The Bombay High Court recently stayed a GST demand of around ₹2,500 crore against Hindustan Coca-Cola Beverages Pvt. Ltd [Hindustan Coca-Cola Beverages Pvt. Ltd. v Union of India]. .The demand stemmed from allegations that the company had undervalued its supply of goods over nearly seven assessment years.Specifically, the tax authorities claimed that the company’s practice of offering discounts to distributors based on past transactions—where the distributor extended discounts to retailers and the company then provided additional sales discounts to the distributor—was an attempt to bypass GST provisions and evade tax liabilities.A Bench consisting of Justice BP Colabawalla and Justice Firdosh P Pooniwalla found the reasoning of the revenue authorities to be prima facie incorrect and granted interim relief to the company.“Prima facie, we do not find this reasoning to be correct," the Court said in it April 1 order while staying the tax demand..The Bench further noted that the revenue’s interpretation of Section 15(3)(a) of the CGST Act, which states that the calculation of the value of the supply shall not include any discount, was flawed and could contradict the provisions of Section 15(1) of the Act. Therefore, the court granted the interim relief as sought by Hindustan Coca-Cola."We find that the 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 atleast prima facie that the reasoning employed by the 3rd Respondent (CGST Commissioner) is correct," the order stated..The case began with a show-cause notice issued on August 4, 2024, accusing Hindustan Coca-Cola of undervaluing its goods supplied through the discounting mechanism mentioned above. The company challenged the notice on the ground that it was time-barred and beyond the scope of Section 74 of the CGST Act, which outlines time limits for issuing show-cause notices..On January 23, 2025, the revenue authorities passed an order confirming their position. This order was later modified by way of a corrigendum on January 30. In response, Hindustan Coca-Cola withdrew its earlier writ petition and filed a fresh petition challenging both the show-cause notice and the January order.At the center of 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 asserted that according to 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 it provided, which were recorded in its Distributor Management System, did not constitute undervaluation or GST evasion.However, the revenue authorities argued that this discounting mechanism—where the distributor’s past discounts to retailers influenced the discounts provided by Hindustan Coca-Cola to the distributor—was a deliberate effort to reduce transaction values thereby, lowering the GST liability and evading taxes..The Court found that Coca-Cola had presented a strong case against the revenue’s reasoning. As a result, the Court granted ad-interim relief by staying the implementation of the order and preventing the respondents from taking any coercive action related to the show-cause notice or the original order.The Court also directed the revenue to file its response by April 15 with Hindustan Coca-Cola allowed to file a rejoinder by April 22. The matter will be heard next on April 29..Senior Advocate S Ganesh along with advocates Ajay Aggarwal, Jitendra Motwani, Rinkey Jassnja and Diva Devarsha instructed by Economic Laws Practice appeared for Hindustan Coca Cola.Advocate Maya Mazumdar along with advocate Suman Kumar Das appeared for Joint Commissioner of CGST..[Read Order]
