Issuing A Fresh SCN On An Already Settled Classification Issue
Amounts To Judicial Indiscipline And Abuse Of Power
1. Introduction
Classification disputes
are among the most contentious issues under the Goods and Services Tax (GST)
regime. The correct classification of goods determines the rate of tax
applicable, which often leads to large-scale litigation when products fall in
the grey area between two competing headings. The case of M/s Azam
Laminators Pvt. Ltd. vs. Directorate General of GST Intelligence (DGGI)
before the Madras High Court is one such high-stakes litigation.
At the core of the
dispute was the classification of the petitioner’s flagship product “Nizam
Pakku” (a form of scented betel nut). The Department attempted to classify
it under Chapter 21 (Supari) taxable at 18% GST, whereas the
assessee contended that it continued to fall under Chapter 08 (Betel Nuts)
taxable at 5% GST.
In its order dated 01.08.2025,
the Madras High Court decisively quashed the Show Cause Notice (SCN) dated
17.05.2022 issued by DGGI, ruling that the matter had already been settled
by the Supreme Court, CESTAT, and Appellate Authority for Advance Ruling
(AAAR), all of which had classified the product under Chapter 08. The
judgment is a landmark reiteration that tax authorities cannot repeatedly
re-agitate issues that have been settled by higher judicial forums.
2. Case Details
- Case Title:
M/s Azam Laminators Pvt. Ltd. v. Directorate General of GST
Intelligence & Another
- Case No.:
W.P. No. 17090 of 2022
- Court:
Madras High Court
- Coram:
Hon’ble Justice Krishnan Ramasamy
- Date of Judgment:
01 August 2025
- Petitioner:
M/s Azam Laminators Pvt. Ltd., represented by its Director
- Respondents:
1. Directorate
General of GST Intelligence (DGGI), Chennai Zonal Unit
2. Union
of India, Ministry of Finance
- Subject Matter:
Challenge to SCN dated 17.05.2022 on classification of “Nizam Pakku” –
whether under Chapter 08028090 (betel nuts, 5% GST) or Chapter 21069030
(betel nut product known as supari, 18% GST).
3. Summary of the Case
The Department issued a Show
Cause Notice to the petitioner alleging that its product “Nizam Pakku” was
misclassified under Chapter 08 (Betel nuts), whereas it should fall
under Chapter 21 (Supari). According to the Department, the product
contained sweeteners, menthol, spices, and oils, and therefore ceased to be
plain betel nut.
The petitioner countered
that this exact issue had been settled in its own favor in multiple forums—Supreme
Court (2007 & 2015), CESTAT (2019), AAR & AAAR (2020–21)—all
holding that the product continues to remain betel nut under 08028090.
The Department had accepted these rulings and not pursued further appeal.
Hence, the SCN was nothing but an abuse of process and contrary to judicial
discipline.
The High Court agreed
with the petitioner, quashed the SCN, and held that repeated classification
disputes on the same product are not permissible when the matter has already
attained finality.
4. Facts of the Case
- The petitioner, M/s Azam
Laminators Pvt. Ltd., manufactures and markets a popular betel nut
preparation known as “Nizam Pakku.”
- The product consists of betel nut
pieces coated with sugar/glucose, edible oil, menthol, spices, and
food-grade perfumes.
- Since the excise era, the
classification of this product had been contested.
Litigation History*96
1. Supreme
Court in Crane Betel Nut Powder Works (2007)
o Held
that crushing/sweetening betel nuts does not make it a new commodity.
o It
remains classified under Chapter 08.
2. Azam
Laminators’ own case before Supreme Court (2015)
o SC
held that “Nizam Pakku” was classifiable under 0802 and not under
Chapter 21.
3. CESTAT
Order (2019)
o Reiterated
the same classification under 08028090 despite amendments in Chapter
Notes.
4. GST
Era – AAR (2020) and AAAR (2021)
o Both
ruled that “Nizam Pakku” is covered under 08028090, taxable at 5% GST
(2.5% CGST + 2.5% SGST).
o The
Department did not challenge the AAAR order.
Despite this settled
position, the DGGI issued SCN dated 17.05.2022 alleging
misclassification and demanding differential tax at 18%.
