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

Fly ash, a by-product of thermal power plants, is used as a key material in the production of eco-friendly bricks, providing a sustainable alternative to traditional bricks. Fly ash bricks are strong, uniform and smooth with sharp edges, free from cracks or defects. They are ecological, 28% lighter than terracotta bricks and require no coating thanks to their smooth finish. Unlike clay bricks, which vary in color and are handmade from topsoil, fly ash bricks are molded from coal burning waste, making them cost effective and beneficial to the environment. environment.

Following the GST Act 2016, fly ash bricks were initially taxed at the GST rate of 12%. In 2017, an amendment fixed a reduced GST rate of 5% for fly ash bricks. The petitioner, director of M/S Shree Mahalaxmi Cement Products, which manufactures fly ash bricks and blocks, has filed an advance ruling application, seeking a ruling on the correct rate of tax for fly ash bricks and blocks . The High Court challenged the order of the Advance Ruling Authority and the Appellate Authority that the fly ash blocks were to be taxed below the 5% slab as they met the criteria of maintaining a content in fly ash by 90% and fly ash bricks were to be taxed under the 18% GST slab. they contained less than 90% fly ash.

Claims of the company’s lawyer/petitioner

The lawyer representing the company argued that the petitioner had explained the manufacturing process in detail. However, the advance ruling authority and the appellate authority did not take these details into account when deciding that the applicant’s fly ash bricks did not meet the ash content requirement. flying by 90%. Further, he argued that according to a 2009 notification by the Ministry of Environment and Forests, construction materials such as fly ash bricks should contain only 50% fly ash.

He argued that the Advance Ruling Authority’s requirement for 90% fly ash contradicts this standard. Further, the advanced and appellate authorities have wrongly applied a fly ash content requirement of 90% to classify the petitioner’s bricks under 18% GST rate. He pointed out that the GST Council, in its agenda, has recommended a rate of 5% for fly ash bricks and a CBIC notification has clarified that the 90% requirement applies only to fly ash aggregates, not bricks.

Further, he noted that under the Harmonized System of Nomenclature (HSN), fly ash bricks fall under the 5% GST category, which justifies a rate of 5% for the petitioner’s bricks.

He further cited several Supreme Court decisions to support his argument that the tax should be set at 5%, as the legislature intended. He highlighted the cases of Collector of Central Excise v Wood Craft Products Ltd. and Reckitt Benckiser (India) Ltd. against commissionerand argued that there should be no double interpretation of tax laws.

He pointed out that the GST Council recommends classifying bricks and fly ash aggregates containing 90% or more fly ash differently. Therefore, he submitted that the authorities’ claim that the petitioner’s fly ash bricks do not contain sufficient fly ash is unfounded.

Claims of the Government Council

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

Since the petitioner’s bricks contain only 40-60% fly ash, the respondent contends that the appeal is not maintainable.

Further, he argued that in the 31st GST Council meeting, a similar rate of 5% was recommended for fly ash blocks, but there was no specific notification for this reduction , which made the appeal untenable. The respondent also pointed out that the Supreme Court in Wood Craft Products Ltd. (1995 (77) ELT 23 (SC)), held that tariff classifications should align with the HSN nomenclature unless otherwise specified, and in this case there is no classification dispute regarding fly ash bricks, which makes the caller’s arguments incorrect.

Observation of the Court

Considering the arguments of both the parties and the details of the case, the division bench comprising Justice BD Karia and Justice Mauna Bhatt observed the The issue in this petition has been resolved vide Circular No. 179/11/2022-GST dated August 3, 2022. The CBIC has clarified that the 90% fly ash content requirement is applicable only to ash aggregates flying ash bricks.

Previously, fly ash bricks and aggregates containing 90% or more fly ash were taxed at 12%. The GST Council has, however, confirmed that this condition only applies to aggregates. Since 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, according to which fly ash bricks or aggregates having a fly ash content of 90% or more were taxed at 12%, which sowed the seeds of confusion over the 90% requirement.

However, the circular clarifies that this condition applies only to fly ash aggregates, and 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 ruled in order “Hence, in view of the above clarifications, as per Notification No. 04/2018-Central Tax (Rate) dated 31.12.2018, Entry No. 225B refers to the applicability of levy of GST rate 5% off fly ash bricks and all fly bricks. Fly ash aggregates with fly ash content of 90% or more or fly ash blocks as per clarification of fly ash aggregates with fly ash content of 90% or more would not be applicable to fly ash bricks or fly ash blocks and, therefore, the GST rate applicable to the products. manufactured by the petitioner would be 5% as per Entry No. 225B.

The Court then granted 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 namely fly ash bricks and fly ash blocks are subject to levy of GST at 5% as per Notification No. 24/2018 dated 31.12.2018. The rule is made absolute to the extent aforesaid.

Case Title: M/s Shree Mahalaxmi Cement Products through its Director Mr. Dipakkumar Ramjibhai Patel v. State of Gujarat and Ors.

Appearance: Lawyers – Aaditya Bhatt, Sneh Purohit and Chandni Joshi for the petitioner

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

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