Fish meal manufacturers must pay 5% GST under Tariff Heading 2301, exemption denied for aquatic feed suppliers

The HC set aside a Single Judge's order granting GST exemption to fish meal manufacturers. The court held that fish meal under Tariff Heading 2301 attracts 5% GST as per Notification 1/2017, not exemption under Notification 2/2017. The petitioners' fish meal products, supplied to aquatic feed manufacturers rather than sold as finished aquatic feed, could not be classified under the exempted category of "aquatic feed including shrimp feed or prawn feed." The court found the revenue department's clarificatory circular justified and upheld the 5% GST liability on the manufacturers' products.

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Issues Involved:

1. Classification of "fish meal" under GST notifications.
2. Applicability of GST exemption for "fish meal."
3. Jurisdiction and authority to issue clarificatory circulars.
4. Interpretation of exemption notifications and their applicability.

Issue 1: Classification of "fish meal" under GST notifications

The core issue revolves around the classification of "fish meal" under the GST regime. The impugned Circular dated 31.12.2018 clarified that "fish meal" falls under Sl. No. 103 of Notification No. 1/2017, attracting a 5% GST rate. The petitioners contended that "fish meal" should be classified under Sl. No. 102 of Notification No. 2/2017, which grants an exemption. The court analyzed the notifications, noting that "fish meal" is listed under Tariff Heading 2301, which is included in both Sl. No. 103 and Sl. No. 102. However, the description under Sl. No. 102 pertains to aquatic feed, which the court found does not encompass "fish meal" as manufactured by the petitioners. The court concluded that "fish meal" in powder form, unfit for human consumption, is correctly classified under Tariff Heading 2301, attracting a 5% GST rate.

Issue 2: Applicability of GST exemption for "fish meal"

The petitioners argued that "fish meal" should be exempt from GST, as it is used in manufacturing aquatic feed, which is exempt under Sl. No. 102 of Notification No. 2/2017. The court rejected this argument, stating that the exemption applies to finished aquatic feed products, not raw materials like "fish meal." The court emphasized that "fish meal" is not directly used as aquatic feed but as an ingredient, and thus does not qualify for exemption under the said notification.

Issue 3: Jurisdiction and authority to issue clarificatory circulars

The petitioners challenged the authority of the 2nd appellant to issue the clarificatory Circular, arguing it was beyond jurisdiction and contrary to the GST Council's decisions. The court upheld the Circular, stating that it was issued to clarify the applicability of GST rates and ensure uniformity. The court noted that the Circular did not alter the tax levy but clarified existing notifications, which is within the jurisdiction of the authority.

Issue 4: Interpretation of exemption notifications and their applicability

The court referred to the Supreme Court's judgment in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company, which mandates strict interpretation of exemption notifications. The burden of proving eligibility for exemption lies with the assessee. The court found no ambiguity in the notifications and emphasized that exemptions should be interpreted in favor of the revenue. Consequently, the court held that the petitioners' interpretation, seeking exemption for "fish meal," was unfounded and upheld the Circular's clarification.

Conclusion:

The court allowed the writ appeals, setting aside the learned Single Judge's order and dismissing the writ petitions. It concluded that "fish meal" in powder form, unfit for human consumption, is subject to a 5% GST rate under Sl. No. 103 of Notification No. 1/2017, and does not qualify for exemption under Sl. No. 102 of Notification No. 2/2017. The court affirmed the authority's jurisdiction to issue the clarificatory Circular, which aligns with the principles of strict interpretation of exemption notifications.

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