Facts of the Case

M/s.Way Irrigation Land Scapping trades in 'Gloriosa Superba Seed' (Karthigai Flower), a medicinal plant seed, and contended it was exempt from tax under Entry 88 of Notification No.2/2017-Central Tax (Rate). The department issued a show cause notice dated 27.05.2022 for non-payment of interest on delayed GST payment for the period 01.07.2017 to 12.10.2017, contending the seed instead fell under Entry 73 of Notification No.1/2017-Central Tax (Rate), attracting 5% GST, since the petitioner had actually collected and paid GST on the product. The second respondent passed the impugned order dated 27.12.2022 (in file dated 27.12.2022, referenced as 10.11.2022 in the order) levying interest and equal penalty, without granting the petitioner's requested adjournment following personal hearing on 06.12.2022.

Issues Involved

  1. Whether the impugned order dealt with the core classification dispute of whether the product fell under the exemption in Notification No.2/2017 or the taxable Entry 73 of Notification No.1/2017.
  2. Whether the order was vitiated for being passed without affording effective opportunity of hearing.

Petitioner's Arguments

  • The Gloriosa Superba Seed falls under Entry 88 of Notification No.2/2017, which grants exemption, and GST was paid only due to wrong guidance.
  • The petitioner sought adjournment after appearing for personal hearing on 06.12.2022 due to illness but was not granted further opportunity before the order was passed, violating natural justice.

Respondent's Arguments

  • The product is classifiable under Chapter 12119019 and Entry 73 of Schedule I to Notification No.1/2017, attracting 5% GST (2.5% CGST + 2.5% SGST), not the exemption claimed by the petitioner; since the petitioner had already collected and paid GST, and did not respond to the show cause notice or attend personal hearing, no relief should be granted, and an alternative appellate remedy was available.

Court Order / Findings

  • Despite the counter affidavit elaborately discussing Notifications No.1 and No.2, the impugned order itself contained no discussion of the classification issue at all, merely reciting boilerplate language about facts being 'clearly brought out' in the show cause notice.
  • An order confirming demand or penalty must engage with the specific classification or exemption dispute raised by the assessee; an order that is silent on the very issue in controversy, while the department's defence of that issue appears only in the litigation counter affidavit, cannot be sustained and must be quashed for non-application of mind.
  • The Court further found the order was dated 27.12.2022 while a hearing notice was dated 29.12.2022 -- meaning the order was passed even before the hearing notice was issued -- confirming inadequate opportunity was given.
  • The order was quashed and the matter remitted for the petitioner to submit a reply within six weeks, followed by personal hearing and conclusion of assessment within four months; the Department's plea for a partial pre-deposit was declined given the petitioner had already paid the GST liability itself.

Important Clarification

  • A GST demand order confirming interest and penalty must expressly address the classification or exemption dispute raised in the assessee's defence; reliance on arguments raised only in the counter affidavit, rather than reflected in the order itself, will not cure the order's silence, and any order predating its own hearing notice is void for denial of opportunity.

Sections Involved

  • Notification No.1/2017-Central Tax (Rate) - prescribes GST rates on specified goods, including Entry 73 covering certain plant seeds.
  • Notification No.2/2017-Central Tax (Rate) - exempts specified goods, including Entry 88 for plants and seeds used in perfumery/pharmacy.

Decision – In Favour of

The writ petition was allowed in favour of the Assessee, with the order quashed and remanded for fresh consideration of the classification dispute after proper hearing.

Case Details

Court: Madurai Bench of Madras High Court
Case No.: W.P(MD)No.6506 of 2023
Coram: Justice S.Srimathy
Date of Order: 20.07.2023

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