Cotton Seed Oil Cake Exempt from GST as Cattle Feed Irrespective of Supply Route so far as the End Use is Exempted

The Hon’ble Gujarat High Court in the case of M/s. Dharti Industries Versus Office of Commissioner (Appeal) & Ors. - 2024 (10) TMI 123 - GUJARAT HIGH COURT held that cotton seed oil cake sold as cattle feed is exempt from GST under Entry 102 of Notification No. 2/2017, regardless of the supply being made to traders or directly to end users. The exemption applies as long as the product’s end use is as cattle feed.

Facts:

Dharti Industries ('the Petitioner') is a partnership firm engaged in manufacturing cotton seed oil cake by extracting cotton seed oil, registering for GST and supplying oil cake to traders and customers as cattle feed.

The Office of Commissioner (Appeal) & Ors. ('the Respondent') raised objections during GST audit for July 1, 2017 to September 29, 2017, alleging that cotton seed oil cake supplied to traders was for further trading and not for cattle feed, and claimed exemption was wrongly availed under Entry 102 of Notification No. 2/2017.

The Petitioner contended that all supplies of cotton seed oil cake were for use as cattle feed, relying on the settled position under the VAT regime and continued exemption under GST, and that traders also denied paying GST as the end use for cattle feed was undisputed.

The Respondent contended that exemption only applied to direct supplies labelled as cattle feed, arguing the Petitioner failed to prove the oil cake supplied to traders was used as cattle feed, and cited that supply to traders involved further supplies not covered by the exemption.

Aggrieved by adverse orders including levy of GST, the Petitioner approached the High Court challenging the order-in-original dated March 29, 2022 and appellate order dated January 11, 2023, asserting continuing exemption through Entry 102 of Notification No. 2/2017 and clarificatory Notification No. 28/2017.

Issue:

Whether cotton seed oil cake supplied by the Petitioner for use as cattle feed is exempt from GST under Entry 102 of Notification No. 2/2017, even if supplied to traders for further trading or supply, and whether exemption applies retrospectively as per Notification No. 28/2017?

Held:

The Hon’ble Gujarat High Court in M/s. Dharti Industries Versus Office of Commissioner (Appeal) & Ors. - 2024 (10) TMI 123 - GUJARAT HIGH COURTheld as under:

• Observed that, cotton seed oil cake has no other commercial use except as cattle feed, carrying forward the position in the VAT regime, and exemption under Entry 102 of Notification No. 2/2017 continued in GST.
• Noted that, traders who purchased cotton seed oil cake declined to pay GST, consistently asserting the product’s only end use was cattle feed.
• Noted that, exemption under Entry 102 of Notification No. 2/2017 depends on end use. The mere supply route (to traders or end user) does not alter the exempt nature if end use is as cattle feed.
• Further quashed the orders confirming GST demand and held that the Petitioner was entitled to exemption from July 1, 2017, and more particularly from September 22, 2017 under Entry 102A inserted vide Notification 28/2017, without deciding on the question of retrospective application of the exemption.

Our Comments:

This judgment reiterates and applies key jurisprudence from the Supreme Court decision in Comnr. of Central Excise Versus M/s. Gopsons Papers Ltd. & Anr. - 2015 (10) TMI 443 - Supreme Court, holding that it is not the supply route or sale to a trader, but the product's intended end use that determines GST exemption. The Court extends this principle to the GST regime, promoting consistency, certainty and preventing unwarranted denial of exemption based solely on downstream supply chain mechanics.

Relevant extract of the Notification:

Serial No. 102 of Notification No. 02/2017–Central Tax Rate dated June 28, 2017:

102. “Aquatic feed including shrimp feed and prawn feed, poultry feed, cattle feed, including grass, hay, straw, supplement, husk of pulses, concentrates and additives, wheat bran and de-oiled cake from specified headings 2302, 2304, 2305, 2306, 2308, 2309 – Nil GST.”

Notification No. 28/2017-Central Tax (Rate) dated September 22, 2017:

“(vii) after S. No. 102 and the entries relating thereto, the following serial number and the entries shall be inserted, namely:-“

Chapter Heading 2306 of the Customs Tariff Act, 1975:

“2306: Oil-cake and other solid residues, whether or not ground or in the form of pellets, resulting from the extraction of vegetable or microbial fats or oils, other than those of heading 2304 or 2305”

 (Author can be reached at [email protected])