In a significant legal development, the Bombay High Court has issued an interim stay on a Goods and Services Tax (GST) demand of approximately ₹2,500 crore against Hindustan Coca-Cola Beverages Private Limited. The court’s decision came after it found the revenue department’s interpretation of tax provisions to be “prima facie incorrect.”
The controversy began with a show cause notice issued in January, which accused Hindustan Coca-Cola of undervaluing goods across seven assessment years by implementing retrospective discounts to its distributors. According to the tax authorities, the company’s discount strategy not only reduced the taxable value of the supplies but was also structured to evade taxes. It was noted that distributors initially passed these discounts onto retailers, after which Coca-Cola adjusted its discounts to the distributors based on these past transactions.
Challenging the notice, Hindustan Coca-Cola brought the matter before the High Court, where Justices BP Colabawalla and Firdosh Pooniwalla presided over the case. On April 1, the bench expressed skepticism about the tax department’s rationale, leading to the granting of an interim injunction against the demand notice and preventing any coercive action against the company.
In their order, the justices stated, “We find that a strong prima facie case is made out for staying the effect and implementation of the impugned order. We say this because we do not find at least prima facie that the reasoning employed by the 3rd Respondent (CGST Commissioner) is correct.”
The legal dispute centers on the interpretation of Section 15(3)(a) of the Central Goods and Services Tax Act, with the revenue department using this section to disallow the discounts. Hindustan Coca-Cola, however, contends that its pricing mechanism aligns with Section 15(1), which stipulates that the transaction value should form the basis of the taxable value. The company has maintained that all discounts were transparently recorded in its Distributor Management System, asserting that these were not tactics of tax evasion.
The court is scheduled to further hear the plea on April 29, as Hindustan Coca-Cola seeks to overturn the contentious tax demand permanently.
