Agricultural Produce Exemption: Tea retained exempt status after processing, and a circular could not narrow the GST notification

Tea retained its character as agricultural produce after blending, packing and warehousing because the processing did not alter its essential characteristics and was consistent with making the product marketable. On that basis, warehousing services for the tea fell within the exemption for agricultural produce under the GST notification. The document also states that a departmental circular cannot amend, curtail or whittle down the scope of a statutory exemption notification, so the circular relied on could not exclude tea from the exemption. The result described is that the advance ruling and appellate order were set aside and GST exemption was treated as available for the warehousing service.

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Issues: (i) whether tea, after blending, packing and warehousing operations, remained "agricultural produce" for the purpose of exemption under Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate); (ii) whether the departmental circular could restrict the scope of the exemption notification.

Issue (i): whether tea, after blending, packing and warehousing operations, remained "agricultural produce" for the purpose of exemption under Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate)

Analysis: The definition of agricultural produce under the notification covers produce of cultivation on which either no further processing is done or only such processing is done as is usually done by a cultivator or producer and which does not alter essential characteristics but makes the produce marketable for the primary market. Tea is a product of cultivation and, unlike many commodities, requires processing to make it fit for human consumption and marketable. Blending and packing do not change its basic character, and the mere fact that the product is processed and packed for export does not by itself convert it into a different commodity. The authorities below applied an erroneous test by treating the final warehoused tea as manufactured goods and by overlooking the settled principle that the essential character of tea remains intact despite such processing.

Conclusion: The tea stored in the warehouse retained its character as agricultural produce, and the warehousing service qualified for exemption in favour of the assessee.

Issue (ii): whether the departmental circular could restrict the scope of the exemption notification

Analysis: An exemption notification issued under the statutory power governs the field, and a circular cannot amend, curtail or whittle down its scope. The clarification relied upon by the respondents could not be treated as eliminating tea from the ambit of the exemption when the notification itself continued to cover agricultural produce on its terms.

Conclusion: The circular could not override the exemption notification, and the respondents' contrary reliance failed in favour of the assessee.

Final Conclusion: The impugned advance ruling and appellate order were set aside, and the petitioner was held entitled to GST exemption on warehousing services relating to the tea in question.

Ratio Decidendi: For exemption provisions covering storage or warehousing of agricultural produce, processing that is ordinarily undertaken to make the produce fit for consumption or primary-market sale does not destroy its character as agricultural produce unless the processing alters its essential characteristics; an executive circular cannot curtail the scope of a statutory exemption notification.

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