Bombay Hc Upholds Gst Exemption For Tea As Agricultural Produce

CASE TITLE:  

Nutan Warehousing Company Pvt. Ltd. Vs The Commissioner, Central Tax & Ors.

COURT:

Bombay High Court

BENCH:

G. S. Kulkarni & Jitendra Jain

DATE OF ORDER:

11 December, 2023

PARTIES:  

PETITIONER: Nutan Warehousing Company Pvt. Ltd.

     RESPONDENT: 1.The Commissioner, Central Tax, Pune-II 2. The Commissioner, State Tax. 3. The Union of India 4. The State of Maharashtra 5. The Maharashtra Authority for Advance Ruling. 6. The Maharashtra Appellate Authority for Advance Ruling.

SUBJECT

In a recent case, a petitioner sought GST exemption for warehousing services provided for tea storage, claiming it remained an agricultural produce. The court scrutinized processing impacts on tea's classification, rejecting the authorities' view. Emphasizing the simplicity of tea production, it held the processing didn't alter its agricultural nature. The judgment reaffirms tea's eligibility for GST exemption as an agricultural produce.

IMPORTANT PROVISION

• Section 11 of the Central Goods and Services Act, which empowers the government to grant exemptions from tax through notifications.

     BRIEF FACTS

• The petitioner sought an advance ruling on whether it was entitled to exemption from GST for supplying warehouse services to Unilever for packing and storing tea, relying on Entry No. 54(3) of the 2017 Notification.

• The petitioner contended that tea, procured in bulk and stored in its warehouse by Unilever, retained its status as an agricultural produce as defined in the Notification, even after blending and packing activities.

• The AAR and AAAR focused on the argument that processing, including drying tea leaves, resulted in a manufactured product, ceasing its classification as an agricultural produce.

• The court observed that the definition of 'agricultural produce' encompasses tea produced from cultivation, and processing or packing does not alter its essential characteristics, emphasizing the simplicity of the process.

• The court rejected the contention that a CBIC Circular could amend the statutory notification, asserting that the circular cannot nullify or whittle down the exemption granted under the law.

• Concluding that there was an error of law apparent on the face of the record, the court held that the processing of tea did not extinguish its status as an agricultural produce, and a writ of certiorari was warranted to correct the legal error made by the authorities.

QUESTIONS RAISED

1. Whether the processing and storage of tea in the petitioner's warehouse, including activities such as blending and packing, result in the tea losing its classification as an 'agricultural produce' and being considered a manufactured product?

2. Whether the decisions of the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR), which concluded that tea stored in the petitioner's warehouse is a manufactured product and not an agricultural produce, are legally sound and in accordance with the applicable exemption notification under the GST Act?

ARGUMENTS ADVANCED BY THE PETITIONER

• The petitioner, a company providing warehousing facilities for agriculture and allied products, contends that the tea procured in bulk and stored in its warehouse qualifies as an agricultural produce.

• The petitioner argues that the processes undertaken on the tea, such as blending and packing, do not alter its essential characteristics and, therefore, the tea retains its status as an agricultural produce.

• The petitioner relies on the principle established by the Supreme Court in the case of D. S. Bist and Sons, emphasizing that minimal processes necessary to prevent perishing and make the product fit for transport and marketability are acceptable for agricultural produce.

• The petitioner challenges the applicability of the decision in Union of India Vs. Belgachi Tea Company, asserting that it does not address the specific issue of taxability of tea leaves as an agricultural produce.

• The petitioner contests the finding of the Authority for Advance Ruling (AAAR) that the activities of Unilever amounted to manufacture, stating that the key issue is whether the processes alter the essential characteristics of the tea, not whether they constitute manufacturing activities.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The respondents, in their affidavit, do not dispute the petitioner's involvement in the warehousing business or their dealing in agricultural and allied products. However, they contest the petitioner's claim of exemption from tax in dealing with the storage of tea.

• The respondents argue that the processing of tea undertaken by the petitioner does not qualify as "minimal" processes typically done by a cultivator or producer on an agricultural produce. Instead, they assert that these processes involve well-established plant and machinery, classifying them as manufacturing processes.

• According to the respondents, the CBIC Circular dated November 15, 2017, addresses the petitioner's question, stating that processed tea does not qualify as an "Agricultural Produce."

• The respondents emphasize that the stored tea, after undergoing processing, cannot be considered an agricultural produce, and the activities of Unilever in processing the tea disqualify it from such classification.

• The respondents further argue that the services provided by the petitioner do not fall under the exemption for "loading, unloading, packing, storage, or warehousing of agricultural produce" as per Section 66D of the Finance Act, 1994, and, therefore, the petitioner's activities should be considered manufacturing under GST Act definitions.

ANALYSIS BY THE COURT

The court examined whether tea stored in the petitioner's warehouse qualifies as an agricultural produce for GST exemption. Emphasizing the definition, the court found that tea, even after processing, retains its essential characteristics as an agricultural produce. It rejected the contention that a CBIC Circular could alter the exemption. The court criticized the authorities' focus on processing and drying, stating that such activities do not extinguish the agricultural nature of tea. Concluding an error of law, the court granted a writ of certiorari, asserting that jurisdictional errors warrant correction. This judgment reaffirms the agricultural produce status of tea for GST exemption.

CONCLUSION

In conclusion, the court, in a landmark judgment, affirmed that tea retains its classification as an agricultural produce even after processing and storage in the petitioner's warehouse. Rejecting the authorities' emphasis on manufacturing processes, the court asserted that such activities do not alter the essential characteristics of tea. The judgment underscored the simplicity of the processing involved and dismissed the contention that a circular could nullify the statutory exemption. Recognizing an error of law, the court granted a writ of certiorari, upholding the petitioner's claim for GST exemption and providing clarity on the agricultural produce status of tea under the GST Act.