The High Court of Calcutta, while allowing a petition filed against an order passed by the appellate authority wherein Spunbonded Polypropylene Bed Sheets were classified under a heading that partially denied them the refund of accumulated Input Tax Credit on account of inverted duty structure, held that there must be tangible evidence to support the appropriate findings, which may be presented either orally or through documentation.
Brief Facts:
The petitioner is engaged in manufacturing, exporting, and supplying various non-woven fabrics and Spunbonded Polypropylene Bed Sheets (PPSB). The PPSB Bed Sheet was exempt from the whole of the Excise Duty. After the implementation of GST, the Petitioner has been classifying the PPSB under the tariff heading 6304 and discharging GST @ 5%. The revenue department asserted that bed sheets crafted from polypropylene non-woven fabric would not qualify for the tax exemption. The Hon’ble Tribunal ruled that the PPSB Bed Sheet manufactured and traded by the Petitioner were exclusively utilized as bed sheets and thus were entitled to the exemption. The Petitioner was served with Show Cause Notice vide which respondent no. 5 proposed to disallow the refund claim of Rs. 5,75,99,662/- on grounds of doubting the classification of the Petitioner's final products, namely Non-Woven Fabric and PPSB Bed Sheets. Respondent no.5, without granting the Petitioner an opportunity for hearing and without duly considering the detailed submissions made by the Petitioner, passed orders rejecting the refund. Consequently, the present petition has been filed.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the Petitioner submitted that the issuance of the Show Cause Notices contravened fundamental principles of procedural fairness, as they lacked specificity by failing to provide any rationale for questioning the petitioner's classification or suggesting any alternative classification. Consequently, solely due to the ambiguity within the Show Cause Notices, the contested orders, insofar as they detrimentally affect the petitioner, are subject to being invalidated.
Contentions of the Respondent:
The learned counsel appearing on behalf of the Respondent submitted that the orders were not issued in flagrant contravention of the principles of natural justice. The order pertaining to the PPSB bed-sheet was rendered subsequent to affording the petitioner a reasonable opportunity to be heard and after thorough consideration of all materials presented on record
Observations of the court:
The court noted that respondent no. 4 inadequately considered various factual elements in its decision-making process.
The Court observed that the onus of proving a product's classification under a specific tariff heading lies with the revenue authority, which must demonstrate that such classification aligns with the understanding of consumers or common parlance. However, the respondent authorities failed to fulfil this burden of proving that the PPSB Bed Sheets, manufactured by the petitioner, fall under tariff heading 5603 rather than 6304. The Court said that there must be tangible evidence to support the appropriate findings, which may be presented either orally or through documentation.
The decision of the Court:
The Calcutta High Court, allowing the petition, held that the order of the appellate authority is quashed and set aside.
Case Title: M/s. Harsh Polyfabric Private Limited v Union of India & Ors.
Coram: Hon’ble Justice Rajarshi Bharadwaj
Case No.: W.P.O 588 of 2019
Advocate for the Petitioner: Mr. Vasudeva. A
Advocate for the Respondent: Mr. Anirban Ray
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