Court sets aside GST assessment on by-products retained by petitioner, deeming them compensation not subject to tax.

The court allowed the writ petition, setting aside the assessment order that levied GST on the value of by-products (broken rice, bran, and husk) retained by the petitioner. The court held that the by-products were not part of the consideration for milling paddy but were retained as compensation for the shortfall in rice yield. The court found the writ petition maintainable despite the availability of an alternative remedy and the presence of an arbitration clause, as the assessment order did not consider relevant legal principles.

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Issues Involved:
1. Legality of the assessment order levying GST on the value of by-products (broken rice, bran, and husk) retained by the petitioner.
2. Whether the by-products retained by the petitioner form part of the consideration for milling services.
3. Applicability of GST on the custom milling of paddy.
4. Maintainability of the writ petition in the presence of an alternative remedy and arbitration clause.

Detailed Analysis:

1. Legality of the Assessment Order:
The petitioner challenged the assessment order dated 29-10-2018, which levied GST on the value of by-products obtained from milling paddy. The petitioner argued that these by-products were retained as compensation for the shortfall in rice yield and not as part of the consideration for milling services. The respondent contended that the by-products were part of the consideration for the milling services.

2. By-Products as Part of Consideration:
The petitioner claimed that the by-products were not part of the consideration but were retained to compensate for the shortfall in rice yield. The respondent argued that the by-products formed part of the consideration for the milling services, as per the agreement terms. The court referred to the agreement, particularly Clause 22, which stated that the miller shall retain all by-products and be responsible for taxes on their sale. The court emphasized that the terms of the agreement are sacrosanct and cannot be altered or explained otherwise. The court held that the by-products were not part of the consideration but were allowed to be retained by the petitioner as compensation for the shortfall in rice yield.

3. Applicability of GST on Custom Milling:
The court referred to the clarification issued by the Government of India, Ministry of Finance, which stated that milling of paddy into rice is not an intermediate production process in relation to cultivation and is liable to GST at the rate of 5% on the processing charges. The court noted that there was no controversy regarding the applicability of GST on custom milling of paddy.

4. Maintainability of the Writ Petition:
The respondent argued that the writ petition was not maintainable due to the availability of an alternative remedy under Section 107 of the GST Act and the presence of an arbitration clause in the agreement. The court acknowledged the general principle of not entertaining writ petitions when an efficacious alternative remedy is available. However, in this case, the court found that the assessment order was passed without considering the law laid down in the case of Food Corporation of India v. State of A.P. The court decided to entertain the writ petition to avoid driving the petitioner to the appellate authority. The court also held that the arbitration clause was not applicable as the dispute was between the Revenue and the petitioner regarding the consideration for GST purposes.

Conclusion:
The court allowed the writ petition and set aside the assessment order dated 29-10-2018, to the extent it levied GST on the value of by-products (broken rice, bran, and husk) treating them as part of the consideration for milling paddy. The court concluded that the by-products were retained by the petitioner as compensation for the shortfall in rice yield and not as part of the consideration for milling services. The court also held that the writ petition was maintainable despite the availability of an alternative remedy and the presence of an arbitration clause.

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