Case Law Details
Shiridi Sainadh Industries Vs Deputy Commissioner ST INT (Andhra Pradesh High Court)
Whether the impugned assessment order levying GST on the estimated by-products value, treating such by-products as part of the consideration for milling, is legally sustainable under the provisions of CGST/APGST Act, 2017 or not?
POINT: As can be seen, Custom Milling Rice is an arrangement where the Government through the Civil Supplies Corporation gets the paddy milled into rice through the millers. For this purpose, the 4th respondent enters into an agreement with the millers incorporating therein the method and manner of milling the paddy. In the above process, in the context of GST Act, the petitioner shall be regarded as “supplier”. Under Section 2(105) of GST Act, supplier in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent as such on behalf of such supplier. The petitioner, in view of undertaking the exercise of milling the paddy, offers “services” to 4th respondent within the meaning of Section 2(102) of the GST Act. Similarly, the 4th respondent Corporation is called as “recipient” of services within the meaning of Section 2(93) of GST Act. What the petitioner undertakes is “job work” as per Section 2(68). The term “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression job work shall be construed accordingly. The returns, which the petitioner gets out of milling is known as “consideration” within the meaning of Section 2(31) of GST Act. As per this provision, the consideration may be either in the form of money or otherwise.
Thus, as can be seen, the above two clauses couched in the agreement are distinct and independent to each other. Whereas, Clause No.17 says that milling charges will be paid as fixed by the GOI (admittedly @Rs.15/- per quintal), Clause No.22 states that the mill shall retain all the by-products such as brokens, bran, husk etc., derived during the process of milling. There is no slightest insinuation in either clause that the by-products shall form part of the consideration. If the parties to the agreement had such intention, nothing prevented them to do so. As we observed, all the terms of CMR, both significant and trivial, are meticulously incorporated. For instance, it was mentioned that the mill shall deliver raw rice – 67% and boiled rice – 68% as against the paddy delivered for CMR; the mill shall bear unloading charges, insurance, tarpaulin, ropes, dunnage material, prophylactic and curative treatment expenditure etc; the mill shall use SBT gunnies supplied with paddy stocks and shall return the left over gunnies to the corporation, failing which, 60% of the cost of the gunny will be collected from the mill etc. Going by the way the aforesaid terms are meticulously incorporated, one can logically conclude that, if the parties wanted to covenant that by-products shall form part of the consideration, they would have mentioned in clear terms. Therefore, we have no demur to hold that the absence of such mentioning is an indicative that the by-products which are allowed to be retained by the petitioner are not the part of the consideration. We cannot conjunct both the above clauses to bring the by-products into the purview of consideration.
In the above context, the argument of learned Advocate General that since the later part of Clause No.22 ordains that the petitioner shall be responsible to pay tax on sale of by-products, the same shall be treated as part of consideration, cannot be countenanced. Treating the by-products as part of consideration and payment of tax on sale of by-products are two different aspects. The petitioner has to pay tax on sale of by-products (if they are taxable), whether he received the by-products from 4th respondent either towards part of consideration or freely. Therefore, the later part of Clause No.22 is not a determinative factor for holding that the by-products are part of the consideration. On the other hand, the submission of the petitioner that the by-products are given to the petitioner towards compensation appears to be logically correct. As per Clause No.8 the petitioner has to handover 67% of raw rice and 68% of boiled rice as against the paddy delivered to him for milling. The submission of petitioner is that the actual yield will be 61% to 62% only and he has to replenish the shortfall by incurring expenditure and therefore to compensate him, the by-products were allowed to be retained by him free of cost. On a conspectus of the terms of agreement, we hold that the by-products form part of compensation but not consideration. We are constrained to hold that in the impugned order, the 1st respondent erroneously concluded that the miller was allowed to retain the by-products towards consideration, though such import is impermissible from the terms of the agreement. Therefore, the impugned order to the extent of including the value of by-products to the milling charges and assessing tax is legally unsustainable.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
