GST Update

Desk of CA. Praveen Sharma – 850 Series (CAPS)

DELHI HIGH COURT IN THE CASE OF IMS Mercantiles Ltd.

Background:
The GST department conducted a search in March 2021 and later issued a Show Cause Notice alleging that the firm wrongly applied 18% GST instead of 28% on battery combo packs under HSN 8507.

Initial Proceedings:
After considering the reply, the Adjudicating Authority passed an Order-in-Original on 10.01.2025 confirming tax evasion. A rectification plea was filed under Section 161 but was dismissed, prompting the writ petition.

Earlier Court Order:
In a prior petition, the Court directed the department to grant a personal hearing and pass a reasoned order after verifying turnover data and considering that the disputed product formed only 3% of total sales.

Petitioner’s Grievance:
The petitioner argued that the authority wrongly computed GST on the entire turnover rather than limiting it to sales of combo packs, inflating the liability massively.

Department’s Stand:
The Revenue contended that the firm deliberately adopted dual HSN codes (8507 & 8504) to evade tax and therefore the computation was justified.

Court’s Findings:
The Court noted a serious flaw in the authority’s reasoning — despite availability of detailed turnover bifurcation, GST was levied on total sales without justification or correlation to the alleged misclassification.

Relief Granted:
The Court declined to reappraise facts under writ jurisdiction but permitted the petitioner to file an appeal by 30 November 2025, limiting pre-deposit only to turnover from B2B and B2C combo sales.

Direction:
The Commissioner (Appeals) was instructed to hear the appeal on merits, grant a personal hearing, and issue a reasoned order. The High Court clarified its observations would not bind the appellate authority.

Link:CA. Praveen Sharma on Linkedin

Regards
CAPS