GST Exemption available to Services of loading, unloading, packing, storage or warehousing of imported wheat : HC

HIGH COURT OF MADRAS

Naga Ltd.

v.

Puducherry Authority for Advance Ruling

MOHAMMED SHAFFIQ, J.

W.P. NO.2851 OF 2021 AND W.M.P. NOS.3185 AND 3187 OF 2021

NOVEMBER  10, 2023

ORDER

1. The present writ petition is filed challenging the impugned order No.02/Puducherry-AAR/2020-21 dated 18-11-2020 passed by the 1st respondent against an Advance Ruling Application filed by the 2nd respondent. The issue raised in the present writ petition revolves around the scope of Notification No. 12 of 2017 Central Tax (Rate) dated 28-6-2017 in particular S.No.54(e) of the said notification.

2. The petitioner is engaged in the business of milling wheat into wheat products such as maida, atta, sooji, bran etc. The petitioner is registered under the Tamil Nadu Goods and Services Tax Act, 2017 ( hereinafter referred to as the “TNGST Act”) and under Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”) in relation to its business operations in Tamil Nadu. For milling purposes, the petitioner imports wheat from other countries into India through various seaports. The petitioner engaged service providers for clearing the imported wheat from seaports. The services include the activity of loading, unloading, packing, storage or warehousing of the imported wheat and its further clearance to the petitioner’s factory. The present dispute is with regard to the contract between the petitioner and the 2nd respondent for provision of the above services.

2.1 The petitioner sought for an Advance Ruling under section 97 of CGST Act, seeking clarification on whether the services rendered by the 2nd respondent in respect of wheat imported by the petitioner is exempted under S. No.54(e) of the Notification No. 12/2017-CT dated 28-6-2017. The application filed by the petitioner was rejected by the Tamil Nadu Authority for Advance Ruling vide Order No. 18/AAR/2018 dated 29-10-2018 on the ground of lack of jurisdiction as only a supplier on whom incidence of tax lies can seek an Advance Ruling as per Section 95(a) of the CGST Act and the petitioner being a recipient of the above services cannot maintain the application under section 97 of CGST Act.

2.2 Thereafter, the 2nd respondent i.e., supplier in the contract with the petitioner filed an application for Advance Ruling dated 2-1-2019 in relation to the applicability of the above Exemption Notification with regard to the services rendered to the petitioner. The 1st respondent passed the impugned order ruling that the above services are not entitled to exemption on the ground that the imported wheat with regard to which the services were rendered was not meant for the primary market but instead meant/intended to be used by the petitioner at its factory for further processing of the wheat imported into atta, maida and sooji. Aggrieved by the impugned order and left with no other remedy, the petitioner has filed the present writ petition.

3. Before proceeding further, it may be relevant to refer to the relevant portions of the impugned order wherein after extracting the definition of the expression “agricultural produce” it was held as under:

“5.2 Thus, from the above it could be seen that the said services of loading, unloading, packing, storage or warehousing rendered by a taxpayer can be eligible for exemption only if they are rendered for the above purposes as clearly defined in the Notification 1.e. only if the services are extended till the products are taken to primary market for disposal and as a corollary any services extended beyond the stage of primary market are not eligible for classification under the Service Accounting Code 9986 and hence cannot be considered for exemption under the said Notification.

6. Hence it is very clear from the above said documents that the applicant is providing the services of loading, unloading, packing, storage or warehousing in respect of the ‘wheat’ which is procured from the farmers from the foreign country and after getting imported Into India at Karaikal Port is destined to importer’s factory for further processing and it is not destined to the primary market as required for the services to be classified under sl. No. 54(e) of Heading 9986 of the said exemption-Notification. Therefore, the said services rendered by the applicant in the instant case are not eligible for the exemption under the said Notification.”

