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December 18, 20200
Shiridi Sainath Industries v. Deputy Commissioner of Service Tax (International taxation)
Writ Petition No. 45971 of 2018 | Dated: 20.11.2020
The Petitioner in this case is a registered dealer and a rice miller. The Government of Andhra Pradesh under Andhra Pradesh Civil Supplies Corporation procures paddy and gives it to the rice mills for milling.
According to the agreement, the Respondent charges at the rate of 15% per quintal, and the rice Millers have to supply 67% of the paddy given for milling irrespective of the yield.
This allows the Petitioner to retain the broken Rice, bran, and husk which was obtained during the process of milling. This broken rice is sold by the Petitioner and is exempted from tax which means no Good and Services Tax (GST) needs to be paid on this but 5% of the tax applies to bran. After inspection, the Respondent imposed GST on the milling as well as on the by-products.
The Petitioner prayed before the High Court of Andhra Pradesh (the Court) for a writ of mandamus declaring that levying GST on the value of Broken Rice, bran and husk is contrary to law or direct the Andhra Pradesh Civil Supplies Corporation to pay the GST liability of the Petitioner.
Whether the assessment order levying GST on the by-products as part of the consideration for milling, is legally sustainable under the provisions of the Central GST Act/ Andhra Pradesh GST Act, 2017 or not?
The Petitioner contended that the Petitioner has approached the Court against the impugned assessment order by the Respondent where GST was imposed on milling charges as well as on the value of by-products. The GST was not anticipated by the Petitioner or the Andhra Pradesh civil supplies Corporation and no GST was added to the consideration paid to the Petitioner for milling of the paddy. The Petitioner did not collect any GST from the state corporation.
The Petitioner has paid tax on the Bran whereas the broken rice and husk are exempted from Tax under the GST Act, 2017. The Petitioner claimed that even if GST liability is present, the state corporation is the one who is the recipient of the service and has to pay the same.
The Respondents contended that according to the agreement, the taxes on by-product are to be paid by the Petitioner since the Petitioner is running a service of converting paddy into rice. According to Section 2(31) of the Andhra Pradesh Goods and Services Tax Act, 2017 (the Act), the consideration can be in the form of money or otherwise. The GST Act, 2017 provides that GST is levied on the consideration for the supply. Since the by-products are also part of the consideration tax would be levied on them as well.
The Court allowed the writ petition and set aside the order by the Respondent. It is clear in this case that custom milling of paddy is not exempted but the 5% processing charges are not on the entire value of rice. The Court, in Food Corporation of India v. State of A.P [1997 SCC Online AP 1143], held that when the terms between parties are under an agreement, they are sacrosanct and cannot be explained through oral evidence.
The Court observed that no clause highlighted that by-products were part of the consideration. Treatment of by-products as consideration and payment on the sale of by-products are different aspects.
The Petitioner is liable to pay tax on the sale of by-products only if they are taxable and whether he received these by-products as a part of the consideration or not is irrelevant. The writ petition filed in the present case was within the period of limitation for filing an appeal.
So while referring to the decision in the case of Assistant Commissioner (CT) LTU v. Glaxo Smith Kline Consumer Health Care Ltd. 2020 SCC Online SC 440, the Court can entertain the writ petition. Thus, the assessment order passed by the Respondent was set aside and no GST was levied on broken rice, bran, and husk.
When the Government enters into an agreement with the millers through Civil Supplies Corporation and gets the paddy made wherein the millers offer services to the Government within the meaning of Section 2(102) of the GST Act, 2017 and the Civil Supplies Corporation is the recipient of the services under Section 2(93) of the GST Act, 2017, the Miller gets the consideration against his milling in the form of money or otherwise according to Section 2(31) of the GST Act, 2017.
It is to be noted that custom milling of paddy is a taxable service under the GST Act, 2017. The question raised in this case was as to what constitutes the consideration for the levying of GST.
When the terms of the agreement are specified, they are sacrosanct and cannot be altered or explained through oral evidence. The agreement in the present case does not mention the by-products as a consideration. Thus, it cannot be thought of as an indicator that the by-products are part of the consideration.
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