The Bombay High Court has put a stay on a Rs.2,500 crore GST demand issued against Coca-Cola. The case involves claims that the company undervalued its goods over a span of seven assessment years. The court’s decision provides temporary relief to Coca-Cola as the matter undergoes further examination. Authorities had alleged significant tax shortfalls due to the undervaluation.
Mumbai: The Bombay High Court issued a stay on GST demand of approximately Rs.2,500 crore against Hindustan Coca-Cola Beverages Pvt. Ltd. This demand arose from allegations that the company had undervalued its goods over nearly seven assessment years.
Tax authorities claimed that Coca-Cola’s practice of offering discounts to distributors based on previous transactions where distributors provided discounts to retailers and the company subsequently offered additional sales discounts to the distributors was an attempt to circumvent GST provisions and evade tax liabilities.
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A Bench comprising Justices BP Colabawalla and Firdosh P Pooniwalla found the reasoning of the revenue authorities to be prima facie incorrect, granting interim relief to the company.
The Court stated in its order on April 1, while staying the tax demand,
“Prima facie, we do not find this reasoning to be correct,”
The Bench also noted that the revenue’s interpretation of Section 15(3)(a) of the CGST Act, which specifies that the calculation of supply value should exclude any discounts, was flawed and could conflict with the provisions of Section 15(1) of the Act. Consequently, the court granted the interim relief requested by Hindustan Coca-Cola.
The order indicated,
“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, as recorded earlier, we do not find at least prima facie that the reasoning employed by the 3rd Respondent (CGST Commissioner) is correct,”
The case originated from a show-cause notice issued on August 4, 2024, accusing Hindustan Coca-Cola of undervaluing its goods supplied through the aforementioned discounting mechanism. The company challenged the notice on the basis that it was time-barred and exceeded the scope of Section 74 of the CGST Act, which governs the time limits for issuing such notices.
On January 23, 2025, revenue authorities affirmed their position in an order, which was later modified by a corrigendum on January 30. In response, Hindustan Coca-Cola withdrew its previous writ petition and filed a new one, contesting both the show-cause notice and the January order.
Central to Hindustan Coca-Cola’s challenge was the interpretation of Section 15(3)(a) of the CGST Act. The company’s legal team, led by Senior Advocate S Ganesh, argued that the revenue had misinterpreted this provision. Coca-Cola maintained that, per Section 15(1) of the CGST Act, the value of supply should be determined based on the transaction value.
The company contended that the discounts recorded in its Distributor Management System did not amount to undervaluation or GST evasion.
However, the revenue authorities argued that this discounting mechanism where the distributor’s prior discounts to retailers influenced the discounts provided by Hindustan Coca-Cola to the distributor was a calculated effort to reduce transaction values and thereby lower GST liabilities.
The Court found that Coca-Cola had made a compelling case against the revenue’s reasoning. As a result, it granted ad-interim relief by suspending the implementation of the order and preventing the respondents from taking any coercive actions related to the show-cause notice or the original order.
The Court also instructed the revenue to file its response by April 15, allowing Hindustan Coca-Cola to submit a rejoinder by April 22.
The matter is scheduled for a hearing on April 29.
Senior Advocate S Ganesh, along with advocates Ajay Aggarwal, Jitendra Motwani, Rinkey Jassnja, and Diva Devarsha, represented Hindustan Coca-Cola, while Advocate Maya Mazumdar, along with Advocate Suman Kumar Das, appeared for the Joint Commissioner of CGST.
Case Title: Hindustan Coca-Cola Beverages Pvt. Ltd. v Union of India
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