(emphasis supplied)

Before examining the correctness or otherwise of the Advance Ruling a preliminary objection was raised that the present writ petition filed by the petitioner challenging the order of the Advance Ruling Authority passed on an application filed by the 2nd respondent is not maintainable inasmuch as the petitioner was not a party before the Advance Ruling Authority. On the other hand, it was submitted by the learned counsel for the petitioner that the order of the 1st respondent ruling that the transactions between the petitioner and the 2nd respondent is not entitled to exemption in terms of S.No. 54(e) Notification No. 12/2017 results in adverse civil consequences on the petitioner inasmuch as the tax burden would ultimately be passed on to the petitioner by the 2nd Respondent. It was submitted that the writ petition is thus maintainable for the petitioner cannot be left without any remedy to challenge the order of the Advance Ruling Authority when the same results in adverse civil consequences.

5. On considering the submissions of both parties as to the maintainability, this Court finds that the petitioner is aggrieved by the impugned order insofar as it Rules that the services rendered to the petitioner by the 2nd respondent is not entitled to exemption in terms of Notification No. 12/2017. The impugned Advance Ruling is binding on the 2nd respondent and their jurisdictional officers as per Section 103(1) of the CGST Act. Resultantly, the 2nd respondent would be compelled to charge CGST/SGST/IGST as the case may be on the supply of services in terms of the impugned Ruling. The petitioner being the service recipient will ultimately have to bear the tax burden resulting in direct financial impact on the petitioner.

5.1 The issue as to the maintainability had come up for consideration in similar circumstances and it has been held that the writ petition is maintainable. In this regard, it may be relevant to refer to the following judgments:

5.2 From a reading of the above judgments, it is clear that the impugned order results in the petitioner suffering adverse civil consequences giving them the locus to challenge the same and maintain the present writ petition. Having held that the writ petition is maintainable, I shall now proceed to examine the contention on merits.

“NL represents to the KPPL that the bagging of wheat in port is only for transportation convenience from port to their factory and that they will cut open the bags bleed the cargo in their conveyor for further processing only and not meant for market sale”

7.1 It was thus submitted that the services rendered by the 2nd Respondent is not eligible to exemption thus the impugned order does not warrant any interference.

Before proceeding further, it may be relevant to extract the relevant portion of Notification No. 12/2017 dated 28-6-2017, which reads as under:

Government of India Ministry of Finance

Notification No. 12/2017- Central Tax (Rate)

(Department of revenue)

New Delhi, the 28th June, 2017

G.S.R (E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:

Table

It may also be relevant to extract the definition of the expression ” agricultural produce” in the said notification, which reads as under:

“2(d) “agricultural produce” means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market;”

8.1 From a reading of the above notification and the definition of “agricultural produce”, it would be evident that services in relation to “agricultural produce” by way of loading, unloading, packing, storage or warehousing of agricultural produce is exempt. The respondents have rejected the claim of exemption under the above notification on the premise that the activities/services of loading, unloading, packing, storage or warehousing of wheat is not meant for primary market instead the wheat imported is meant/intended to be milled at the petitioner’s factory into wheat products such as maida, atta, sooji, bran etc. Thus the contract between the petitioner and the 2nd respondent for services of loading, unloading, packing, storage, warehousing is not rendered in relation to “agricultural produce”, thus not entitled to exemption under S.No.54(e) of Notification No. 12 of 2017.

9. This Court finds that the above construction sought to be placed by the 1st respondent is grossly misconceived for the following reasons:

