Allahabad HC Stays ₹110 Cr GST Demand on Dabur's Hajmola Candy - 2025-10-21

Allahabad HC Stays ₹110 Cr GST Demand on Dabur, Citing Pre-GST Supreme Court Precedent

Allahabad, India – In a significant interim order with far-reaching implications for tax classification disputes, the Allahabad High Court has stayed a show-cause notice demanding approximately ₹110 crore in Goods and Services Tax (GST) from FMCG major Dabur India Ltd. The dispute, centered on the classification of its popular 'Hajmola Candy', resurrects a long-standing debate, testing the applicability of pre-GST era judicial precedents in the current tax regime.

A division bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla, on October 10, granted interim relief to Dabur, halting all proceedings initiated by the Directorate General of GST Intelligence (DGGI). The DGGI's notice, covering six financial years from 2018–19 to 2023–24, had proposed a tax liability of ₹110.39 crore, along with interest and penalties, alleging that Dabur had misclassified the product to benefit from a lower GST rate.

The court's decision underscores the critical legal principle of stare decisis and its relevance across evolving fiscal statutes. The matter, titled M/S Dabur India Ltd v Union of India and Ors (WRIT TAX No. - 4709 of 2025), is now poised to become a key case study for indirect tax practitioners navigating legacy classification issues.

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The Heart of the Dispute: Product Classification

The core of the conflict lies in a seemingly simple question: What is Hajmola Candy? Is it a 'digestive tablet' or a 'confectionery'? The answer determines the applicable GST rate and, consequently, the tax liability. The DGGI contends that the product is a form of sugar confectionery, which attracts a higher tax slab. Conversely, Dabur has consistently classified it as a proprietary Ayurvedic medicine or a product with digestive properties, which falls under a different, lower tax classification.

Appearing for the petitioner, Advocate Atul Gupta presented a formidable argument anchored in judicial history. He submitted that the issue was not novel and had been conclusively settled in Dabur's favor by the Supreme Court of India under the erstwhile Central Excise regime. The argument posits that the fundamental nature of the product and the principles of its classification have not been altered by the transition to GST in 2017.

Gupta's submission directly challenges the revenue department's attempt to re-litigate a settled matter. He emphasized that the legal position remains unchanged, and the mere replacement of the excise system with GST does not provide a basis for reclassification, especially when the underlying product and its characteristics are identical.

Pre-GST Precedent: The Unshakeable Foundation?

While the specific Supreme Court judgment was not detailed in the initial hearing, legal experts point to a landmark ruling, Commissioner of Central Excise v. M/s Dabur India Ltd. (2005) . In that case, the apex court had examined a similar classification dispute concerning 'Hajmola Candy' under the Central Excise Tariff Act. The court had held that the product was more appropriately classified as an Ayurvedic medicament rather than a sugar confectionery, based on its ingredients, therapeutic properties, and consumer perception.

Dabur's counsel argued that this precedent should continue to hold sway. The Harmonized System of Nomenclature (HSN), which forms the basis for classification under both the old excise tariff and the current GST regime, is designed for consistency. Therefore, a definitive ruling on a product's classification by the Supreme Court should, in principle, carry forward unless there is a specific and material change in the law or the product itself.

The DGGI's notice, however, reportedly made references to changes in international classification norms by the World Customs Organization (WCO). Dabur’s counsel preemptively dismissed this line of reasoning, asserting that such international changes have no direct binding effect on Indian domestic law unless explicitly incorporated by Parliament. Furthermore, he stressed that there was no allegation or evidence of concealment of facts by Dabur, a crucial element that often justifies reopening assessments or invoking extended periods of limitation.

Legal Implications and Broader Impact

The Allahabad High Court's interim stay is a significant victory for Dabur and sets a noteworthy precedent for the industry at large.

1. Continuity of Judicial Precedent: The case will be closely watched for its final determination on the binding nature of pre-GST rulings on classification. A final judgment in Dabur's favor would solidify the principle that settled classification disputes cannot be easily reopened by tax authorities under the GST regime without substantial legal or factual changes.
2. Challenge to Revenue's Approach: It signals to tax authorities that attempts to re-classify products without a strong legal basis, particularly those already adjudicated by higher courts, are susceptible to successful challenges via writ petitions. This could temper the DGGI's and other authorities' appetite for pursuing legacy classification issues.
3. Writ Jurisdiction in Tax Matters: The court’s intervention at the show-cause notice stage reaffirms the power of High Courts under Article 226 of the Constitution to intervene when a notice is issued without jurisdiction, is contrary to established law, or is otherwise arbitrary.

The Path Forward

The High Court has provided the government, represented by Additional Solicitor General Dhananjay Awasthi and Advocate Saumitra Singh, four weeks to file a counter-affidavit detailing its position. Dabur will then have two additional weeks to file its rejoinder. Until the exchange of these affidavits and the subsequent hearing, the stay on all proceedings related to the disputed notice will remain in effect.

The revenue department is expected to argue that the GST law represents a complete overhaul of the indirect tax system and that pre-GST precedents are not automatically applicable. They may also elaborate on the alleged changes in WCO norms and argue for their persuasive value in interpreting the HSN codes under the GST framework.

For now, the legal and business communities await the government's detailed response. The final outcome of this case will not only determine the fate of the ₹110 crore demand on Dabur but will also shape the landscape of product classification litigation in India's evolving GST jurisprudence for years to come.