Telangana HC Sends Rice Milling GST Demand Dispute to Appellate Forum

Shree Gajanan Industries Vs Assistant Commissioner (Central Tax) (Telangana High Court)

Telangana High Court Directs GST Assessee to Pursue Appeal Against Section 74 Demand on Rice Milling By-Products for FY 2021-22 

The Telangana High Court reiterated that disputes concerning GST liability on rice milling by-products such as broken rice, bran, and husk should ordinarily be adjudicated through the statutory appellate mechanism. While the petitioner relied upon an Andhra Pradesh High Court ruling in its favor, the Court refrained from examining the merits and granted liberty to pursue an appeal under Section 107 of the GST Act.

Introduction

In Shree Gajanan Industries vs Assistant Commissioner (Central Tax) & Others, the Telangana High Court considered a challenge to an Order-in-Original passed under Section 74 of the Central Goods and Services Tax Act, 2017.

The dispute related to GST, interest, and penalty levied on the value of broken rice, rice bran, and rice husk generated during the milling of paddy for the financial year 2021-22. The petitioner argued that the issue was already settled by judicial precedent and that the assessing authority had wrongly ignored the applicable law.

However, during the hearing, the petitioner sought liberty to avail the statutory appellate remedy, leading the Court to dispose of the writ petition accordingly.

Background of the Case

The petitioner challenged:

• Order-in-Original dated 08.12.2025;
• Proceedings initiated under Section 74 of the CGST Act, 2017;
• Levy of GST, interest, and penalty for FY 2021-22;
• Tax demand raised on:
  • Broken rice,
  • Rice bran, and
  • Rice husk generated after milling paddy.

The petitioner contended that the tax demand was contrary to settled judicial principles governing the treatment of such by-products.

Key Legal Issue

The central issue before the Court was:

Whether the petitioner should be relegated to the statutory appellate remedy against a Section 74 GST demand concerning rice milling by-products rather than seeking relief directly through a writ petition?

Petitioner’s Arguments

The petitioner submitted that:

• The assessing officer had wrongly imposed GST on broken rice, bran, and husk arising during milling activities.
• The Andhra Pradesh High Court in Shiridi Sainath Industries v. Deputy Commissioner of Services Tax (International Taxation) had already dealt with a similar issue.
• Although the assessing authority acknowledged the existence of the judgment, it declined to apply the ratio solely because a Special Leave Petition (SLP) filed by the Revenue was pending before the Supreme Court.
• No interim stay had been granted against the judgment, and therefore it continued to hold precedential value.
• The petitioner nevertheless sought liberty to challenge the order before the appellate authority.
• It was also argued that recovery proceedings appeared to be underway despite the statutory appeal period not having expired.

Revenue’s Stand

The Revenue submitted that:

• The petitioner had an effective statutory remedy of appeal under Section 107 of the GST Act.
• All factual and legal contentions could be raised before the appellate authority.
• The allegation regarding recovery proceedings was disputed since ordinarily recovery measures are not initiated while the statutory appeal period remains available.

Court’s Observations

The Telangana High Court observed that:

• The petitioner was willing to avail the statutory appellate remedy.
• Since the matter could be effectively addressed through the appellate process, there was no need for the Court to examine the merits of the dispute.
• Questions relating to taxability, interpretation of judicial precedents, and liability under Section 74 are matters that can appropriately be adjudicated by the appellate authority.

Accordingly, the Court declined to enter into the substantive controversy.Final Directions

The High Court disposed of the writ petition with the following directions:

1. The petitioner may file an appeal under Section 107 of the GST Act.

2. The appeal must be filed within the limitation period prescribed under Section 107(4).

3. The petitioner must comply with the statutory pre-deposit requirement.

4. All legal and factual grounds may be raised before the appellate authority.

5. The appellate authority shall consider and decide the appeal in accordance with law.

6. If the appeal is filed within the prescribed period along with the statutory deposit, no recovery proceedings shall be initiated by the assessing officer.

