The Delhi High Court on Friday sought response from the Centre, the Goods and Services Tax Council and the government of NCT of Delhi on a petition accusing the government of ‘favourable bias’ in classifying cleaner fuel engines under higher 28% GST slab and giving incentives of lower rates to those using highly polluting fuels. A division bench comprising justices Ravinder Bhatt and Sanjeev Sachdeva issued notice to ministries of finance and environment, the Goods and Services Tax Council and others on a petition by Honda Siel Power Products challenging the validity of various notifications by the finance ministry and the Delhi government which allegedly put cleaner fuel engines like petrol/kerosene engines under the tax rate slab of 28% GST while continued highly polluting fixed speed diesel engines of power not exceeding 15 HP (falling under Chapter Heading 8408) under the tax rate slab of 12%.
Prior to the introduction of GST from July 1, there was no difference in the rate of excise duty or VAT payable on the manufacture of a petrol/kerosene or diesel engine (such engines used in water pumps) and both type of engines attracted excise duty at 12.5%. The HC also asked the Council to look afresh into the Honda’s representation that had pointed ‘out serious anomalies and discriminatory tax structure’.
The petition stated that the impugned notifications and recommendations were violative of Article 14 of the Constitution as they create a separate class by placing the goods manufactured by Honda i.e. petrol/kerosene engines at a higher tax rate slab i.e. 28% than the fixed speed diesel engines (commercial substitutes of each other). The classification of the goods is arbitrary and does not satisfy the test of reasonableness, fairness and non-arbitrariness, according to the company, which claimed that its product is dominantly used in the agricultural sector by small and marginal farmers.
“The ultimate function of the both these engines is to provide power output and the difference in fuel does not make any impact on the functioning of the engines… the goods manufactured by the petitioner i.e. the petrol/kerosene engine and the fixed speed diesel engines of power not exceeding 15 HP belong to the same class, therefore, there is no intelligible differentia for differentiating the products under two different tax slabs of GST,” the petition filed by counsel Tarun Gulati stated. Further, the imposition of lower rate of tax on supply of fixed speed diesel engines of power not exceeding 15HP is also contrary to the Centre’s policy to promote usage of cleaner fuels, it said, citing various Supreme Court decisions that highlighted the harmful impact of diesel emissions. It is alleged the lower rate of tax on fixed speed diesel engines not exceeding 15 HP is leading to tax arbitrage since the only factor compelling purchase of diesel engines is the lower rate of GST which it attracts.