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TMI Blog2023 (12) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act (for short 'CGST Act' and 'MGST Act' respectively), on the issue whether the petitioner would be entitled to an exemption under Notification No. 12 of 2017 dated 28 June, 2013, so as to be exempted from payment of service tax under Sr. No. 54(e) of the said notification pertaining to loading, unloading, packing, storage or warehousing of "agricultural produce" namely "tea" has been rejected. 3. The petitioner's case as set out in the petition is as follows: The petitioner is a company incorporated under the Companies Act, 1956. The petitioner was inter alia formed to carry out the business of warehousing, cold storage and refrigeration in all its branches, activities and spheres. It provides godown and warehousing facilities to the distributors of agriculture and allied products. The petitioner also has licence for carrying on business of warehousing under the Bombay Warehouses Act, 1959. The petitioner has constructed warehouses at various places, one of the warehouse constructed by the petitioner is at Fursungi, Pune, in respect of which application for advance ruling in question came to be made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulk, either from public tea auctions or directly from manufacturers of tea, was an agricultural produce as defined in clause 2(d) of the Notification No. 12/2017-CT (Rate) dated 28 June, 2017 (for short 'the 2017 Notification'), for the reason, that the tea was not losing its essential characteristics. 7. The petitioner in its application made to the Authority for Advance Ruling (for short "AAR"), claimed that the storage and warehousing of tea was exempted vide Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate). The said entry is required to be noted which reads thus:- 54 Heading 9986 Services relating to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce by way of- (a) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; (b) supply of farm labour; (c) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) stored at the petitioner's warehouse as received from Unilever, in the impugned order, has observed thus:- "From the perusal of above activities provided by M/s, Unilever including photographs of manufacturing process as above as well as photographs of manufactured goods being stored by them, it is crystal clear that even if we assume that in the beginning they are bringing raw tea leaves or may be semi processed tea leaves which they have not clearly specified to the godown, they are under taking further processing and manufacturing of the same as per processes given above and are finally storing manufactured tea as per details given by them self above which finally culminates into packing of Lipton Pure and Simple 100s tea bags. This activity of M/s. Unilever of processing of raw tea leaves into tea results in emergence of a new product having distinct name i.e., Tea, which has distinct name, character and use i.e. Lipton Pure and Simple 100s Tea bags. As such the impugned activity is a 'manufacture' as defined in clause (72) of section 2 of the GST Act. The final product considering various processes undertaken by M/s. Unilever cannot be considered as Agricultural Produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for such reason the petitioner's case, that there is no change in the essential characteristics of agricultural produce is not acceptable. It is next contended that as per the "Negative list of Services" under Section 66D of the Finance Act, 1994 and subsection (d)(iv) of the said provision, "Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use" and further, as per sub-section (d)(v) of the said provision, "loading, unloading, packing, storage or warehousing or agricultural produce" were exempted. However, the services rendered by the petitioner in the present case do not qualify to be defined as "Services provided for storage/warehousing of agricultural produce". It is thus submitted that the impugned activity of processing of tea and consequent storage would fall within the definition of "manufacture" as defined in Clause (72) of Section 2 of GST Act, which disqualifies the goods being stored to be the Agricultural Produce. For these reasons, it is submitted that the petition be dismissed. Petitioner's Submissions 15. Mr. Sriram Sridharan, learned Counsel for the petitioner in assailing the findings of both the authorities ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rejecting the petitioner's appeal, is not an authority on the proposition the petitioners canvassed before the AAAR, much less to reject the petitioner's contention. This for the reason that in such case, the issue was of taxability of the agricultural income, and as to whether the tea leaves which had undergone process as withering, rolling, drying, fermenting, sieving and roasting to make it suitable for the primary market was an 'agricultural produce', was not the issue before the Supreme Court. It is next submitted that the findings as rendered by the AAAR that the activities of Unilever amounted to manufacture is also not correct, as it was never the test in the present facts. It is submitted that even if tea is subjected to an activity which amounts to 'manufacture' as long as such activity 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, it would still continue to be an 'agricultural produce' as defined in Clause 2(d) of the 2017 notification. It is submitted that this is a fit case where this Court needs to allow the petition by issuing a writ of certiorari considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute, are carefully examined. The petitioner's warehouse was let out to Unilever India Export Ltd. as permissible under the Bombay Warehouse Act. Before the AAR the petitioner went with a case that Unilever was procuring tea of different variety/qualities in bulk either from public tea auctions or directly from manufacturers of tea and was undertaking blending and packing of the same at the petitioner's warehouse and after packing of the tea, it was exported overseas to different countries. The petitioner was of the considered view that the tea procured in bulk by Unilever either from public tea auctions or directly from manufacturers of tea, was an 'agricultural produce' as defined under Clause 2(d) of the 2017 Notification being the subject matter of storage and warehousing. The petitioner was also of the firm view that post such procurement, the tea continued to possess its trail as an 'agricultural produce' and was exempted under Entry No. 54 of the said 2017 Notification, despite the activities of blending and packing as undertaken. The petitioner contended that based on this understanding, the petitioner initially had not taken GST registration nor had it discharged GST l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haracteristic 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. 