2023 (12) TMI 730 - HC - GST

Tea warehousing, packing and storage services treated as 'agricultural produce' under Sr. No. 54(e); GST exemption upheld

Warehousing services for packing and storage of tea were examined for exemption under Sr. No. 54(e) of Notification 12/2017 on the premise that the ... Exemption under Notification No. 12 of 2017 dated 28 June, 2013 - Sr. No. 54(e) of N/N. 12 of 2017 dated 28 June, 2013 pertaining to loading, unloading, packing, storage or warehousing of “agricultural produce” namely “tea” - Whether the petitioner would be entitled to exemption in supply of warehouse services as let out to Unilever for packing and storage of tea under the Item Sr. No. 54(3) of the 2017 Notification’? HELD THAT:- On a plain reading of the definition of the ‘agricultural produce’ and as applicable in the present context, it can be certainly inferred that the tea is produced from the cultivation of plants (tea gardens). It is an edible produce meant for human consumption. It can also be said that tea without processing, which can be done either by the cultivator / producer, or otherwise cannot be consumed. Further such processes do not alter its essential characteristic of tea ceasing to be an agricultural produce. Also such processing is necessary for making tea marketable for primary market. Merely by blending i.e. mixing or combining different teas and/or packing, such processes would not change the basic character of tea as an ‘agricultural produce’. Again by undertaking packing, it cannot be countenanced that the essential characteristic of tea to be an agricultural produce would undergo any change. It is ill-conceivable that the packs of tea cannot be sold in marketable lots, acceptable packages for its marketing. The law laid down by the Supreme Court in COMMISSIONER OF SALES TAX, LUCKNOW VERSUS DS. BIST AND OTHERS [1979 (9) TMI 168 - SUPREME COURT] is clearly applicable in the facts of the present case, which ought to have persuaded the AAR to hold that the tea belonging to Unilever as stored in the petitioner’s godown, did not change its essential characteristics merely because certain processes were undertaken, so as to reach to a conclusion that tea was an agricultural produce. In reaching the above conclusion as to what was understood by the term ‘agricultural produce’ in some enactments and how they were considered by the Court can be discussed. Now coming to the contention as urged on behalf of the respondents that in respect of the notification in question, a clarification has been issued by a CBIC Circular dated 15 November 2017 and therefore, the authorities below were correct in their approach in interpreting “Tea” as stored in the petitioner’s warehouse, is not an agricultural produce. This is not agreed - Such contention as urged on behalf of the respondent is in teeth of the settled principles of law that a circular cannot whittle down or nullified the Exemption Notification - the clarification as contained in the Circular cannot amend the statutory notification. Under the guise of clarification, the notification No. 12 of 2017 cannot be taken to be amended so as to delete ‘tea’ as an agricultural produce from the ambit of exemption. On a perusal of the orders passed by the AAR the emphasis appears to be more on the issue that the process by which the tea leaves are dried which results in emergence of a manufactured product, and therefore, tea ceases to be an agricultural produce - The only question in the present proceedings was in regard to the levy of service tax and whether the petitioner would be entitled to exemption when the petitioner had provided services of warehousing of agricultural produce. It was only in such context both the authorities below were required to consider the legal position and apply the same and any other extraneous consideration could not have been relevant. It is settled principle of law that a writ of certiorari can be issued only when there is a failure of justice and that it cannot be issued merely because it may be legally permissible to do so. There must be an error apparent on the face of the record as the High Court acts merely in a supervisory capacity. An error apparent on the face of the record means an error which strikes one on mere looking and does not mean long drawn out process of reasoning on points where there may conceivably be two opinions. Such error should not require any extraneous matter to show its incorrectness - While issuing a writ of certiorari, the order under challenge should not undergo scrutiny of an appellate court. It is obligatory on the part of the petitioner to show that a jurisdictional error has been committed by the statutory authorities. This Hon’ble Court be pleased to issue a Writ of Certiorari or any other appropriate writ, order or directions under Article 226 of the Constitution of India calling for the records of the Petitioners’ case and after examining the legality and validity thereof quash and set aside the impugned order dated 10.12.2018 passed by Respondent No. 6 under Section 101 of the CGST Act and the MGST Act - Hon’ble Court be pleased to declare that the Petitioner is entitled to exemption from payment of GST in terms of SI. No. 54(e) of the Notification 12/2017-Central Tax (Rate) dated 28.06.2017 and the corresponding notification issued under the MGST Act - Petition allowed. Issues Involved:1. Whether the petitioner is entitled to an exemption under Notification No. 12 of 2017 for storage and warehousing of tea.2. Whether the processes undertaken on tea alter its essential characteristics, thus disqualifying it as an agricultural produce.3. Validity of the orders passed by the AAR and AAAR rejecting the petitioner's claim for exemption.Summary:Issue 1: Exemption under Notification No. 12 of 2017The petitioner challenged an order rejecting their appeal for exemption from GST on storage and warehousing of tea under Notification No. 12 of 2017. The petitioner argued that tea stored in their warehouse is an agricultural produce as defined in clause 2(d) of the Notification No. 12/2017-CT (Rate) dated 28 June 2017, and thus should be exempted from GST.Issue 2: Processes Undertaken on TeaThe AAR and AAAR held that the processes undertaken on tea by Unilever, such as blending and packing, amounted to manufacturing, thus altering its essential characteristics and disqualifying it as an agricultural produce. The petitioner contended that these processes were minimal and necessary to make the tea marketable without changing its essential characteristics.Issue 3: Validity of AAR and AAAR OrdersThe High Court examined whether the processes applied to tea disqualified it as an agricultural produce. The court referred to the Supreme Court's decision in D. S. Bist and Sons, which held that minimal processing necessary to make agricultural produce marketable does not change its essential characteristics. The court concluded that blending and packing do not alter the essential characteristics of tea as an agricultural produce.Conclusion:The High Court found that the AAR and AAAR erred in their interpretation and application of the law. The court held that the petitioner is entitled to exemption from GST for storage and warehousing of tea under Notification No. 12 of 2017. The court issued a writ of certiorari quashing the impugned orders and declared that the petitioner is entitled to the claimed exemption.