GST Rate On Bricks With Less Than 90% Fly Ash Content To Be Charged At 5% Instead Of 18%: Gujarat High Court Clarifies

The Gujarat High Court on 25^th September (Wednesday) held/clarified the Goods and Services Tax (GST) applicable to fly ash bricks and blocks with less than 90% fly ash content. The court ruled that the products qualify for the lower GST rate of 5%, than 18% GST rate on products not meeting the 90% fly ash threshold and quashed and aside the orders of the Advance Ruling Authority and Advance Ruling Appellate Authority.

The fly ash, a by-product from thermal power plants, is used as a key material in producing eco-friendly bricks, offering a sustainable alternative to traditional bricks. Fly ash bricks are solid, uniform, and smooth with sharp edges, free of cracks or flaws. They are eco-friendly, 28% lighter than clay bricks, and require no plastering due to their smooth finish. Unlike clay bricks, which vary in colour and are handmade from topsoil, fly ash bricks are moulded from coal combustion waste, making them cost-effective and environmentally beneficial.

Following the GST Act of 2016, fly ash bricks were initially taxed at 12% GST rate. In 2017, an amendment set a reduced GST rate of 5% for fly ash bricks. The petitioner who is the director of M/S Shree Mahalaxmi Cement Products, manufactures fly ash bricks and blocks, filed application for advance ruling, seeking ruling on the correct rate of tax for Fly Ash Bricks and Fly Ash Blocks The petition then moved to the High Court challenging the order of Advance Ruling Authority and Appellate Authority that held fly ash blocks to be taxed under the 5% slab as it met the criteria of maintaining 90% fly ash content and fly ash bricks to be taxed under 18% GST slab as they contained less than 90% of fly ash.

Contentions of the Counsel for the Company/Petitioner

The Counsel appearing for the company submitted the petitioner had thoroughly explained the manufacturing process. However, the Advance Ruling Authority and the Appellate Authority did not consider these details when deciding that the petitioner's fly ash bricks did not meet the 90% fly ash content requirement. Further, he submitted that according to a 2009 Ministry of Environment and Forest notification, building materials like fly ash bricks only need to contain 50% fly ash.

He contended that the Advance Ruling Authority's requirement for 90% fly ash contradicts this standard. Furthermore, the Advance and Appellate Authorities incorrectly applied a 90% fly ash content requirement to classify the petitioner's bricks under an 18% GST rate. He pointed out that the GST Council, in its agenda, recommended a 5% rate for fly ash bricks and that a CBIC notification clarified the 90% requirement applies only to fly ash aggregates, not bricks.

Additionally, he noted that under the Harmonized System of Nomenclature (HSN), fly ash bricks fall under the 5% GST category, supporting a 5% rate for the petitioner's bricks.

He further referred to several Supreme Court decisions to support his argument that the tax should be set at 5%, as intended by the legislature. He emphasized on the cases of Collector of Central Excise vs Wood Craft Products Ltd. and Reckitt Benckiser (India) Ltd. vs Commissioner, and submitted that there should be no dual interpretation of the tax laws.

He pointed out that the GST Council recommends classifying Fly Ash Bricks and Aggregates with 90% or more fly ash content differently. Therefore, he argued that the authorities' claim that the petitioner's Fly Ash Bricks do not contain enough fly ash lacks foundation.

Contentions of the Government's Counsel

The counsel for the government argued that based on the notification of July 2022, the GST rate for the Fly Ash Bricks made by the petitioner should be 5%, not 18%. Referring to an affidavit he further submitted that during the 23rd GST Council meeting, it was decided to lower the tax rate on Fly Ash Bricks from 12% to 5% for those containing 90% or more fly ash.

Since the petitioner's bricks only contain 40-60% fly ash, the respondent claims the appeal is not valid.

Additionally, he submitted that in the 31st GST Council meeting, a similar 5% rate was recommended for fly ash blocks, but there was no specific notification for that reduction, making the appeal unsustainable. The respondent also pointed out that the Supreme Court in the case of Wood Craft Products Ltd. (1995 (77) ELT 23 (SC)) ruled that tariff classifications should align with the HSN nomenclature unless stated otherwise, and in this case, there is no classification dispute regarding Fly Ash Bricks, rendering the appellant's arguments incorrect.

Observation of the Court

Considering the arguments of both parties and the case details, the Division Bench comprising of Justice B.D Karia and Justice Mauna Bhatt observed the issue in this petition was resolved by Circular No. 179/11/2022-GST dated August 3, 2022. The CBIC clarified that the 90% fly ash content requirement applies only to fly ash aggregates, not to fly ash bricks.

Previously, fly ash bricks and aggregates with 90% or more fly ash content were taxed at 12%. However, the GST Council confirmed that this condition applies only to aggregates. As of July 18, 2022, the requirement for 90% fly ash content has been removed from the description of fly ash bricks and blocks. The findings of the Advance Ruling Authority do not apply to this that Fly Ash Bricks or Aggregates with 90% or more fly ash content were taxed at 12%, causing confusion about the 90% requirement.

However, the circular clarified that this condition applies only to Fly Ash Aggregates, not to Fly Ash Bricks or Blocks. As of July 18, 2022, the 90% requirement has been removed from the description of Fly Ash Bricks and Blocks.

The Division Bench further held in the order “Hence, in view of above clarification, as per the Notification No. 04/2018-Central Tax (Rate) dated 31.12.2018 Entry No. 225B refers to applicability of levy of GST rate of 5% on Fly Ash Bricks and all Fly Ash Aggregate with 90% or more fly ash content or Fly Ash Blocks as per the clarification fly ash aggregate at 90% or more fly ash content would not be applicable Fly Ash Bricks or Fly Ash Blocks and accordingly the rate of GST applicable to the products manufactured by petitioner would be 5% as per the Entry No. 225B.

The Court then allowed the petition by quashing and setting aside the order passed by the Advance Ruling Authority and the Appellate Authority. The Court further held “The products manufactured by the petitioner i.e. Fly Ash Bricks and Fly Ash Blocks are liable to levy of GST @ 5% as per the Notification No. 24/2018 dated 31.12.2018. Rule is made absolute to the aforesaid extent.”

Case Title: M/s Shree Mahalaxmi Cement Products Through Its Director Mr Dipakkumar Ramjibhai Patel vs State of Gujarat & Ors.

LL Citation: 2024 LiveLaw (Guj) 163

Appearance: Advocates - Aaditya Bhatt, Sneh Purohit and Chandni Joshi for the Petitioner

Advocate Chintan Dave, AGP for Respondent No.1 (Chief/Assistant Commissioner of State Tax)

Advocate Hirak Shah for Mr Nikunt Raval for Respondent No. 3 (Commissioner of Central Tax and Central Excise, Gujarat)

Click Here To Read/Download Order