The issue had been clarified in CBIC Circular No. 179/11/2022-GST, dated August 3, 2022. This circular clarified that the 90% fly ash content requirement applies only to aggregates, not to Fly Ash Bricks or Blocks.
On September 25, the Gujarat High Court provided a significant clarification regarding the GST rate applicable to fly ash bricks and blocks containing less than 90% fly ash content. In a landmark decision, the court ruled that these products are eligible for the reduced GST rate of 5%, as opposed to the higher 18% rate typically applied to construction products that don’t meet the 90% threshold. This ruling overturned prior decisions by the Advance Ruling Authority and the Advance Ruling Appellate Authority.
Fly Ash Bricks: An Eco-Friendly Alternative
Fly ash, a by-product from thermal power plants, is widely used in the production of eco-friendly bricks. Fly ash bricks are valued for their durability, uniformity, and smooth finish, which reduces the need for plastering. They are also 28% lighter than conventional clay bricks, making them easier to handle and environmentally preferable. Unlike traditional clay bricks, fly ash bricks are produced from coal combustion waste, providing a cost-effective, sustainable alternative for construction.
Background of the GST Rate Dispute
Since the introduction of the GST Act in 2016, the GST rate on fly ash bricks has undergone several changes. Initially set at 12%, the rate was reduced to 5% in 2017. Recently, however, there was a debate regarding the appropriate GST rate for fly ash bricks containing less than 90% fly ash. M/S Shree Mahalaxmi Cement Products, a manufacturer of fly ash bricks, filed a petition seeking clarification on the applicable tax rate for their products. The company argued that the Advance Ruling Authority’s decision to apply an 18% GST rate was based on an incorrect interpretation of fly ash content requirements.
Arguments Presented by the Petitioner
The petitioner’s counsel argued that the 90% fly ash requirement cited by the Advance Ruling Authority was inconsistent with existing standards. According to a 2009 Ministry of Environment and Forests notification, construction materials need only 50% fly ash content to qualify as fly ash bricks. The counsel also referred to GST Council recommendations and a CBIC notification, both of which confirmed that the 90% fly ash content requirement should apply only to fly ash aggregates, not bricks. Additionally, the Harmonized System of Nomenclature (HSN) categorizes fly ash bricks under the 5% GST rate, further supporting the petitioner’s position.
Government’s Standpoint
The government’s counsel contended that, as per a July 2022 notification, fly ash bricks with less than 90% fly ash should not qualify for the reduced GST rate. They noted that, during the 23rd GST Council meeting, a recommendation was made to reduce the tax rate on fly ash bricks containing 90% or more fly ash to 5%. Since the petitioner’s bricks contain only 40-60% fly ash, they argued that the 18% rate was applicable. Furthermore, the government argued that the Supreme Court’s previous rulings on tariff classifications supported their position.
Court’s Observations and Verdict
After reviewing the case, a division bench comprising Justice BD Karia and Justice Mauna Bhatt concluded that the issue had been clarified in CBIC Circular No. 179/11/2022-GST, dated August 3, 2022. This circular clarified that the 90% fly ash content requirement applies only to aggregates, not to bricks or blocks. Consequently, the court ruled that all fly ash bricks and blocks, irrespective of fly ash content, are subject to a 5% GST rate as per Notification No. 24/2018 – Central Tax (Rate) dated December 31, 2018.
Final Judgment
The Gujarat High Court ultimately quashed the orders of the Advance Ruling Authority and the Appellate Authority. The court affirmed that the GST rate applicable to the petitioner’s fly ash bricks and blocks is indeed 5%. This clarification brings much-needed consistency to the application of GST rates for fly ash bricks, promoting the use of sustainable materials in construction.
This ruling reinforces the tax benefits associated with eco-friendly building materials and sets a precedent for manufacturers producing fly ash bricks with varied content levels. The judgment underscores the Gujarat High Court’s commitment to sustainable construction practices while ensuring accurate tax interpretation in line with CBIC guidelines and GST Council recommendations.
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