The Gujarat High Court on the 25th^th September (Wednesday) held/clarified the Goods and Services Tax (GST) applicable on fly ash bricks and blocks with less than 90% fly ash content. The court ruled that the products qualify for a lower GST rate of 5%, than the 18% GST rate on products that do not meet the 90% fly ash threshold and set aside and set aside the orders of the Authority Advance Rulings and the Advance Ruling Appeals Authority.

Fly ash, a by-product of thermal power plants, is used as a key material in the production of eco-bricks and offers a sustainable alternative to traditional bricks. Fly ash bricks are solid, uniform and smooth, with sharp edges, free of cracks or defects. They are environmentally friendly, 28% lighter than clay bricks and do not require plastering due to their smooth finish. Unlike clay bricks, which vary in color and are handmade from the top layer of soil, fly ash bricks are molded from coal combustion waste, making them cost-effective and beneficial. for the environment.

Following the GST Act 2016, fly ash bricks were initially taxed at a GST rate of 12%. In 2017, an amendment established 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, filed an advance ruling application seeking a ruling on the correct rate of tax on fly ash bricks and blocks. The petition was then moved to the The High Court challenges the order of the Advance Ruling Authority and the Appellate Authority which stated that the fly ash blocks should be taxed under the 5% slab as they met the criterion of maintaining a fly ash content of 90% and fly ash bricks were to be taxed under 18% GST slab as they contained less than 90% fly ash.

Arguments of the company’s lawyer/petitioner

The company’s lawyer submitted that the petitioner had explained the manufacturing process in detail. However, the Advance Ruling Authority and the Appellate Authority did not consider these details while deciding that the petitioner’s fly ash bricks did not satisfy the requirement of 90% fly ash content. He further stated that as per a notification by the Ministry of Environment and Forests in 2009, construction materials such as fly ash bricks need only contain 50% fly ash.

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

He further noted that as per the Harmonized System of Nomenclature (HSN), fly ash bricks fall under the 5% category of GST, supporting a rate of 5% for the petitioner’s bricks.

In addition, he referred to several Supreme Court decisions to support his argument that the tax should be set at 5%, as the legislator intended. He emphasized the cases of Collector of Central Excise v. Wood Craft Products Ltd. and Reckitt Benckiser (India) Ltd. v. Commissionerand stated that there should be no double interpretation of tax laws.

It noted that the GST Council recommends different classification of fly ash bricks and aggregates with fly ash content of 90% or more. Therefore, he argued that the contention of the authorities that the fly ash bricks of the petitioner do not contain sufficient fly ash is baseless.

Arguments of the Government lawyer

The government counsel argued that as per the July 2022 notification, the rate of GST on fly ash bricks manufactured by the petitioner should be 5%, not 18%. Referring to an affidavit, he further stated that during the 23rd GST Council meeting, 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 to 60% fly ash, the respondent submits that the appeal is invalid.

He further claimed that a similar rate of 5% was recommended for fly ash blocks in the 31st meeting of the GST Council, but there was no specific notification for such reduction, making the appeal unsustainable. The defendant also noted that the Supreme Court in the Wood Craft Products Ltd. case (1995 (77) ELT 23 (SC)) ruled that tariff classifications should be aligned with the HSN nomenclature unless otherwise indicated, and in this case , there is no classification dispute regarding fly ash bricks, which makes the arguments of the appellant incorrect.

Court Observation

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 of this petition was resolved through Circular No. 179/11/2022-GST dated August 3, 2022. The CBIC clarified that the requirement of 90% fly ash content is applicable only to fly ash aggregates, no to fly ash bricks.

Previously, fly ash bricks and aggregates with fly ash content of 90% or more were taxed at 12%. However, the GST Council confirmed that this condition applies only to aggregates. Effective July 18, 2022, the requirement of 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 the fact that fly ash bricks or aggregates with a fly ash content of 90% or more were taxed at 12%, which led to confusion over the 90% requirement. .

However, the circular clarified that this condition applies only to fly ash aggregates, not fly ash bricks or blocks. Effective July 18, 2022, the 90% requirement has been removed from the description of fly ash bricks and blocks.

The Division Court further maintained the order “Therefore, in view of the above clarification, as per Notification No. 04/2018 – Central Tax (Rate) dated December 31, 2018, Entry No. 225B refers to the applicability of levy of GST rate 5% on fly ash bricks and all fly ash bricks. Ash aggregate with fly ash content of 90% or more or fly ash blocks as per clarification, fly ash aggregate with fly ash content of 90% or more would not be applicable to fly ash bricks or to fly ash blocks and consequently the rate of GST applicable on the products. manufactured by the petitioner would be 5% as per Entry No. 225B.

The Court then accepted the petition 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 i.e. Fly Ash Bricks and Fly Ash Blocks are subject to VAT levy of 5% as per Notification No. 24/2018 dated 31 December 2018. The government becomes absolute to the extent mentioned above.”

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

Appearance: Counsel: Aaditya Bhatt, Sneh Purohit and Chandni Joshi representing the petitioner

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

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