Mumbai: The Bombay High Court has granted an interim stay on a GST demand of approximately Rs 2,500 crore against Hindustan Coca-ColaBeverages Private Limited noting the revenue department's interpretation of the provisions appeared "prima facie incorrect".
The show cause notice was issued in January based on findings that the company undervalued goods over seven assessment years by offering retrospective discounts to distributors.
As per the authorities, the discounts were structured in a way that reduced the taxable value of the supplies.
Distributors first extended discounts to retailers, and Coca-Cola later adjusted its own discounts to the distributors based on these past transactions, a practice the revenue department said was intended to evade tax.
The company challenged the notice in HC.
A bench of Justices BP Colabawalla and Firdosh Pooniwalla on April 1 said the reasoning adopted by the tax department was "prima facie incorrect".
The bench granted an interim injunction on the demand notice and restrained any coercive action against the company.
"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 order said.
The court said it would hear the plea further on April 29.
The dispute lies in the interpretation of Section 15(3)(a) of the Central Goods and Services Tax Act.
While the revenue department relied on this section to disallow the discounts, Coca-Cola argued that its pricing mechanism was fully compliant with Section 15(1), which says the transaction value forms the basis of taxable value.
The company claimed that all discounts were transparently recorded in its Distributor Management System and were not tools of evasion.
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