M/S. Sri Venkata Sai Rice Mill Pekeru vs. The Deputy Commissioner (St) (Int)

Held

The Court allowed the Writ Petitions, setting aside the impugned orders. The Court followed its previous order dated 20.11.2020, passed in W.P.No.45971 of 2018. The reasoning was that the levy of GST on the value of by-products (broken rice, bran, and husk) treating them as part of the consideration paid to the petitioners for milling of paddy was incorrect. The ratio decidendi is that incidental by-products of a service, not forming part of the agreed consideration, are not taxable as part of the service value under GST. The operative direction was to set aside the impugned orders to the extent they related to the levy of GST on these by-products. No costs were awarded. No specific issue was left undecided.

Facts

A batch of Writ Petitions were filed before the High Court challenging orders related to the levy of Goods and Services Tax (GST). The petitioners are rice millers. The dispute concerns the taxability of by-products generated during the milling of paddy, specifically broken rice, bran, and husk. The revenue authorities treated these by-products as part of the consideration received by the petitioners for milling services, thereby levying GST on their value. The petitioners contested this classification and taxation. The present proceedings are a consolidation of multiple writ petitions filed in 2019 and 2020.

Key Issues

1. Whether the by-products of paddy milling, namely broken rice, bran, and husk, can be treated as part of the consideration paid to the petitioners for milling services, attracting GST liability? The petitioners argued that these by-products are not part of the consideration for milling. They contended that the milling agreement typically involves receiving paddy and returning a specified quantity of rice, with the by-products being incidental and not forming part of the agreed consideration. They relied on the principle that only consideration for a supply is taxable. The revenue, on the other hand, argued that the value of these by-products, even if not directly paid in cash, constitutes an indirect benefit or consideration received by the millers for their services, thus falling within the ambit of taxable supply under GST law. The revenue likely relied on general provisions defining 'consideration' and 'supply' under the GST Act.