2021 (11) TMI 227 - HC - GST

Court upholds fish meal exemption under Exemption Notification; Circular invalidated.

The court held that the petitioner's fish meal product qualifies for exemption under Sl.No.102 of Exemption Notification No. 2/2017. The Circular issued ... Interpretation of exemption notification - distinction between inputs and prepared animal feed - power to issue instructions or directions under Section 168 - substantive effect of exemption/amendment by Central Government or Parliament - reliance on Dilip Kumar regarding ambiguity in exemption notificationsInterpretation of exemption notification - distinction between inputs and prepared animal feed - Fish meal falling under tariff headings 2301 and 2309, when produced as a finished powdered product for use as feed, is covered by Sl.No.102 of Exemption Notification No.2/2017 and is exempt from GST; its incidental use as an input by other manufacturers does not remove the finished product from the exemption. - HELD THAT: - A coherent reading of Notification No.1/17 and Exemption Notification No.2/17, as amended (including the corrigendum and subsequent amendment substituting entries to include 2301 and 2309), shows that goods falling under those headings are included in the exemption. The grammatical construction of the entries (flours, meals and pellets of fish; fish meal in powdered form) embraces fish meal as a finished product. The fact that the same finished fish meal may incidentally be purchased and used as an input by other manufacturers does not strip it of its character as a finished product exempted under the entries. The Court held that the notification, as finally framed by the Central Government, exempts the goods covered under entries 2301 and 2309 and that no distinction can be judicially read into the entries to exclude fish meal manufactured and sold as a finished product.Impugned Circular's clarification excluding fish meal manufactured as finished product from the exemption is set aside; petitioners making finished fish meal can claim exemption under Sl.No.102 of Notification No.2/2017.Power to issue instructions or directions under Section 168 - substantive effect of exemption/amendment by Central Government or Parliament - A Board circular issued under the power to give instructions/directions for uniformity (Section 168) cannot override or nullify a substantive exemption conferred by a notification issued by the Central Government or by legislative action. - HELD THAT: - Section 168 confers on the Board power to issue orders, instructions or directions for uniformity in implementation and is primarily procedural in character. Exemption notifications issued under the statutory powers of the Central Government (and any amendment thereto or legislative alteration) create substantive rights. The Court held that the Board, by issuing a clarificatory circular under Section 168, cannot take away an exemption conferred by a notification; any change to the scope of an exemption must be effected by appropriate amendment to the exemption notification by the Central Government or by legislation by Parliament.Impugned Circular cannot override the exemption notification; any change to exemption must be by amendment of the notification or by statute.Reliance on Dilip Kumar regarding ambiguity in exemption notifications - The Board's reliance on the Supreme Court's decision in Dilip Kumar to justify treating fish meal as an input (and thereby not exempt) is misplaced; Dilip Kumar does not decide that inputs for animal feed are different from animal feed in the manner asserted in the Circular. - HELD THAT: - The Court examined the scope of the Dilip Kumar judgment and found that it addressed the rule of interpretation of exemption notifications (favoring strict interpretation and placing burden on the assessee) but did not pronounce the factual or classificatory point that inputs for animal feed are categorically distinct from prepared animal feed for the purposes advanced in the Circular. Therefore, paragraph 4.2 of the impugned Circular, which relies on that proposition, rests on an incorrect premise and cannot sustain the Circular's exclusionary clarification.The Circular's reliance on Dilip Kumar to deny exemption to fish meal is untenable; that ground for the Circular is rejected.Final Conclusion: The impugned Board Circular (Circular No.80/54/2018-GST dated 31.12.2018) insofar as it seeks to exclude fish meal manufactured and sold as a finished powdered product from the exemption under Sl.No.102 of Exemption Notification No.2/2017 is set aside; petitioners manufacturing finished fish meal are entitled to the exemption and consequential actions taken pursuant to the Circular are declared invalid. Issues Involved:1. Classification and Taxability of Fish Meal under GST.2. Validity of Circular No. 80/54/2018-GST dated 31.12.2018.3. Interpretation of Exemption Notifications No. 1/2017 and 2/2017.4. Powers of the Central Board of Indirect Taxes and Customs under Section 168 of the CGST Act, 2017.Detailed Analysis:Issue 1: Classification and Taxability of Fish Meal under GSTThe petitioner, a manufacturer of fish meal, contended that their product is exempt from GST under entries 2301 and 2309 of the Customs Tariff Act, 1975, which are included in Sl.No.102 of Exemption Notification No. 2/2017. The process involves procuring fresh fish, steam boiling, drying, and pulverizing it into a powder form. The petitioner argued that fish meal, whether used directly as aquatic feed or as an ingredient in other feeds, should be exempt from GST.Issue 2: Validity of Circular No. 80/54/2018-GST dated 31.12.2018The Circular issued by the Central Board of Indirect Taxes and Customs clarified that fish meal and other raw materials used for making cattle/poultry/aquatic feed are not exempt under Sl.No.102 of Exemption Notification No. 2/2017. The petitioner challenged this Circular, arguing that it incorrectly interpreted the exemption notification and contradicted the legislative intent.Issue 3: Interpretation of Exemption Notifications No. 1/2017 and 2/2017The court examined the relevant entries in the Customs Tariff Act and the exemption notifications. It was noted that entries 2301 and 2309, which include fish meal in powdered form, are explicitly covered under the exemption. The court found that the finished product of fish meal, even if used as an ingredient in other feeds, retains its exempt status. The court emphasized that the exemption notifications should be interpreted in a manner that aligns with the legislative intent and the explicit inclusion of fish meal under the exempted entries.Issue 4: Powers of the Central Board of Indirect Taxes and Customs under Section 168 of the CGST Act, 2017The court scrutinized the powers granted under Section 168, which allows the Board to issue orders or instructions for uniform implementation of the Act. It was determined that such powers are procedural and not substantive. The court held that the Board's Circular cannot override the statutory exemption provided under the notifications issued by the Central Government. The Circular was deemed to be beyond the scope of the Board's authority as it attempted to substantively alter the exemption status of fish meal.Conclusion:The court concluded that the impugned Circular was unsustainable and set it aside. It was ruled that the petitioner's fish meal, as a finished product, is entitled to exemption under Sl.No.102 of Exemption Notification No. 2/2017. Consequently, any actions taken by the Revenue based on the Circular were declared invalid. The court allowed the writ petitions, affirming the petitioner's right to the claimed exemption.