7. The Court expressed no opinion on the merits of the dispute.

Author’s Analysis

1. Telangana High Court Continues to Emphasize Statutory Remedies

The judgment reflects the Court’s consistent approach that disputes involving GST assessments and Section 74 demands should generally be resolved through the statutory appellate hierarchy rather than writ proceedings.

2. Litigation on Rice Milling By-Products Continues

The case concerns GST liability on:

• Broken rice,
• Rice bran, and
• Rice husk.

These products have frequently been the subject of disputes concerning classification, taxability, and valuation under indirect tax laws.

3. Effect of Pending SLP on Existing High Court Judgments

A noteworthy issue raised by the petitioner was that the assessing authority declined to follow an existing High Court decision merely because an SLP was pending before the Supreme Court.

The dispute highlights an important principle frequently encountered in tax litigation—whether authorities can disregard a binding judgment solely because it is under challenge without any interim stay.

4. Safeguard Against Premature Recovery

The Court protected the petitioner by clarifying that if the appeal is filed within the prescribed limitation period along with the statutory pre-deposit, recovery proceedings should not be initiated.

This ensures that the appellate remedy remains effective and meaningful.

5. Appellate Authority Best Suited for Determination of Taxability

Issues involving:

• Applicability of judicial precedents,
• Classification of supplies,
• Valuation,
• Exemptions, and
• Section 74 liabilities

require detailed examination of facts and legal provisions, making the appellate forum the appropriate authority for adjudication.

Conclusion

The Telangana High Court in Shree Gajanan Industries vs Assistant Commissioner (Central Tax) & Others declined to adjudicate the merits of a Section 74 GST demand concerning broken rice, rice bran, and rice husk generated during paddy milling and instead directed the petitioner to pursue the statutory appellate remedy.

The decision reinforces the importance of the GST appellate framework while ensuring protection against recovery proceedings during the statutory appeal period, thereby balancing taxpayer rights with the legislative dispute-resolution mechanism.

FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT

Sri V.V.N. Narayana Rao, learned counsel appears for petitioner.

Sri Dominic Fernandes, learned Senior Standing Counsel for Central Board of Indirect Taxes and Customs (CBIC) appears for respondent No.1.

Sri B. Mukherjee, learned counsel appears for Sri N. Bhujanga Rao, learned Deputy Solicitor General of India, for respondent No.4.

2. The Order-in-Original dated 08.12.2025 for the period 2021-2022 under Section 74 of the Central Goods and Services Tax Act, 2017, has levied tax, interest and penalty on the value of broken rice, bran and husk obtained by the petitioner after milling of the paddy which is under challenge in the present Writ Petition.

3. Learned counsel for the petitioner submits that the Assessing Officer despite taking note of the judgment rendered by Andhra Pradesh High Court in Shiridi Sainath Industries v. Deputy Commissioner of Services Tax (International Taxation)¹  has failed to apply the ratio therein to the case at hand only on an excuse that the Special Leave Petition filed by the Revenue is pending though there is no interim order. However, after some arguments, learned counsel for the petitioner seeks liberty to the petitioner to approach the appellate authority with all grounds in law and on facts as are available to it. He submits that Assessing Officer is proceeding for recovery of the demand though the appeal period has not expired. Learned counsel for the Revenue has doubted this contention that any recovery notice would have been issued when the period for filing of appeal has not been exhausted.

4. Having regard to the facts and circumstances noted above, since the petitioner is inclined to avail the remedy of appeal, this Writ Petition is disposed of without going into the merits of the case. The petitioner may file appeal with statutory deposit within the period of limitation prescribed under Section 107(4) of the Act. Needless to say, the petitioner would be at liberty to raise all grounds in law and on facts in the appeal which shall be considered in accordance with law. If the appeal is filed within the prescribed period with statutory deposit, the Assessing Officer would not take any steps for recovery of the demand. There shall be no order as to costs.

Miscellaneous applications, if any pending, shall stand closed.

Note:

¹ 2021(1) TMI 175