Bombay HC dismisses Coca-Cola India unit's writ challenging GST show-cause notice

In another setback to the Hindustan Coca-Cola Beverages Private Limited (HCCBPL), a subsidiary of Coca Cola India, the Bombay High Court quashed its writ petition challenging show-cause notices issued by the Directorate General of GST Intelligence.

In its show-cause notice, the GST Directorate said HCCBPL availed CENVAT credit on service tax paid on the transportation charges incurred for moving its products from its factories and depots to its customers' places, which it was not entitled to under GST rules.

The Investigation wing of GST, Mumbai Zone, had initiated an investigation against HCCBPL in 2018.

HCCBPL makes and supplies beverages and packaged drinking water. It sells and distributes beverages under prominent and popular brand names such as Coca-Cola, Thumbs Up, Sprite, Fanta and Limca.

Moneycontrol has reviewed the order of the Bombay High Court. It was also the first to report the HCCBPL investigation by the Directorate General of GST intelligence in January this year, for non-payment of taxes.

In 2019, the company had filed similar writ petitions in the Gujarat High Court, which were also dismissed.

HCCBPL did not comment for this article.

The Bombay High Court, quoting the GST show cause notice, observed that ``the company supplied its products from factories and depots all over India. In the course of transportation of goods from its factories and depots to customers, the company hired goods transport agencies (GTA) and made payments to them. Company had availed CENVAT credit on service tax paid on the transportation charges incurred for transportation of its products from its factories and depots to the place of the customers, which according to GST, the company is not eligible to…as per rule 2(l) of the CENVAT Credit Rules post amendment”.

``That petitioner had intentionally and deliberately suppressed the fact of taking CENVAT credit of outward GTA service, and with mala fide intent to avail ineligible CENVAT credit, had fraudulently contravened various statutory provisions,” the court observed.

The GST argument, which is quoted in the order, held: ``Had the investigation not been initiated, such ineligible CENVAT credit by the petitioner would not have been unearthed. Therefore, section 11A (4) of the Act would be applicable to enable invocation of the extended period of limitation.”

Consequently, the Mumbai Zonal Unit had issued 19 show-cause notices to 19 units of the company, in which five show-cause notices have been adjudicated.

In a show-cause notice, the GST department wanted to know, “Why irregular CENVAT credit of Rs.2.02 crore for the period from April, 2014 to June, 2017 wrongly availed of, should not be recovered under Section 11A(4) of the Act read with Rule 14 of the CENVAT Credit Rules together with recovery of interest and imposition of penalty”.

Replying to the show cause notice, HCCBPL told the High Court that "as per terms of sale agreement with the customers, it sold the goods on Free on Road (FoR) basis, thus the risk and reward of ownership of the goods passed on to the distributors at their destination."

The company told the court that it availed CENVAT credit on various inputs and input services used in the manufacture of the final products as per rule 2(k) and (l) of the CENVAT Credit Rules, 2004. "It is stated that the petitioner availed CENVAT credit of service tax paid on transportation charges incurred in transportation of its products from its factories/depots to the customer places. According to the petitioner, this view is fortified by several decisions of the Supreme Court,” HCCBPL maintained.

The Bombay High Court said in its order that a writ court would not be the appropriate forum to deal with and adjudicate on such issues. Interference by the writ court at this stage would not be justified, the Court observed.