M/S. Vijaya Lakshmi Rice Mill vs. The Assistant Commissioner (St)

Held

The High Court allowed the writ petitions. 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 not legally sustainable. The Court followed its previous order dated 20.11.2020, passed in W.P.No.45971 of 2018, and for the reasons recorded therein, set aside the impugned orders to the extent they related to the levy of GST on these by-products. The ratio decidendi is that by-products generated during the milling process, which are not explicitly part of the agreed consideration for the milling service, cannot be treated as consideration for the purpose of GST levy. The operative direction was to set aside the impugned orders concerning the levy of GST on by-products.

Facts

The petitioners, engaged in milling paddy, challenged orders that levied Goods and Services Tax (GST) on the value of by-products such as broken rice, bran, and husk. The revenue authorities treated these by-products as part of the consideration received by the petitioners for milling services. The petitioners filed numerous writ petitions before the High Court of Telangana. The dispute pertains to the tax periods covered by these writ petitions. The impugned orders were passed by the GST authorities. The amount in dispute is not explicitly stated but relates to the GST levied on the by-products.

Key Issues

1. Whether the levy of GST on the value of by-products (broken rice, bran, and husk) is legally sustainable when these are generated during the milling of paddy and not directly part of the consideration for milling services? (Question of law turning on the interpretation of consideration under GST law). Petitioner's contention: The petitioners argued that the by-products are not part of the consideration for milling services. They likely contended that the milling contract is for a service, and the by-products are incidental outputs of the process, not directly paid for by the customer providing the paddy. They may have relied on principles of what constitutes 'supply' and 'consideration' under the GST regime. Revenue's contention: The revenue authorities contended that the by-products, when sold or utilized, represent an additional consideration received by the millers for the overall service of milling, and thus are exigible to GST.