CESTAT Mumbai Sets Aside IGST Demand and Penalties

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 16.02.2026

CESTAT Mumbai Sets Aside IGST Demand and Penalties

In a significant judgment, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, has ruled in favor of Quality Systems and Equipments P. Ltd, setting aside the Order-in-Original No. ​ 145/2024-25/Commr/NS-V/JNCH dated 12.09.2024 passed by the Commissioner of Customs (NS-V), Nhava Sheva. ​ The case revolved around the classification and applicable Integrated Goods and Services Tax (IGST) rate on imported parts of poultry-keeping machinery. ​

Background of the Case

Quality Systems and Equipments P. Ltd, the appellant, imported “Poultry Keeping Machinery” and its parts between September 2017 and December 2021. ​ The company classified these goods under CTSH 84362900 and CTSH 84369100, paying IGST at a rate of 12% as per Serial No. ​ 199 of Schedule II of IGST Notification No. ​ 1/2017-IGST (Rate) dated 28.06.2017. ​ However, during a post-clearance audit, the customs department raised concerns, alleging that the parts should have been classified under Serial No. ​ 453 of Schedule III of the same notification, which attracts an IGST rate of 18%. ​

A show-cause notice was issued, and the Commissioner of Customs adjudicated the matter, confirming a differential IGST demand of Rs. ​ 63,36,223/- along with applicable interest and imposing a redemption fine of Rs. ​ 1 crore for confiscation of goods under Section 111(m) of the Customs Act, 1964. ​ Penalties under Sections 114A, 114AA, and 112(a) of the Customs Act were also imposed. ​

Appellant’s Arguments

During the appeal hearing, the appellant’s counsel, argued that the company was not given a fair opportunity to present its case before the Commissioner. ​ The appellant had requested an adjournment for the hearing scheduled on 20.08.2024 due to the unavailability of its director, but no further notice was issued for another hearing. ​ Consequently, the order was passed without considering the appellant’s submissions. ​

The appellant further contended that the GST Council had already recommended that parts of poultry-keeping machinery under tariff item 84369100 should be classified under Serial No. ​ 199 of Schedule II, attracting a 12% IGST rate. ​ This recommendation was notified and clarified through CBIC Circular No. ​ 229/23/2024-GST dated 15.07.2024, which was issued before the Commissioner passed the order. ​ Additionally, Circular No. 236/30/2024-GST dated 11.10.2024 clarified that past cases involving competing GST rates should be regularized on an “as is where is basis,” treating payments at the lower rate as fully compliant. ​

The appellant relied on Supreme Court judgments in Suchitra Components Ltd. Vs ​. Commissioner (2008) and Ranadey Micronutrients Vs. Collector of Central Excise (1996), which established that beneficial circulars should be applied retrospectively and are binding on departmental officers. ​

Respondent’s Arguments

The respondent argued that the Commissioner had conducted a proper legal analysis and that the circulars issued after the show-cause notice and adjudication could not have retrospective application. ​ The respondent cited the Supreme Court judgment in Union of India Vs. Intercontinental Consultants and Technocrats Private Ltd (2018), which held that circulars issued after adjudication cannot alter the legal position at the time of the order. ​

CESTAT’s Observations and Final Order ​

After reviewing the appeal papers, written submissions, and case laws, the CESTAT bench comprising Hon’ble Judicial Member and Hon’ble Technical Member found merit in the appellant’s arguments. The Tribunal noted that the appellant had paid IGST at the rate of 12% as per the prevailing notification and that the clarificatory circulars issued by CBIC had retrospective application, as they were beneficial to the assessee. ​

The Tribunal also observed procedural lapses in the adjudication process, as the appellant was not given a fair opportunity to present its case. ​ The Commissioner failed to consider the clarifications provided in the CBIC circulars, which were already in effect at the time of adjudication.

In its final order, the Tribunal set aside the Commissioner’s order, stating that the appellant had duly discharged IGST at the correct rate of 12% for the imported parts of poultry-keeping machinery during the relevant period. ​ The Tribunal also granted consequential relief to the appellant. ​

Key Takeaways

1. Retrospective Application of Beneficial Circulars: The judgment reinforces the principle that beneficial circulars issued by the government have retrospective application and are binding on departmental officers. ​
2. Importance of Procedural Fairness: The Tribunal emphasized the need for providing appellants with a fair opportunity to present their case during adjudication.
3. Classification and Tax Rates: The case highlights the complexities involved in the classification of goods and the determination of applicable tax rates under GST notifications. ​
4. Judicial Precedents: The reliance on Supreme Court judgments underscores the importance of established legal principles in resolving disputes. ​

Conclusion

The CESTAT Mumbai’s decision in favor of Quality Systems and Equipments P. Ltd is a landmark ruling that upholds the principles of fairness and the retrospective application of beneficial circulars. This judgment serves as a reminder to both taxpayers and tax authorities to adhere to procedural norms and consider all relevant developments during adjudication. It also highlights the importance of staying updated with changes in tax laws and notifications to ensure compliance and avoid disputes.

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Source: CESTAT Mumbai

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