The Court found merit in the petitioner's contention for parity with similarly placed competitors whose products were classified under Chapter 8 and taxed at a lesser rate. The Court emphasized that the petitioner's past conduct of opting for classification under Chapter 21 should not operate as estoppel, citing Article 141 of the Constitution, which mandates adherence to the law declared by the Supreme Court. The Supreme Court's ruling in Crane Betel Nut Powder Works was considered binding. The Court directed that the respondent could proceed with the demand but must approach the issue from a clean slate, without considering the petitioner's past conduct. The petitioner was granted liberty to respond to any show cause notice and participate in any initiated enquiry.

Facts

The petitioner, M/s.N.V.K.Mohammed Rowther & Sons, manufactures and deals in a betel nut product named “Roja Pakku”. While other manufacturers classified similar products under Chapter 8 of the Central Excise Tariff Act, 1985, the petitioner had previously opted for classification under Chapter 21. This led to litigation, culminating in the Supreme Court's decision in Crane Betel Nut Powder Works, which held that crushed and sweetened betel nut does not constitute a new product and should be classified under Chapter 8. Post-GST, Chapter 21 products attract higher tax rates (CGST 9% + SGST 9%) compared to Chapter 8 products. The respondent issued a communication on 08.07.2020 proposing a demand of Rs. 2,76,94,921/-, based on the higher tax rate under Chapter 21, prompting the petitioner to file this writ petition.

Key Issues

1. Whether the respondent's communication dated 08.07.2020, proposing a tax demand of Rs. 2,76,94,921/- by classifying the petitioner's product 'Roja Pakku' under Chapter 21 of the Central Excise Tariff Act, 1985, demonstrates predetermination of the issue, thereby vitiating the process before the issuance of a show cause notice? Petitioner's arguments: The petitioner contended that the communication dated 08.07.2020 indicated predetermination by the respondent, as it proposed classification under Chapter 21 and quantified a significant demand. The petitioner argued for parity with competitors like 'Nizam Pakku' and 'Crane Pakku', whose products are taxed at a lesser rate. They relied on the Supreme Court's decision in Crane Betel Nut Powder Works Vs. Commissioner of Customs and Central Excise, Tirupathi, asserting that past conduct should not operate as estoppel, and that the law declared by the Supreme Court is binding under Article 141 of the Constitution. Respondent's arguments: The respondent argued that no formal order had been passed and no show cause notice had been issued, suggesting the writ petition was premature. However, the respondent did not dispute the contents of the communication dated 08.07.2020.