M/S. Sri Vijaya Nagajyothi Rice Mill vs. The Assistant Commissioner (State Taxes) -Ii

Held

The Court allowed the Writ Petition, setting aside the impugned assessment order in so far as it related to the levy of GST on the value of by-products, namely broken rice, bran, and husk. The Court reasoned that these by-products were treated as part of the consideration paid to the petitioner for milling the paddy, and this levy was found to be unsustainable. The Court's decision was based on a prior order passed by a Division Bench of the same High Court in W.P.No.45971 of 2018, which dealt with an identical issue. The ratio decidendi is that by-products retained by a service provider, which are not part of the agreed consideration for the service rendered, cannot be subjected to GST as if they were part of the payment for the service. The operative direction was to set aside the impugned order to the extent of the levy on by-products. No costs were awarded.

Facts

The petitioner filed a Writ Petition challenging an order dated May 23, 2019, passed by the 1st Respondent for the period July 2017 to November 2018 (State GST). The petitioner sought to set aside this order, declaring they are not liable for GST on by-products retained by the 2nd Respondent Corporation. Alternatively, they requested the 2nd Respondent Corporation to bear the liability if found payable. The petitioner argued the order was illegal, arbitrary, contrary to law, in violation of natural justice, and without jurisdiction. The 1st Respondent is the authority that passed the impugned order. The amount in dispute is not explicitly stated but relates to GST on by-products.

Key Issues

1. Whether the levy of GST on the value of by-products (broken rice, bran, and husk) retained by the 2nd Respondent Corporation, treating them as part of the consideration for milling paddy, is legally sustainable? Petitioner's contention: The petitioner argued that the impugned order is illegal, arbitrary, contrary to law, and in violation of principles of natural justice and jurisdiction. They specifically sought a declaration that they are not liable for GST on the by-products retained by the 2nd Respondent Corporation. They relied on the principle that by-products retained by a service provider, which are not part of the agreed consideration for the service, should not be subject to GST. Revenue's contention: The judgment does not explicitly record the revenue's arguments. However, the impugned order implies the revenue's position was that the by-products constituted part of the consideration for the milling service, thus attracting GST.