2020 (2) TMI 1295 - HC - GST

Milk chilling and packing services qualify for GST exemption under Serial No.24 of Notification No.11/2017 as agricultural support services

M/s GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LIMITED THRU. GENERAL MANAGER (FINANCE) ATULKUMA Versus UNION OF INDIA

Gujarat HC held that milk chilling and packing services qualify for GST exemption under Serial No.24 of Notification No.11/2017 as support services to ... Claim of exemption - milk chilling and packing services - support services to agriculture - In the circular CBIC says the activity is not eligible for exemption - whether exempt by virtue of serial No.24 of the table to Notification No.11/2017 – Central Tax (Rate) dated 28.6.2017? - refund of amount recovered and collected from the petitioners through their contractors as GST on milk chilling and packing services. It is the case of the petitioners that the Central Government has granted exemption to milk chilling, storage and packing service by virtue of serial No.24 of Notification No.11/2017 dated 28.6.2017, but this exemption is now denied to the petitioners by virtue of the Circular F. No.354/292/2018- TRU dated 9.8.2018 issued by the TRU. HELD THAT:- It is not in dispute that milk is an agricultural produce, it being a produce out of rearing of life forms of animals and for food. The present case relates to raw and unprocessed milk. What is brought to the centres is raw milk in which no further processing has been done and therefore, such milk is an agricultural produce - The chilling and packing services provided by the contractors to the petitioners are in respect of raw milk. As farmers involved in rearing animals for the purpose of milk cannot directly connect to each of the consumers of the supply of milk, such farmers join hands to form a village co-operative society and supply milk to the member unions. Vide Notification No.11/2017 dated 28th June, 2017, services falling under Heading 9986 were exempted from payment of tax under Central Goods and Services Tax Act, 2017, State Goods and Services Tax Acts, 2017, Union Territory Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017. The services falling under clause (i) of the Heading 9986 are “support services to agriculture, forestry, fishing, animal husbandry” - the above notification was brought into force from 1.7.2017. On a perusal of paragraph 3 of the impugned circular, it is evident that the same is based on sub-clause (c) of clause (i) of the Explanation to clause (i) under Heading 9986, inasmuch as, according to the respondents the process of chilling and packing of milk is not usually done by the cultivator or producer and are not carried out at an agricultural farm - In the present case, the agricultural produce in respect of which support services are availed is raw unprocessed milk. It cannot be disputed that for storage of milk it would have to be chilled. Milk cannot be stored without chilling as otherwise it would get spoiled. Therefore, storage of milk would include chilling of milk. Chilling of milk does not alter any of its essential characteristics and it still remains raw milk, and it is this raw milk which is thereafter packed. Therefore, chilling and storage of raw milk and packing it would clearly fall under sub-clause (e) of clause (i) of the Explanation. Consequently, if the raw milk is only stored and packed, the support services would fall under Heading 9986 of the Table to Notification No.11/2017 – Central Tax (Rate). In the impugned circular, it is the case of the respondents that chilled and packed milk for retail sale is not covered by the definition of agricultural produce. While saying so, what is lost sight of is that support services are not provided to chilled and packed milk, but support services of storage and packing are provide to raw milk which is an agricultural produce. Therefore, the very basic premise on which the respondents have proceeded is fallacious and based on a factually incorrect premise - Another ground stated is that such processes are not carried out at an agricultural farm. This ground is based on a misconception of the nature of services being provided, inasmuch as, it is sub-clause (c) of clause (i) of the Explanation which requires processes to be carried out at an agricultural farm; whereas, sub-clause (e) does not contain any such prescription. In the impugned circular, it is also stated that chilling and packing is not exempt from GST inasmuch as services by way of job work in relation to all food and food products falling under Chapters 1 to 22 attract levy of GST @ 5% and therefore, the activity of chilling and packaging of milk provided by way of job work attracts levy of GST @ 5%. In this regard, this court is of the view that the levy of 5% GST on job work on food and food products falling under Chapters 1 to 22 would be attracted if the services provided are not “support services” as contemplated under clause (i) of Heading 9986 at Serial No.24 of the Table to Notification No.11/2017 dated 28.6.2017. The court is of the view that the interpretation given by the respondents to the activities of chilling and packing of milk as contained in the impugned letter/circular dated 9.8.2018 is not in consonance with the provisions contained in Serial No.24 of the Table to Notification No.11/2017 dated 28.6.2017 and, therefore, the impugned letter/circular cannot be sustained - The impugned letter/circular F No.354/292/2018-TRU dated 9.8.2018 (Annexure-F to the petition) issued by the Government of India, through the Tax Research Unit, New Delhi, is hereby quashed - It is hereby held that milk chilling and packing service provided by the contractors to the petitioners are exempted by virtue of Serial No.24 of the table to Notification No.11/2017 – Central Tax (Rate) dated 28.6.2017 (Annexure-D to the petition). Petition allowed. Issues Involved:1. Validity of Circular F No.354/292/2018-TRU dated 9.8.2018.2. Exemption of milk chilling and packing services under Notification No.11/2017 – Central Tax (Rate) dated 28.6.2017.3. Reimbursement of GST paid on milk chilling and packing services.Issue-wise Analysis:1. Validity of Circular F No.354/292/2018-TRU dated 9.8.2018:The petitioners challenged the circular issued by the Government of India through the Tax Research Unit (TRU), which clarified that chilling and packing of milk is not exempt from GST and attracts a 5% levy. The court found that the respondents' interpretation was based on a misconception that support services were provided to chilled and packed milk, whereas they were actually provided to raw milk, which is an agricultural produce. The court held that the circular was not in consonance with the provisions of Serial No.24 of Notification No.11/2017 and thus quashed it.2. Exemption of milk chilling and packing services under Notification No.11/2017 – Central Tax (Rate) dated 28.6.2017:The petitioners argued that milk chilling and packing services should be exempt under Serial No.24 of Notification No.11/2017, which exempts support services to agriculture, forestry, fishing, and animal husbandry. The court agreed, noting that raw milk is an agricultural produce and that chilling and packing services do not alter its essential characteristics but make it marketable for the primary market. Therefore, such services fall under the exemption provided by the notification.3. Reimbursement of GST paid on milk chilling and packing services:The petitioners sought the return of the GST amounts collected from them through their contractors. The court advised the petitioners to move an appropriate application for a refund in accordance with the law, as the impugned circular had been set aside.Conclusion:The court allowed the petition, quashing the impugned circular and holding that milk chilling and packing services provided by contractors to the petitioners are exempt under Serial No.24 of Notification No.11/2017. The petitioners were directed to apply for a refund of the GST paid.