Madras HC Dismisses Writs Against GST Compensation Cess Orders & Advance Ruling, Directs Statutory Appeals

Haji K.P.M.Abdul Kareem Vs Assistant Commissioner (Madras High Court)

Material Facts

The petitioners in W.P.(MD) Nos. 10565, 12626, 12689, 12724, 12835, and 15533 of 2020 and 5414 of 2021 challenged Orders-in-Original dated 31.03.2020. The petitioners in W.P.(MD) Nos. 13023 of 2020 and 12813 of 2021 challenged Orders-in-Original dated 30.03.2020 and 30.04.2020, respectively. The dispute covers the period from July 2017 to March 2019, involving demands and levies of GST Compensation Cess under Notification No. 1/2017 – Compensation Cess (Rate), dated 28.06.2017, issued under Section 8(2) of the Goods and Services Tax (Compensation to States) Act, 2017. The confirmed demand amounts range from Rs. 1,94,730/- to Rs. 5,52,90,163/-.

In W.P.(MD) No. 204 of 2021, Shri Arumugam (Proprietor of M/s. Kavi Cut Tobacco, Thanjavur) challenged an order dated 29.09.2020 passed by the Appellate Authority for Advance Ruling (AAAR) in Appeal No. AAAR/03/2020(AR), which upheld the Authority for Advance Ruling (AAR) order dated 20.04.2020 (Order No. 16/AAR/2020). The AAR/AAAR held that the petitioner’s product fell under tariff item 2403 99 10 of the Customs Tariff Act, 1975, attracting 160% GST Compensation Cess under Serial No. 26 of Notification No. 1/2017 – Compensation Cess (Rate).

Procedural History

• AAR & AAAR Proceedings: In W.P.(MD) No. 204 of 2021, the petitioner applied to the AAR under Section 98 of the GST enactments. The AAR issued its ruling on 20.04.2020. The petitioner filed an appeal under Section 101(1) of the TNGST Act, 2017 before the AAAR, which affirmed the AAR ruling on 29.09.2020.
• Orders-in-Original: The Revenue passed Orders-in-Original on 30.03.2020, 31.03.2020, and 30.04.2020 confirming Compensation Cess demands against the remaining petitioners under Tariff Heading 2403 99 10.
• Writ Petitions: All petitioners approached the Madras High Court via writ petitions challenging the respective Orders-in-Original and the AAAR ruling.

Legal Issues

1. Whether the products dealt by the petitioners fall under Tariff Heading 2401 20 90 (unmanufactured tobacco attracting 71% Compensation Cess at Sl. No. 5), Tariff Heading 2403 99 90 (“Others” attracting 96% Compensation Cess at Sl. No. 37), or Tariff Heading 2403 99 10 (“Chewing tobacco” attracting 160% Compensation Cess at Sl. No. 26).
2. Whether the petitioners challenging Orders-in-Original should be relegated to the statutory appellate remedy under Section 107 of the GST enactments.
3. Whether an advance ruling issued under Section 98/101 of the GST enactments can be challenged via writ proceedings given its binding nature under Section 103.

Statutory Provisions

• Section 8(2), Goods and Services Tax (Compensation to States) Act, 2017
• Notification No. 1/2017 – Compensation Cess (Rate), dated 28.06.2017 (Serial Nos. 5, 25, 26, 37)
• Notification No. 1/2017 – Central Tax (Rate), dated 28.06.2017
• Section 97, 98, 101, 103, and 107 of the Central Goods and Services Tax Act, 2017 / Tamil Nadu Goods and Services Tax Act, 2017
• Headings 2401 (2401 20 90) and 2403 (2403 99 10, 2403 99 20, 2403 99 90) of the First Schedule to the Customs Tariff Act, 1975
• Section 26, 30(2)(a), and 92(2)(i) of the Food Safety and Standards Act, 2006
• Regulation 2.3.4, Food Safety and Standards (Prohibition and Restrictions on Sales) Regulations, 2011
• Section 28J of the Customs Act, 1962 & Section 23E of the Central Excise Act, 1944

Parties’ Submissions

• Petitioner in W.P.(MD) No. 204 of 2021: Submitted that its product is raw tobacco leaf procured from farmers, sprinkled with jaggery water, cured, and packed, which is an unmanufactured agricultural product classifiable under HSN 2401 20 90 (partly or wholly stemmed/stripped unmanufactured chewing tobacco) liable to 71% Compensation Cess under Sl. No. 5.
• Other Petitioners: Submitted that their manufactured products merit classification under Heading 2403 99 90 as “Others” liable to 96% Compensation Cess under Sl. No. 37. They asserted that they previously adopted different tariff headings to avoid harassment following state-level ban notifications issued under the Food Safety and Standards Act, 2006 (such as the notification dated 23.05.2017).
• Revenue / Department: Classified the products under Heading 2403 99 10 as “Chewing tobacco without lime,” demanding Compensation Cess at 160% under Sl. No. 26.

Court Observations & Findings

• Statutory Appeals for Orders-in-Original: The Court observed that petitioners challenging the Orders-in-Original have an efficacy-filled alternative remedy by way of statutory appeal before the Appellate Authority under Section 107 of the respective GST enactments.
• Binding Nature of Advance Rulings: Under Section 103(1) & (2) of the GST enactments, advance rulings pronounced by the AAR or AAAR are binding decisions in personam on the applicant and the jurisdictional officer, unless there is a change in law, facts, or circumstances. This statutory scheme parallels Section 28J of the Customs Act, 1962 and Section 23E of the Central Excise Act, 1944. An applicant who voluntarily invokes the jurisdiction of the Advance Ruling Authority is bound by its statutory framework and the resulting decision.
• The Court considered prior precedent in Pachiappa Chettiar v. State of Madras (1963) and E.S. Mydeen and Co. v. Designated Officer (order dated 18.07.2022 in W.P.(MD) No. 18115 of 2021 batch), noting the interplay between raw tobacco processing and food safety regulations, but emphasized that determination of classification depends on factual evidence best evaluated by statutory authorities.

Final Decision