Facts of the Case

Nutan Warehousing Company Pvt. Ltd., licensed as a warehouseman under the Bombay Warehouses Act, 1959 and registered under the CGST/MGST Act, let out its Fursungi (Pune) warehouse to Unilever India Exports Ltd. for storage of tea procured in bulk from auctions or manufacturers, which Unilever blended and packed before export. The petitioner sought an advance ruling on whether such warehousing services qualified for exemption under Entry 54(e) of Notification No. 12/2017-Central Tax (Rate) as services relating to storage/warehousing of "agricultural produce." The Maharashtra Authority for Advance Ruling (AAR) held on 23.05.2018 that Unilever's processing amounted to "manufacture," so the stored tea was not agricultural produce, and the Maharashtra Appellate Authority for Advance Ruling (AAAR), by order dated 10.12.2018, upheld this and dismissed the petitioner's appeal filed under Section 101 of the CGST/MGST Act.

Issues Involved

  1. Whether tea that has undergone withering, rolling, drying, fermenting, blending and packing remains "agricultural produce" as defined in the 2017 Notification.
  2. Whether the AAAR erred in treating Unilever's processing as "manufacture," disqualifying the tea from exemption.
  3. Whether a CBIC circular can restrict or override the scope of an exemption notification.

Petitioner's Arguments

  • Relying on the Supreme Court's ruling in Commissioner of Sales Tax, Lucknow vs D.S. Bist and Sons, the processes applied to tea (withering, rolling, drying, fermenting, roasting, grading) are minimal processes that do not alter its essential character as agricultural produce.
  • Blending and packing by Unilever for export did not change the essential characteristics of the tea or its marketability for the primary market.
  • The AAAR's reliance on Union of India vs Belgachi Tea Company was misplaced, since that case dealt with taxability of agricultural income, not the "agricultural produce" classification.
  • The CBIC Circular dated 15.11.2017 could not be used to whittle down the exemption granted under Notification No. 12/2017.

Respondent's Arguments

  • The Revenue supported the AAR/AAAR orders, contending Unilever's blending and processing at the petitioner's warehouse went beyond minimal processing and amounted to manufacture, disqualifying the tea from being agricultural produce.
  • Reliance was placed on the CBIC Circular dated 15.11.2017 and on the Division Bench decision in Jotun India Pvt. Ltd. vs Union of India in support of a narrow reading of "agricultural produce."

Court Order-Findings

  • The Court held, following D.S. Bist and Sons and Belsund Sugar Co. Ltd. (Constitution Bench), that tea subjected to minimal processing such as withering, rolling, drying, fermenting, blending and packing retains its essential character as agricultural produce and does not become a manufactured product for the purposes of the exemption.
  • A clarificatory circular cannot whittle down or override a statutory exemption notification issued under Section 11 of the CGST Act.
  • The AAR and AAAR erred in law by treating Unilever's processing as manufacture disqualifying the tea; this was an error apparent on the face of the record warranting a writ of certiorari.
  • The AAAR order dated 10.12.2018 was quashed, and the Court declared the petitioner entitled to exemption under Entry 54(e) of Notification No. 12/2017-Central Tax (Rate) and the corresponding MGST notification.

Important Clarification

  • For GST exemption purposes, "agricultural produce" retains its character even after minimal processing (withering, rolling, drying, fermenting, blending, packing) that merely makes it marketable, provided the processing does not go beyond what a cultivator or producer would ordinarily undertake; a CBIC circular cannot cut down the scope of a statutory exemption notification.

Sections Involved

  • Section 98, CGST Act, 2017 / MGST Act, 2017 - governs applications for advance ruling before the AAR.
  • Section 101, CGST Act, 2017 / MGST Act, 2017 - governs appeals to the AAAR against AAR rulings.
  • Section 11, CGST Act, 2017 - empowers the Government to grant exemptions by notification.
  • Notification No. 12/2017-Central Tax (Rate), Entry 54(e) - exempts loading, unloading, packing, storage or warehousing of agricultural produce.

Decision-In Favour of

Assessee. The AAAR order was quashed and the petitioner declared entitled to the GST exemption on warehousing services for the tea.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

Court: High Court of Judicature at Bombay
Case No.: Writ Petition No. 12775 of 2019
Coram: Hon'ble Mr. Justice G. S. Kulkarni and Hon'ble Mr. Justice Jitendra Jain
Date of Decision: 11.12.2023

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