Madras High Court Orders
Refund of Wrongly Paid GST – United Breweries Limited vs. GST Authorities
By Yogesh Verma (CS/LLB) / 2 min read / GST Case Law
Introduction:
This
case involves a dispute over the applicability of GST under the Reverse Charge
Mechanism (RCM) on holographic excise labels required for beer bottles. United
Breweries Limited sought a refund for GST paid under RCM, arguing that the tax
was incorrectly imposed on what they considered a supply of goods rather than
services. The Madras High Court ruled in favor of the petitioner and ordered a
refund.
Case Details:
•
Court:
High Court of Judicature at Madras
•
Case
Number: W.P. No. 14080 of 2021
•
Date
of Order: 24.01.2025
•
Judge:
Honourable Mr. Justice C. Saravanan
•
Petitioner:
M/s United Breweries Limited, represented by its Unit Accountant, S. Sridhar
•
Respondents:
1.
The Joint Commissioner of GST and
Central Excise (Appeals II)
2.
The Assistant Commissioner of GST and
Central Excise
Background of the Case:
1.
United Breweries Limited manufactures
and sells beer in Tamil Nadu.
2.
Tamil Nadu's Excise Policy requires that
beer bottles be affixed with holographic excise labels issued by the State
Prohibition and Excise Department.
3.
The petitioner paid GST on these labels
under RCM from April 2018 to February 2020 based on Notification No.
13/2017-Central Tax (Rate).
4.
Later, the petitioner argued that these
labels were goods, not services, and thus should not have been subject to RCM.
5.
The refund claim was rejected by the
Assistant Commissioner and later upheld by the Joint Commissioner.
Understanding Reverse Charge
Mechanism (RCM):
•
RCM is a mechanism where the liability
to pay tax shifts from the supplier to the recipient of goods or services.
Normally, the supplier collects GST from the buyer and remits it to the
government. However, under RCM, the recipient directly pays GST to the
government instead of the supplier. This system is typically applied to
specified categories of goods and services.
•
In this case, the petitioner paid GST
under RCM assuming that the procurement of holographic labels was classified as
a service under the GST framework. However, the petitioner later contended that
the holographic labels were tangible goods and should not be taxed under RCM.
Legal Provisions and Notifications:
•
Section 9(3) of the CGST Act, 2017: This
section empowers the government to notify specific categories of goods and
services for RCM taxation.
•
Notification No. 13/2017-Central Tax
(Rate): This notification specifies the types of services taxable under RCM,
which the petitioner initially relied upon.
•
Notification No. 25/2019-Central Tax
(Rate): This later notification clarified that the grant of liquor licenses was
neither a supply of goods nor services, impacting the interpretation of excise
labels.
Arguments Presented by the
Petitioner:
1.
Excise labels are physical goods and
should not be classified as services under GST.
2.
The tax paid under RCM was due to a
mistaken belief, making them eligible for a refund under Section 54 of the CGST
Act.
3.
Notification No. 25/2019 established
that licensing fees were neither goods nor services, implying that the excise
labels should be treated similarly.
4.
Excise labels were supplied
independently and should not be considered a bundled service.
5.
The labels were purchased from the state
government as a requirement for legal compliance, and such mandatory purchases
should not be taxable under RCM.
Arguments by the Respondents:
1.
The supply of excise labels was an
inherent part of the liquor regulation framework, making it a composite supply
with state-mandated services.
2.
The petitioner had been paying GST
voluntarily under RCM for two years, and a later change in interpretation
should not justify a refund.
3.
Excise labels were an essential part of
the state’s regulatory function and not a separate sale of goods.
Key Findings of the Court:
1.
Nature of Supply: The Court analyzed the
legal definitions and determined that excise labels qualify as goods under Section
2(52) of the CGST Act.
2.
Incorrect Taxation Under RCM: Since RCM
applies only to services, the Court held that excise labels should not have
been taxed under this mechanism.
3.
Impact of Notification No. 25/2019: The
Court found that the exemption of liquor licensing fees from GST supported the
argument that excise labels should also be exempt.
4.
Composite Supply Argument Rejected: The
Court concluded that excise labels were procured separately and did not
constitute a bundled supply with the liquor license.
5.
Refund Entitlement: The Court ruled that
the principle of unjust enrichment did not apply because the petitioner bore
the tax burden, meaning the refund was legally justified.
Judgment and Conclusion:
•
The Madras High Court ruled in favor of
United Breweries Limited, directing the GST authorities to refund the tax paid
under RCM. The Court emphasized that the excise labels were clearly goods and
should not have been classified as a taxable service under GST law.
•
This judgment sets an important precedent
for businesses dealing with mandatory state-imposed purchases. It reinforces
the principle that taxes paid under mistaken interpretations of law should be
eligible for refunds.
Key Takeaways from the Judgment:
•
Proper Classification of Transactions:
Businesses should carefully evaluate whether purchases are goods or services to
determine the correct tax liability.
•
Understanding GST Notifications: Keeping
track of amendments and clarifications in GST law can help businesses avoid
unnecessary tax payments.
•
Right to Claim Refunds: If tax is paid
due to a mistaken interpretation of law, businesses have the right to seek a
refund under Section 54 of the CGST Act.
•
No Estoppel in Taxation: The Court
reaffirmed that prior tax payments do not prevent taxpayers from claiming a
refund if they later determine that the payment was incorrect.
Conclusion: This
case serves as a cautionary tale for businesses to diligently assess their tax
obligations. Misinterpretations can lead to unnecessary tax payments, but legal
recourse is available to correct such errors. Companies should actively seek
legal opinions when in doubt and proactively claim refunds where applicable.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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