GST can be Imposed on Khadi and Village Products Despite Prior Exemptions in VAT Law

Issue: Whether the Kerala Khadi & Village Industries Board, a statutory body, can claim exemption from GST on the sale of khadi and village products, based on prior exemptions under VAT and service tax laws, despite the absence of such exemptions in the GST Act.

Facts:

The assessee, a statutory body under the Kerala Khadi & Village Industries Board Act, was previously exempt from VAT and service tax for the sale of khadi and village products.
After the implementation of the GST Act, this exemption was not continued.
An assessment order was issued under Section 73 of the GST Act, imposing tax, interest, and penalty on the assessee.
The assessee challenged the assessment, claiming entitlement to exemption based on prior statutes.

Decision:

The court held that the GST Act does not provide any exemption or “zero-rated tax” for the products of the assessee.
Claims for exemption based on earlier statutes have no legal basis under the GST Act.
The writ petition was dismissed, ruling in favor of the revenue.

Key Takeaways:

The implementation of the GST Act superseded prior tax exemptions granted under previous statutes.
Tax exemptions must be explicitly provided within the current tax legislation (GST Act) to be valid.
Statutory bodies are not exempt from the current tax laws, if the current laws do not provide for such exemption.
Section 11, read with section 73 of Central Goods and Services Tax Act, 2017/Kerala State Goods and Services Tax Act, 2017, was the law that applied to this case.

HIGH COURT OF KERALA

Kerala Khadi & Village Industries Board

Union of India

Bechu Kurian Thomas, J.

WP(C) NO. 1988 OF 2025

JANUARY 20, 2025

C. Unnikrishnan, D. Jayakrishnan, Vijaykrishnan S. Menon, Vivek Nair P., M.R. Radhakrishnan, Adeeba Ameen, G. Gowardhan DevG. Nair, V. Ashwin, and Sruthi Sreekumar, Advs. for the Petitioner. V. Girishkumar, SC, for the Respondent.

JUDGMENT

1. Petitioner challenges an order of assessment issued under Section 73 of the Goods and Services Tax Act, 2017 (for short, ‘GST Act’), which is produced as Ext.P5. As per the impugned order, petitioner has been assessed to a tax of Rs.2,11,33,570/- under the GST Act, apart from interest and penalty.

2. Petitioner alleges that it is a statutory body under the Kerala Khadi & Village Industries Board Act and was exempted from VAT and service tax for sale of khadi and village products prior to the introduction of GST Act. However, after the coming into force of the GST Act, the said exemption was not continued and that they have been imposed with a huge tax liability apart from penalty. It was also pointed out that petitioner is an establishment providing employment to rural people and attempts to preserve rural artisanship, helping to maintain a lower pricing in facilitating competitive sales of products of khadi and village industries.

3. Having heard the learned counsel for the petitioner as well as the learned Standing Counsel for the respondent, I am of the view that notwithstanding the nature of services being carried out by the petitioner, the GST Act does not provide any exemption nor a “zero rated tax” for the products of the petitioner. In such circumstances, the claim for exemption based on the earlier statutes cannot have any legal basis. Further, there cannot be any estoppel against a statute. Since concededly, the taxing provisions of the GST Act is applicable to the petitioner, the contentions based on the earlier statutes have no bearing.

4. The learned counsel also referred to the representations submitted by the petitioner to various authorities which are produced as Ext.P3 and Ext.P4 series and sought for a direction for their consideration. However, on a perusal of the aforesaid representations, it is noticed that none of them are filed before any statutory authority competent to consider such representations or claims for exemption from tax for the petitioner. The representations are not statutory in character. In such circumstances, I am not inclined to issue any direction for consideration of such representations.

5. Since Ext.P5 assessment order can be appealed before the Appellate Authority as provided under Section 107 of the Central Goods and Services Tax Act, 2017, this Court is of the view that the petitioner ought to be relegated to pursue such remedies.

6. Accordingly, reserving the liberty of the petitioner to pursue the statutory remedies against Ext.P5, this writ petition is dismissed.