Naga Ltd. Vs Puducherry Authority for Advance Ruling (Madras High Court)
Madras High Court held that Advance Ruling 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.12/2017 is unsustainable.
Facts-
The petitioner sought for an Advance Ruling u/s. 97 of CGST Act, seeking clarification on whether the services relating to loading, unloading, packing, storage or warehousing rendered by 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 28.06.2017. The application filed by the petitioner was rejected by the Tamil Nadu Authority for Advance Ruling 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 services cannot maintain the application u/s. 97 of CGST Act.
Thereafter, the 2nd respondent i.e., supplier in the contract with the petitioner filed an application for Advance Ruling dated 02.01.2019 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 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, the petitioner has filed the present writ petition.
Conclusion-
Held 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.12/2017 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.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
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.12/2017 Central Tax (Rate) dated 28.06.2017 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. 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 02.01.2019 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)
4. Preliminary Objection:
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:
i) D.L. Chemicals Ltd. v. Union of India, (1996) 5 SCC 373 at page 377:
This was a case wherein the appellant company namely I.D.L. Chemicals Ltd. was engaged in manufacture of explosives. Ammonium Nitrate melt 80% was purchased by the Appellant company for manufacture of explosives from SAIL. The above commodity was exempt and the appellant enjoyed the benefit of such exemption by treating the same as fertilizer. Subsequently, the Central Board of Excise and Customs reclassified that Ammonium Nitrate melt 80% used in manufacture of explosives was ineligible to exemption. The excise authorities demanded duty from SAIL and in turn SAIL demanded the same from the appellant. Against this background question arose as to whether the appellant would have the locus to challenge the discontinuance of exemption and it was held that writ petition was maintainable as the appellant would suffer adverse civil consequences. The following extract is relevant :
“13. There is, in our view, no doubt that the reclassification of ammonium nitrate by the order of the Central Board dated November 1980, casts upon the appellants the obligation to pay the excise duty that is leviable as a result. Such obligation does not arise merely by reason of an agreement between SAIL and the appellants but also by virtue of the provisions of Chapter X of the Central Excise Rules, 1944. The appellants suffer adverse civil consequences and have, therefore, the locus to challenge the reclassification. There is no forum other than the High Court under Article 226 where they can do so, and the High Court was in error in not entertaining the later writ petition (No. 183 of 1981) and referring the appellants to a civil suit. Insofar as the earlier writ petition (No. 86 of 1980) is concerned, the High Court ought, for the same reason, to have dealt with the contention of the appellants that ammonium nitrate remained exempt from excise duty by reason of the exemption notification until 21-7-1979, when ammonium nitrate was removed from the purview thereof.”
ii) M. Amrutham Petroleum Agency v. Additional Deputy Commercial Tax, Puducherry, 2016 VIL 254 MAD:
This was a case wherein Bharat Petroleum Corporation Limited and Indian Oil Corporation Limited had appointed dealers in the Union Territory of Puducherry including the writ petitioner namely Amurtham Petroleum Agency. Since the appellant had committed default the appropriate authority under the CST Act refused to issue C Forms resultantly the assessing officer in the State of Tamil Nadu demanded a high rate of tax under the CST Act. Against the above background BPCL and IOCL filed writ petitions inter alia seeking a mandamus to direct the authorities in Puducherry to issue C Forms to M/s. Amurtham Agencies. A preliminary objection was raised regarding the locus of BPCL and IOCL on the premise that the above corporations can have only grievance against their dealers and cannot seek any relief against the government of Puducherry. The above preliminary objections as to the locus was rejected by this Court holding as under:
“30. Therefore, by virtue of the statutory prescription, it is the Prescribed Authority in the Union Territory of Puducherry, who holds the key to the question of entitlement of the Oil Corporations to pay a lesser rate of tax. In such circumstances, it is not open to the Government of Puducherry to contend that they have nothing to do with the Oil Corporations and that these Corporations have no locus to question the refusal of the Puducherry Authorities to issue ‘C’ Form Declarations. The refusal of the Puducherry Authorities has a direct financial impact only upon the Oil Corporations and hence, the refusal of the Puducherry Authorities to perform a statutory duty cast upon them, would certainly confer a right upon the Oil Corporations to question their act. The Oil Corporations cannot be non-suited on the ground that they are not the registered dealers under the Puducherry VAT Act, 2007.”
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.
6. Case of the Petitioner:
a. The impugned order proceeds to reject the claim of exemption on the premise that the imported wheat is moved to the importer’s factory for further processing and not meant for primary market, thus the services of loading, unloading, packing, storage or warehousing provided by the 2nd respondent to the petitioner cannot be extended the benefit of exemption in terms of Serial No.54(e) of the Exemption Notification. The above reasoning is challenged as being flawed inasmuch as the Advance Ruling Authority had erred in looking to the use to which the imported wheat is intended to be put in the hands of the importer / petitioner which is wholly irrelevant.
b. That the impugned order proceeds on a misconception as to the scope of the expression “marketable” employed in the definition of “agricultural produce” under Notification No.12/2017. It is settled law that the test for marketability is that it should be capable of being sold and it is not necessary that actual sale must take place. Reliance in this regard was placed on the decision of the Hon’ble Supreme Court in the case of “Indian Cable Co.Ltd., v. CCE [1994] 74 ELT 22 (SC) and CCE v. Karataka Soaps & Detergents Ltd. [2017] 355 ELT 161 (SC)”
c. That it is not in dispute even in the impugned order that the imported wheat is capable of being sold as such in the primary market, as contemplated in the definition of “agricultural produce”. Having found the above condition being satisfied in respect of the services rendered by the 2nd respondent to the petitioner, the denial of exemption under Serial No.54(e) Notification No.12/2017 is clearly unjustifiable.
7. Case of the respondents:
a. That the benefit of the exemption under S.No.54(e) to the Notification No.12/2017 is available only to Services of loading, unloading, packing, storage or warehousing till the products are taken to primary market for disposal and as a corollary any service rendered / extended beyond the stage of primary market is not eligible for exemption under S.No.54(e) of the Notification No.12/2017.
b. Even though the term “agricultural produce” has been defined under Notification/GST Act, the term “Primary Market” has not been defined in the GST Act. The term “Primary Market” in common parlance means and includes a platform or a place, like a Mandi, where the farmers are directly selling to the buyers. However, on perusal of the Cargo Handling Agreement for Wheat entered into between the 2nd Respondent – Supplier of Services and the recipient of services i.e. the Petitioner herein, it is evident that the wheat procured from foreign countries on being imported is moved to the petitioner’s factory for further processing and conversion into Maida, Atta, Sooji etc., thus the services is not in relation to “agricultural produce”. This would be clear from a reading of the following clause in the contract between the petitioner and the 2nd respondent:
“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.
8. Discussion:
Before proceeding further, it may be relevant to extract the relevant portion of Notification No.12/2017 dated 28.06.2017, 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 subsection (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
