M/S. Sri Lakshmi Narasimha Rice Mill vs. The Assistant Commissioner (State Taxes)

Held

The High Court allowed the writ petitions, setting aside the impugned orders. The Court held that the levy of GST on the value of by-products, namely broken rice, bran, and husk, treating them as part of the consideration paid to the petitioners for milling of paddy, was incorrect. The reasoning followed was based on a previous order of the same Court in W.P.No.45971 of 2018, dated 20.11.2020. The ratio decidendi is that by-products generated during a milling process, which are not explicitly part of the agreed consideration for the milling service, cannot be unilaterally added to the taxable value of the service by the revenue authorities. The operative direction was to set aside the impugned orders to the extent they related to the levy of GST on the by-products. No costs were awarded.

Facts

The petitioners, rice millers, filed multiple writ petitions challenging orders that levied Goods and Services Tax (GST) on the value of by-products, specifically broken rice, bran, and husk. These by-products were generated during the milling of paddy. The revenue authorities treated these by-products as part of the consideration received by the petitioners for their milling services. The tax periods are not explicitly stated but are implied to be during the GST regime. The petitioners are aggrieved by the orders passed by the revenue authorities, which are impugned in these writ petitions. The procedural history indicates that these writ petitions were heard together and their resolution hinged on a previous order by the same High Court.

Key Issues

1. Whether the value of by-products (broken rice, bran, and husk) generated during the milling of paddy can be treated as part of the consideration paid to the petitioners for milling services, thereby attracting GST? (Question of law) Petitioner's contention: The petitioners argued that the by-products are not part of the consideration for milling services. They likely contended that these by-products are incidental to the milling process and their value should not be added to the taxable value of the milling service. They relied on the principle that only consideration for supply of goods or services is taxable. Revenue's contention: The revenue authorities contended that the by-products constitute part of the consideration received by the petitioners for the milling of paddy. They likely argued that the milling process results in the generation of these by-products, and their value, therefore, forms an integral part of the overall transaction and the consideration for the service provided by the millers.