Sanchayita Lahkar

The Gauhati High Court has set aside the Revenue Department’s reclassification of beverages manufactured by the petitioner under a higher tax bracket, stating that "where substantial discussion is required to arrive at a conclusion to determine the appropriate Tariff Head of the subject products, it cannot be said that filing of returns under the Tariff Head 2202 90 20 by the petitioner will amount to deliberate and willful suppression or non-disclosure of facts and thereby attract the provisions of Section 74.”

Justice Soumitra Saikia heard the case, which centered on whether the petitioner’s products were correctly classified under Tariff Item 2202 99 20 as fruit juice-based drinks or whether they should be reclassified under Tariff Item 2202 10 90, which would subject them to a higher tax rate. The court examined the taxability of the products and the penalties imposed under Section 122 of the Assam GST Act, stating that "mere failure to declare does not amount to willful suppression. There must be some positive act of the assessee to bring it within the ambit of willful suppression."

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The petitioner, X’SS Beverage Co., is engaged in manufacturing and selling carbonated fruit drinks. The dispute arose when the Joint Commissioner of State Tax issued a Show Cause Notice dated February 17, 2022, followed by an order dated July 14, 2022, classifying the products under Tariff Item 2202 10 90, arguing that they were aerated beverages subject to a higher tax rate. The petitioner maintained that its products were fruit juice-based drinks, taxable at 12% under Tariff Item 2202 99 20.

The petitioner argued that its classification was consistent with past assessments and supported by reports from the State Public Health Laboratory, Government of Assam, confirming that the beverages contained fruit juice exceeding the minimum requirements prescribed under Regulation 2.3.30 of the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011. The petitioner further contended that its classification had been accepted for years, and the sudden shift by the Revenue authorities lacked a legal basis.

The Revenue countered that carbonated water was a primary component of the beverages, making them aerated drinks taxable under a different tariff head. It submitted that "from the label available on the goods manufactured and sold by the petitioner, it transpires that carbonated water was an essential ingredient in the manufacture of these goods.” The Revenue also referred to an analysis of data extracted from the petitioner’s Tally Accounting System, arguing that discrepancies in the consumption of fruit concentrate indicated misclassification.

The court considered the applicable classification under the Customs Tariff Act, 1975, and cited Union of India v. Garware Nylons Ltd., stating that "the burden of proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them." The court observed that the petitioner had consistently classified its products under Tariff Item 2202 99 20, and there was no contrary evidence from the Revenue to justify a reclassification.

Addressing the allegation of willful suppression, the court stated that "the returns which were furnished by the petitioner were on the basis of the classification made by the petitioner. These returns filed by the petitioner under the Tariff Head were known to the Revenue all along. There was no occasion earlier to raise objections to these returns filed under the concerned Tariff Head by the petitioner."

The judgment also examined the Show Cause Notice and found that "the impugned notice has not brought on record any evidence to show that suppression of any fact from the Department took place." The court further noted that "if the aforesaid product would have been covered by 2202 10 10, there would have been no occasion to issue the aforesaid Notifications by inserting new items making it effective from 01.10.2021."

On the issue of penalties under Section 122, the court observed that "penal provisions are only a tool to safeguard against contravention of the Rules", and in the absence of fraud or misrepresentation, no penalty could be imposed.

The court also examined the Food Safety and Standards Act and Regulations, stating that "the tests were conducted to ensure the food safety and standards required to be maintained under the relevant statute. The Act apart from making stringent provisions to curb food adulteration, also ushers in new concepts such as putting in place food safety management systems and food safety audit to realise its ultimate goal of ensuring availability of safe and wholesome food for human consumption.”

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The judgment further stated that "in view of the elaborate discussions above, the contentions raised by the Revenue fails. The Judgments relied upon by the Revenue therefore do not support the contentions raised by the Revenue and are therefore not discussed. The writ petitions are therefore allowed."

The Gauhati High Court set aside the Show Cause Notice dated February 17, 2022, and the order dated July 14, 2022. It held that the Revenue had not provided sufficient justification for reclassifying the petitioner’s products and imposing penalties.

Advocates Representing the Parties

For the Petitioner: Mr. A. Saraf, Senior Counsel, Mr. P.K. Bora, Advocate

For the Respondents: Mr. B. Gogoi, Standing Counsel, Finance & Taxation

Case Title: X'SS Beverage Co. v. The State of Assam & Ors.
Neutral Citation: GAHC010162962022
Case Number: W.P(C) No. 5346/2022
Bench: Justice Soumitra Saikia

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