AO's Classification Of Harpic And Lizol Under 28% GST Slab Rate Is Without Application Of Mind: Madras High Court

The Madras High Court has held that Ao's classification of Harpic and Lizol under the 28% GST slab rate is without application of mind.

The bench of Justice Mohammed Shaffiq has observed that when objections are raised, a duty is cast on the assessing authority to apply its mind to the objections and deal with each one of them. Failure to do so would vitiate the order of assessment on the ground of non-application of mind.

The petitioner/assessee is in the business of manufacturing and supplying floor cleaners, toilet cleaners, medicated soap, dishwashing, handwashing, etc. The petitioner had affected sales of Harpic and Lizol by levying tax at 18% GST on the supply (sale) of goods and remitting it.

A notice was issued by the respondent-department proposing to treat the sale of Harpic and Lizol at 28% GST by treating it as falling under Item No. 29 to 31 of the Fourth Schedule to the Goods and Service Tax Act, while rejecting the classification under Item 87 of the Third Schedule to the Goods and Service Tax Act.

The assessment order stated that the proposal has been received from the State Tax Enforcement, which was not indicated or disclosed in the show cause notice. The order of assessment places reliance primarily on the ingredients used in Harpic and Lizol to reject the classification made by the petitioner while confirming its proposal to treat Harpic and Lizol as falling under Entry 31 of the Fourth Schedule liable to tax at 14% under TNGST.

The petitioner submitted that the State of Tamil Nadu had accepted the classification of Harpic and Lizol as disinfectants under the TNVAT Act by treating the sales of Harpic and Lizol as falling under Entry 17(a) of Part B to the Fourth Schedule of the TNVAT Act for the period 12.07.2011 to 29.05.2013 and under Entry 22 of Part C to the First Schedule to the TNVAT Act, from 29.05.2013 until GST was introduced with effect from 01.01.2017. The department had questioned the classification of Lizol as a disinfectant on the basis of an advance ruling. The advance ruling was put to challenge before the Madurai Bench of the Madras High Court, and the same was set aside, holding that Harpic and Lizol were liable to be classified as disinfectants only.

The court noted that orders of assessment revealed for the first time that the entire proposal had been made on the basis of the proposal received from the enforcement wing authorities. Since it is only in the order of assessment that it was disclosed for the first time that the proposal had been received from the enforcement wing authorities, the petitioner's objections were disabled.

The court held that the order of assessment suffers from the vice of non-application of mind to the objection and also non-disclosure of the fact that the proposal has been received from the enforcement wing, thereby vitiating the order of assessment.

Counsel For Petitioner: Jawahar Lal

Counsel For Respondent: Haza Nazirudeen

Case Title: Reckitt Benckiser (India) Limited Versus State of Tamil Nadu

Citation: 2024 LiveLaw (Mad) 93

Case No.: W.P. No.12942 of 2021 and W.M.P. No.13744 of 2021

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