5. Submissions by the
Petitioner
The petitioner,
represented by senior counsel, argued:
1. Binding
Judicial Precedents
o The
Supreme Court (2007 & 2015), CESTAT (2019), and AAAR (2021) had
conclusively held that “Nizam Pakku” falls under Chapter 08.
o The
Department’s failure to appeal the AAAR order makes it final and binding.
2. Product
Identity Unchanged
o Adding
sugar, menthol, and oils does not change the essential nature of betel nut.
o The
product remains betel nut in consumer-friendly form, not a “supari”
preparation.
3. Circular
Misapplied
o The
Department relied on CBIC Circular No. 163/19/2021-GST, which clarified
that “betel nut product known as supari” falls under 21069030.
o However,
this circular does not apply to “sweetened betel nut” like Nizam Pakku, which
continues to be covered under 0802.
4. Abuse
of Process
o Issuing
a fresh SCN on an already settled classification issue amounts to judicial
indiscipline and abuse of power.
o Relied
on SC in Vicco Laboratories (2007): Writ can lie against SCN if it is
without jurisdiction or abusive.
6. Submissions by the
Respondent
The Department, through
its counsel, contended:
1. Change
in Law under GST
o Post-GST,
the concept of “manufacture” has been replaced by “supply” under Section
7 of CGST Act.
o Hence,
earlier excise judgments are not binding.
2. Application
of CBIC Circular
o Circular
163/2021 clarifies that products like “scented supari” must be classified under
21069030, attracting 18% GST.
3. Chemical
Analysis Report
o Test
reports confirmed the presence of sugar, oil, menthol, and spices, thus making
it a betel nut product and not mere betel nut.
4. Prematurity
of Writ
o The
petitioner should file a reply to the SCN and exhaust alternative remedies.
Writ jurisdiction against a SCN is premature.
7. Findings of the Court
Justice Krishnan Ramasamy
analyzed the rival contentions and held:
1. Judicial
Precedents Binding
o The
classification of the petitioner’s product had already been settled by the Supreme
Court, CESTAT, and AAAR.
o The
Department did not appeal the AAAR ruling, making it final.
2. No
Change in Product or Tariff
o The
product “Nizam Pakku” remains the same; there is no alteration in its
ingredients post-GST.
o The
tariff headings also remain materially the same.
3. Circular
Misinterpretation
o The
CBIC circular applies to supari products, not to sweetened betel nuts.
o Petitioner’s
product continues to fall under Chapter 08.
4. Abuse
of Process
o Issuing
repeated SCNs on the same classification issue amounts to harassment and is an
abuse of legal process.
5. Writ
Jurisdiction Maintainable
o Normally,
writ is not entertained against SCN.
o However,
in exceptional cases where the SCN is issued without jurisdiction or contrary
to binding precedent, writ remedy is available.
8. Judgment
The Court quashed the
SCN dated 17.05.2022 and allowed the writ petition with the following key
observations:
- “Nizam Pakku” is classifiable under 08028090
(betel nuts).
- The applicable GST rate remains 5%
(2.5% CGST + 2.5% SGST).
- The Department is barred from
re-opening the settled classification unless there is a statutory
amendment or change in the product itself.
- No costs were awarded.
9. Conclusion
The judgment in M/s
Azam Laminators Pvt. Ltd. v. DGGI is a watershed ruling on
classification under GST. It underscores several important principles:
1. Finality
of Judicial Rulings – Once classification is settled by
higher forums like the Supreme Court, CESTAT, or AAAR (unappealed), the
Department cannot re-open the issue through fresh SCNs.
2. Protection
Against Harassment – Taxpayers cannot be forced into
repeated litigation on identical facts and law.
3. Correct
Application of Circulars – Departmental circulars must be
applied strictly to the products they cover. They cannot override judicial
pronouncements.
4. Scope
of Writ Against SCN – While ordinarily courts discourage writ
petitions against SCNs, they will step in where SCNs are without jurisdiction,
contrary to law, or constitute abuse of process.
5. Certainty
in Taxation – The case provides much-needed certainty
to businesses manufacturing flavored/sweetened betel nuts, ensuring they are
taxed at 5% under Chapter 08, unless Parliament itself amends the
tariff.
Disclaimer: All the Information is based on the notification, circular advisory 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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