24. The petitioner in supporting its case that the tea would be an agricultural produce even after processing etc, would be correct in placing reliance on the decision of the Supreme Court in D. S. Bist and Sons (supra), wherein the Supreme Court in the context of determining a dispute under the U. P. Sales Tax Act, 1948 had the occasion to consider whether tea was an agriculture produce. In such case, the respondent / assessee owned tea gardens and sold tea leaves after the tea leaves were plucked from tea shrubs and undergoing various processes like withering, crushing and roasting etc. The assessee had contended that the tea leaves sold by it, was 'agricultural produce' and therefore, was not exigible to sales tax in view of the proviso to Section 2(i) of the U.P. Sales Tax Act. The assessee's contention being not accepted by the revenue, in a reference, the High Court having found favour the revenue's contention, the proceedings reached the Supreme Court. The High Court had examined th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. flour. But there may be some other kinds of agricultural produce which required some more processing to make it marketable. In the case of such a commodity what one has to judge is to find out whether in relation to that agricultural produce the process applied was minimal or was it so cumbersome and long drawn that either in common parlance, or in the market, or even otherwise, any body would not treat the produce as an agricultural produce. The mere fact that in the case of a particular product the process is a bit longer or even a bit complicated will not rob the produce of its character of being an agricultural produce. Largely the inference to be drawn from the primary facts of processing, one may say, will be an inference of fact. But it is not wholly so. In a given case it will be a mixed question of fact and law. If wrong tests are applied in drawing the inference that the agricultural produce has lost its character of being so, then it will be a question of law and the High Court will have jurisdiction in an appropriate reference, as in the present case it had, to decide whether the case came under the proviso to section 2(i) of the Act. 7. Unlike many agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are withered by exposure to the sun or by heating in trays until pliable (usually 18-24 hours). Next the leaves are rolled by hand or machine in order to break the leaf cells and liberate the juices and enzymes. This rolling process may last up to three hours. Finally, the leaves are completely dried either by further exposure to the sun, over fires, or in a current of hot air, usually for 30- 40 minutes." In making black tea, the leaves, after being rolled, are fermented in baskets or on glass shelves or cement floors under damp cloths. "The process of fermentation, or oxidation, reduces the astringency of the leaf and changes its colour and flavour." About green-leaves it is mentioned- "Green tea is made by steaming without fermentation in a perforated cylinder or boiler, thus retaining some of the green colour. The leaves are lightly rolled before drying." It would thus be seen that the tea-leaves as plucked have got to pass through stages of processing of one kind or the other in order to make them fit for human consumption, as in the case of paddy and many other commodities dehusking in the case of former and some other kind of process in regard to the latter has got to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance on behalf of the Revenue was placed upon a few cases. None of them supports the department's contention. I may notice only two or three of them. In Killing Valley Tea Company, Ltd. v. Secretary to State, the question for consideration related to the tax liability of the Killing Valley Tea Company under the Income Tax Act, 1918. If the whole of its income was derived from agriculture, the assessee was not liable to pay income-tax. If, however, the activities of the Company, which produced income were attributable partly to agriculture and partly to its manufacturing activities, then the whole of the amount could not have been taxed under the Income-Tax Act. The stand of the Company was-"the actual leaf of the tea plant, without the addition thereto of the processes above described, is of no value as a market commodity." On behalf of the Revenue it was contended "that the manufacturing processes carried out in a modern tea factory, with scientific appliances and up- to-date machinery, are different from those ordinarily employed by a cultivator to render the produce raised by him fit to be taken to market." The High Court held- "that the process in its entirety cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea leaf throughout. In its basic nature, it continued to be agricultural produce." (emphasis supplied) 25. In the case of Belsund Sugar Co. Ltd. vs. The State of Bihar & Ors. AIR 1999 Supreme Court 3125, the Constitution Bench of the Supreme Court interalia examined the provisions of Section 2(1)(a) of the Bihar Agricultural Produce Markets Act, defining the word "agricultural produce". The said provision as considered by the Supreme Court reads thus:- "Section 2(1)(a) of the Act defines 'agricultural produce' as under : "Agricultural produce' means all produce whether processed or non-processed, manufactured or not, of Agriculture, Horticulture, Plantation, Animal Husbandry, Forest, Sericulture, Pisciculture, and includes livestock or poultry as specified in the Schedule." In the context of such definition, the Supreme Court observed that it cannot be said that "tea leaves" produced from the tea gardens being primary agricultural produce, would cease to be agricultural produce once they got processed. The Court observed that after plucked tea leaves are processed by roasting them and then by subjecting them to further process of blending and ultimately packing them in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, the Court held that the products like 'Tree Top', 'Frooti' and 'Appy', which were ready-made beverages are agricultural produce and exigible to the levy of market fee under the Bihar Agricultural Produce Market Act, 1960. 29. 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. We do not agree. 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. We may observe that Section 11 of the Central Goods and Services Act empowers the Government to grant exemption from tax on satisfaction, in the public interest and on the recommendations of the Council, by a notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, from the whole or any part of the tax leviable thereon with effect from such date as may be specified in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al produce' would not stand extinguish by mere processing and packing in whatever form. The AAAR has also not considered the decision of the AAR by applying the principles of law which were imperative to be applied and as discussed by us hereinabove. 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. 32. In the aforesaid circumstances, we find ourselves in agreement with the petitioner when the petitioner contends that in the present case the Court would be required to issue a writ of certiorari by interfering in the orders impugned before us. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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