GST rate for bricks with fly ash content less than 90% will be charged at 5% instead of 18%: Gujarat High Court clarifies

The Gujarat High Court at 25^e September (Wednesday) enacted/clarified the Goods and Services Tax (GST) applicable to fly ash bricks and blocks with a fly ash content of less than 90%. The court held that the products are eligible for the lower GST rate of 5%, as against the 18% GST rate on products that do not meet the 90% fly ash threshold and quashed and set aside the orders of the Advance Ruling Authority and Advance Ruling Appellate Authority.

The fly ash, a by-product of thermal power plants, is used as a key material in the production of environmentally friendly bricks, providing a sustainable alternative to traditional bricks. Fly ash stones are firm, uniform and smooth with sharp edges, free from cracks or defects. They are environmentally friendly, 28% lighter than bricks and require no plastering due to their smooth finish. Unlike clay bricks, which vary in color and are handmade from topsoil, fly ash bricks are formed from coal combustion waste, making them cost-effective and environmentally friendly.

After the GST Act of 2016, fly ash bricks were initially taxed at a GST rate of 12%. In 2017, an amendment set 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, has filed an application for advance ruling seeking a ruling on the appropriate tax rate for Fly Ash Bricks and Fly Ash Blocks. The petition was subsequently moved to the The High Court challenging the order of the Advance Ruling Authority and the Appellate Authority which held that fly ash blocks should be taxed below the 5% slab as it met the criteria of maintaining a fly ash content of 90% and that fly ash blocks were to be taxed under the 18% GST slab if they contained less than 90% fly ash.

Claims of the lawyer for the company/applicant

The counsel appearing on behalf of the company submitted that the petitioner had thoroughly explained the manufacturing process. However, the Advance Ruling Authority and the Appellate Authority did not take these details into account when deciding that the petitioner’s fly ash bricks did not meet the requirement of 90% fly ash content. He further submitted that construction materials such as fly ash bricks are required to contain only 50% fly ash as per a 2009 Ministry of Environment and Forest notification.

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

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

He further referred to several Supreme Court rulings in support of his argument that the tax should be set at 5%, as intended by the legislature. He emphasized on the cases of Collector of Central Excise vs. Wood Craft Products Ltd. and Reckitt Benckiser (India) Ltd. vs. commissionerand argued that there should be no double interpretation of the tax laws.

He pointed out that the GST Council recommends reclassifying fly ash bricks and aggregates with a fly ash content of 90% or more. Therefore, he submitted that the authorities’ claim that the petitioner’s fly ash bricks did not contain enough fly ash is baseless.

Claims of the government lawyer

The counsel for the government submitted that based on the July 2022 notification, the GST rate charged by the petitioner for the Fly Ash Bricks should be 5% and 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 bricks containing 90% or more fly ash.

Since the petitioner’s bricks contained only 40-60% fly ash, the respondent claims that the appeal is without merit.

Moreover, he submitted that the 31st meeting of the GST Council recommended a similar rate of 5% for fly ash blocks, but there was no specific notification for that reduction, making the appeal moot. The defendant also pointed out that the Supreme Court in the case of Wood Craft Products Ltd. (1995 (77) ELT 23 (SC)) held that tariff classifications should be in accordance with the HSN nomenclature unless otherwise stated and in this case there is no classification dispute in relation to Fly Ash Bricks, rendering the appellant’s arguments flawed are.

Observation of the Court

Taking into account 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 in this petition was resolved by Circular No. 179/11/2022-GST dated August 3, 2022. The CBIC clarified that the requirement of 90% fly ash content applies only to fly ash aggregates, not to fly ash bricks.

Previously, fly ash bricks and aggregates with a fly ash content of 90% or more were taxed at 12%. However, the GST Council has confirmed that this condition applies only to aggregates. As of July 18, 2022, the requirement for a fly ash content of 90% has been removed from the description of fly ash bricks and blocks. This does not apply to the Advance Ruling Authority’s findings that fly ash bricks or aggregates with a fly ash content of 90% or more were taxed at 12%, creating confusion about the 90% requirement.

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

The Division Bench further stayed the order “Thus, in view of the above clarification, Notification No. 04/2018 – Central Tax (Rate) dated 31.12.2018 Entry No. 225B refers to the applicability of levy of GST rate of 5% on Fly Ash Bricks and all Fly Ash Bricks and all Fly Ash Bricks and all Fly Ash Bricks. Ash aggregate with a fly ash content of 90% or more or fly ash blocks according to the explanation. Fly ash generator with a fly ash content of 90% or more does not apply. Fly ash blocks or fly ash blocks and accordingly the rate of GST applicable to the products manufactured by the petitioner would be 5% as per registration number 225B.

The Court subsequently granted the application by quashing and setting aside the order of the Advance Ruling Authority and the Appellate Authority. The Court further considered “The products manufactured by the petitioner namely Fly Ash Bricks and Fly Ash Blocks are liable to be levied GST at the rate of 5% as per Notification No. 24/2018 dated 31.12.2018. The rule is made absolute to the above extent.”

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

Appearance: Advocates – Aaditya Bhatt, Sneh Purohit and Chandni Joshi for the petitioner

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

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