GST Exemption available on Tea warehousing: Bombay HC reverses Decision of AAAR [Read Order]

The Bombay High Court in the matter of Nutan Warehousing Company Pvt. Ltd. Vs. The Commissioner, Central Tax, Pune-II has reversed the decision of AAAR regarding GST Exemption available on warehousing of tea.

Key Points of the Judgment:

This petition under Article 226 of the Constitution of India challenges an order dated 10 December 2018 passed by the ‘Maharashtra Appellate Authority for Advance Ruling for Goods and Services Tax’ constituted under Section 99 of the Maharashtra Goods and Services Act,2017, whereby the petitioners appeal filed under Section 100 of the Central Goods 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.

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 the petitioner. It has obtained a registration under the CGST and MGST Act.

The petitioner has contended that Unilever procured in bulk ‘tea’ of various qualities either from public tea auctions or directly from manufacturers of tea in 50 kg bags and stored them in the petitioner’s warehouse. It is contended that such procured tea leaves normally underwent standard processes prior to its procurement. The processes as described by the petitioner, are as under:

“Tea leaves are plucked from the tea plants and the green leaves, plucked from the plants are not fit for the human consumption, it cannot be sold in the open market for human consumption. The raw tea leaves are withered by exposure in the shadow of the sun or by heating in trays until pliable. Thereafter the leaves are rolled by hand or machine in order to break the leaf cells and liberate the juices and enzymes. Finally, the leaves are completely dried either by further exposure to the sun, over fires, or in a current of hot air and then the tea leaves are fermented in baskets, glasses and in clothes. Thereafter the leaves were subjected to grading with sieves of various sizes. The said leaves are finally roasted with charcoal for obtaining suitable flavour and colour. Thereafter the said tea is packed in the bulk packs.

The processing of the tea makes it marketable by minimal process and they are made fit for human consumption. All the above processes are necessary for the purpose of saving the tea leaves from perishing. In case the above process is not carried out immediately, the entire tea leaves would be perished. The process, as indicated above, at no point of time, crossed that limit and robbed the tea leaves of their character of being and continuing as such substantially.”

The process undertaken on green leaves consists of only above processes and not beyond them.”

A reply affidavit has been filed on behalf of respondents nos. 1 and 3 not disputing that the warehousing business of the petitioner, and the petitioner dealing in agricultural and allied products. It is also not disputed that the licence was granted to the petitioner for carrying out business of warehousing under Bombay Warehousing Act, 1959 and that the petitioner had rented the warehouse to M/s. Unilever India Exports Ltd. Insofar as the petitioner’s case, that the petitioner, in dealing with the storage of tea, was exempted from payment of tax, and that the processing of tea has made the tea marketable by minimal process, so as to make the tea fit for human consumption as asserted by the petitioner, is not the correct position, as such processes were not “minimal” processes, which are usually undertaken by a cultivator or producer on an agricultural produce. It is contended that these are the processes which require well established plant and machinery to undertake the same and hence such operations were correctly taken as manufacturing process. For such reason, the agricultural produce after undergoing these processes was required to be treated as processed goods. It is contended that the question as raised by the petitioner in fact has already been addressed by CBIC Circular dated 15 November, 2017 (No. 16/16/2017-GST) and hence the processed tea does not qualify to be defined as “Agricultural Produce”. It is contended that the AAR’s observation that the stored goods in the present case, i.e., tea was a non-agricultural produce cannot be faulted. The affidavit has laid emphasis on the activities of Unilever in regard to processing of the tea so as to contend that it is not an agricultural produce.

Court Order

Heard learned Counsel for the parties, we have also perused the record. As seen from the record, the issue which had fallen for consideration of the AAR was ‘whether the petitioner would be entitled to exemption in supply of warehouse services as let out to Unilever for packing and storage of tea under the Item Sr. No.54(3) of the 2017 Notification’.

It is inclined to allow this petition. It is accordingly, allowed in terms of prayer clause (a) and (b) which read thus:

“a) that this Hon’ble Court be pleased to issue a Writ of Certiorari or any other appropriate writ, order or directions under Article 226 of the Constitution of India calling for the records of the Petitioners’ case and after examining the legality and validity thereof quash and set aside the impugned order dated 10.12.2018 passed by Respondent No.6 under Section 101 of the CGST Act and the MGST Act;

b) that this Hon’ble Court be pleased to declare that the Petitioner is entitled to exemption from payment of GST in terms of SI. No.54(e) of the Notification 12/2017-Central Tax (Rate) dated 28.06.2017 and the corresponding notification issued under the MGST Act.”

Rule is accordingly made absolute in the above terms. No costs.

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