Popular Motor World Private Limited Vs Union of India (Kerala High Court)
Summary: The Kerala High Court, in Popular Motor World Private Limited Vs Union of India and Others, set aside a show cause notice demanding GST compensation cess of ₹58,89,313.64 from a motor vehicle dealer for the period 2017-18 to 2023-24. The dispute concerned the applicability of the amended ground clearance criteria for utility vehicles introduced through Notification No. 3/2023-Compensation Cess (Rate), dated 26 July 2023. The petitioner, engaged in selling and servicing motor vehicles, contended that the explanation requiring ground clearance to be measured in the unladen condition was introduced only through the 2023 amendment and could not be applied to earlier transactions. The Department had issued a composite show cause notice alleging suppression of compensation cess payable across multiple financial years.
The petitioner relied upon CBIC Circular No. 247/04/2025-GST dated 14 February 2025, which clarified that the amendment concerning utility vehicles would apply on or after 26 July 2023. The petitioner argued that the notice was legally unsustainable because it sought to apply the amended criteria to earlier periods and also challenged the issuance of a composite notice. Justice Viju Abraham considered the clarification regarding the effective date of the amendment and held that the matter required reconsideration by the Deputy Commissioner (Intelligence). Accordingly, the Court set aside the impugned show cause notice. However, the Court expressly clarified that its interference would not prevent the Department from raising any claim against the petitioner in accordance with law. The judgment therefore required reconsideration of the demand without granting an unconditional exemption from compensation cess liability.
Background of GST Compensation Cess Dispute
Popular Motor World Private Limited was engaged in the sale and servicing of motor vehicles and accessories. The company had filed GST returns and remitted compensation cess collected on motor car sales.
The dispute arose from the application of Notification No. 3/2023-Compensation Cess (Rate), which amended the classification criteria applicable to utility vehicles.
The amended entry covered utility vehicles, including SUVs, MUVs, MPVs and XUVs, satisfying the prescribed engine capacity, length and ground clearance parameters.
Show Cause Notice Demanding ₹58.89 Lakh
Following an investigation by the Intelligence Wing, the Deputy Commissioner (Intelligence) called upon the petitioner to produce books of account relating to financial years 2017-18 to 2022-23 and 2023.
The Department subsequently issued Ext.P4 show cause notice alleging suppression of compensation cess payable and proposing recovery of ₹58,89,313.64 for the period 2017-18 to 2023-24.
The petitioner submitted Ext.P5 reply challenging the proposed demand.
Petitioner’s Reliance on CBIC Clarification
The petitioner relied upon Circular No. 247/04/2025-GST, particularly paragraph 5, concerning the effective date of amended entry 52B.
The petitioner submitted that the amended explanation regarding ground clearance in the unladen condition could not govern transactions preceding the specified effective date.
It was also argued that the composite show cause notice covering different financial years was legally impermissible.
Kerala High Court’s Decision
The High Court took into consideration the clarification concerning the effective date of the amendment and held that the matter required reconsideration by the third respondent.
Accordingly, Ext.P4 show cause notice was set aside. The Court nevertheless preserved the Department’s right to raise any claim against the petitioner in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner has approached this Court challenging Ext.P4 show cause notice issued by the 3rdrespondent. Petitioner has also sought for other reliefs.
2. Petitioner is a dealer in motor vehicles and is engaged in the sale and services of motor vehicles and their accessories. They have filed GST returns and remitted tax promptly. A levy of compensation cess vide Notification No.1/2017-Compensation Cess (Rate) dated 28.06.2017 of the Central Government is in force on the intra-State supplies and inter-State supplies of such goods and accordingly the petitioner is liable to collect compensation cess on the sale of motor cars. So petitioner has collected 20% being the applicable cess and duly remitted the same to the State exchequer. Later on, the said Notification was amended vide Notification No.3/2023 – Compensation Cess (Rate) dated 26.07.2023 to include all utility vehicles by whatever name called, provided they meet the following parameters:
a. Length exceeding 4000mm.
b. Engine capacity exceeding 1500 cc and
c. Having Ground Clearance of 170 mm & above and to clarify by way of explanation that ‘Ground clearance’ means Ground Clearance in un-laden condition.
Relevant extract of the above notification is reproduced herein below:-
“(xlv) against S. No. 52B, in column (3), for the entry, the entry “Motor vehicles known as Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with engine capacity exceeding 1500 cc; Length exceeding 4000 mm and Ground Clearance of 170 mm and above.
Explanation: For the purpose of this entry, the Ground Clearance means ground clearance in unladen condition.” shall be substituted;
II. ………….
2. This notification shall come into force on 27th July, 2023.”
Petitioner would contend that the aspect of “ground clearance” was addressed with regard to “unladen condition” only under the Explanation in the Notification No.3/2023 – Compensation Cess (Rate) dated 26.07.2023 in entry 52B with effect from 27.07.2023 onwards.
3. The 3rdrespondent purporting to act based on an investigation conducted by the Intelligence Wing issued summons to the petitioner directing them to produce the books of accounts relating to the financial years 2017-2018 to 2022-2023 and 2023. Thereafter Ext.P4 show cause notice was issued on the premise that the petitioner has suppressed the actual compensation cess payable and an amount of Rs.58,89,313.64 is found to be recoverable from the petitioner for the period from 2017-2018 to 2023-2024. Petitioner has filed Ext.P5 reply to the said show cause notice.
The learned senior counsel appearing for the petitioner would contend that there was a clarification to Notification No.3/2023 – Compensation Cess (Rate) dated 26.07.2023 by Circular No.247/04/2025-GST dated 14.02.2025, wherein Clause 5 reads as follows:
“5. Effective date of amended entry regarding ground clearance
5.1 Representations were received that there are different views in some jurisdictions regarding the effective date of amended entry 52B in notification No. 1/2017-Compensation Cess (Rate) dated 28.06.2017.
5.2 Prior to the 50th GST Council meeting. vide entry at S.No. 52B in the notification No. 01/2017-Compensation Cess (Rate) dated 28.06.2017. motor vehicles of engine capacity exceeding 1500 cc. popularly known as SUVs, including utility vehicles attracted 22% Compensation Cess.
5.3 Following the 50th GST Council meeting. vide notification No. 03/2023- Compensation Cess (Rate) dated 26.07.2023, the entry 52B was substituted to provide that the cess will be applicable to all motor vehicles known as utility vehicles by whatever name called, with engine capacity exceeding 1500cc. length exceeding 4000mm and ground clearance of 170mm and above. Further, a new explanation was added that ground clearance means ground clearance is unladen condition.
5.3 As per the recommendation of the GST Council, it is hereby clarified that the amendment carried out vide notification No.03/2023 – Compensation Cess (Rate) dated 26.07.2023 will apply on or after 26.7.2023.”
Learned senior counsel would further submit that as per the said Circular it is clarified that the amendment carried out by Notification No.03/2023 – Compensation Cess (Rate) dated 26.07.2023 will apply on or after 26.07.2023. On the basis of the same it is submitted that Ext.P4 show cause notice is bad and fresh proceedings if any could be issued only on the basis of the clarification issued as per Circular dated 14.02.2025. Learned senior counsel appearing for the petitioner also submits that issuance of a composite notice as done by Ext.P4 is legally impermissible. Taking into consideration the fact that the effective date of implementation of amendment carried out as per Ext.P3 will apply only or after 26.07.2023, I am of the view that the matter has to be reconsidered by the 3rdrespondent. Accordingly Ext.P4 show cause notice is set aside, however, making it clear that the interference on Ext.P4 show cause notice will not stand in the way of the Department raising any claim against the petitioner in accordance with law.