9.1 A reading of S.No. 54(e) and the definition of “agricultural produce”, would show that the service of loading, unloading, packing, storage or warehousing of “agricultural produce” would fall within the scope of S.No. 54(e) and thus exempt. This Court is of the opinion that the 1st Respondent had misdirected itself in examining the use to which the commodity/agricultural produce viz., wheat imported would be put to in the hands of the petitioner to determine the entitlement of the services to exemption or otherwise. The 1st Respondent has proceeded to reject the claim on the premise that the imported wheat is meant to be converted into atta, maida and sooji and therefore it is not intended for the primary market. On a plain reading of the definition of “agricultural produce”, all that it does is to identify the nature of the product that would be covered while also including certain processes which does not alter the essential character as an “agricultural produce” but merely makes it marketable for the primary market. The petitioner’s entitlement to exemption must be determined by testing whether the services of loading, unloading, packing, storage or warehousing is rendered to agricultural produce or other than “agricultural produce” and not on the basis of the process the agricultural produce is meant to be subject to in the hands of the petitioner/importer. In other words if on applying the definition of “agricultural produce” to the wheat that is imported and if it qualifies as an “agricultural produce”, the mere fact that the buyer of “agricultural produce” intended to subject it to various other processes subsequently resulting in conversion of wheat into maida, atta and sooji would not take the services of loading, unloading, packing, storage and warehousing of the “agricultural produce” out of Serial No. 54(e) of the Exemption Notification. The reasoning in the impugned order of the 1st Respondent results in importing a condition as to the use to which the agricultural produce would be subject to in the hands of the service recipient. The above test is wholly alien to decide whether a commodity would fall within the definition of “agricultural produce” contained in the above Notification. The impugned Ruling thus suffers from the vice of arbitrariness inasmuch as it has taken into account aspects/factors which are irrelevant.

9.2 This Court also finds that the impugned order is flawed inasmuch as it results in adding conditions to exemption notification which is impermissible. In this regard, it may be relevant to refer to the following judgments wherein Courts have rejected the construction of exemption notification which adds conditions to the notification resulting in whittling down the width of the Notification. In this regard, it may be useful to refer to the following judgments:

(emphasis supplied)

(emphasis supplied)

9.3 Yet another reason the impugned order warrants interference is the fact that the expression “marketable” employed in the definition of “agricultural produce” has been misconceived. A reading of the above definition would show that it only indicates that the agricultural produce must be such that it is marketable i.e., capable of being marketed and it is not required of being actually marketed as such. The construction of the Notification in the impugned order of the 1st Respondent results in converting the expression “marketable” employed in the definition of “agricultural produce” into “marketed”, which is impermissible. This would be even more evident if we keep in mind the expression “marketable” has been construed and explained by the Hon’ble Supreme Court on more than one occasion to mean that it is only required to be shown that it is capable of being marketed and not actually marketed. Applying the above reasoning to the term “marketable” used in the definition of “agricultural produce” it would be clear that it only means that the goods in question in the instant case wheat must be capable of being marketed in the primary market and it is not necessary to show that it is actually marketed. In this regard, it may be relevant to refer to the following judgment in Hindustan Petroleum Corpn. Ltd. v. Union of India, (2001) 10 SCC 157 at page 158

“4 The question regarding the concept of marketability was considered by this Court in A.P. SEB v. CCE [(1994) 2 SCC 428] and was reiterated in Indian Cable Co. Ltd. v. CCE [(1994) 6 SCC 610] in which after extracting the relevant observations from the former case, the Court proceeded to observe as under: (SCC p. 618, para 13)

” ‘Marketability’ is a decisive test for dutiability. It only means ‘saleable’, or ‘suitable for sale’. It need not be in fact ‘marketed’. The article should be capable of being sold or being sold, to consumers in the market, as it is — without anything more.”

(emphasis supplied)

9.4 The Hon’ble Supreme Court has reiterated the above view on numerous other occasions some of them being as follows:

10. In view of the above reasons, this Court is of the view that the impugned order holding that services of loading, unloading, packing etc., rendered in relation to the wheat imported is not entitled to exemption in terms of S.No.54(e) of Notification No. 12 of 2017 on the premise that the imported wheat is not meant for primary market as such but it is intended to be converted into maida, atta, sooji etc., in the hands of the recipient i.e., the petitioner herein is unsustainable.

11. The impugned order is set aside. I intend to clarify that I had only examined the correctness of the reasoning contained in the impugned ruling. This Court has not expressed any opinion as to whether any particular transaction is entitled to exemption which would require examination of individual imports by the appropriate authority.

12. The writ petition is disposed of on the above terms. No costs. Consequently, connected miscellaneous petitions are closed.