M/S Gujarat Co-Operative Milk Marketing Federation Limited Thru. General Manager (Finance) Atulkuma vs. Union Of INDIA

Held

The Court held that the interpretation given by the respondents in the impugned circular dated August 9, 2018, was not in consonance with serial No. 24 of the Table to Notification No. 11/2017 – Central Tax (Rate). The Court found that the petitioners' claim was based on sub-clause (e) of the Explanation to Heading 9986, which covers "loading, unloading, packing, storage or warehousing of agricultural produce." The Court reasoned that milk is an agricultural produce and chilling is integral to its storage without altering its essential characteristics as raw milk. Therefore, chilling and packing of raw milk clearly fall under sub-clause (e). The Court rejected the respondents' premise that chilled and packed milk for retail sale was not agricultural produce, stating that the support services were provided to raw milk. It also noted that sub-clause (e) does not require processes to be carried out at an agricultural farm, unlike sub-clause (c) which the respondents appeared to have relied upon. The Court found the respondents' reliance on other exemption entries for transportation to be misconceived. Consequently, the impugned circular was quashed and set aside, and it was held that milk chilling and packing services are exempted under serial No. 24 of Notification No. 11/2017. For the refund of amounts recovered, the petitioners were directed to move appropriate applications.

Facts

The petitioners, M/s. Gujarat Co-operative Milk Marketing Federation Limited and four member dairies, challenged a letter/circular dated August 9, 2018, issued by the Government of India's Tax Research Unit (TRU). They sought a declaration that milk chilling and packing services provided by contractors to their dairies were exempt from GST under serial No. 24 of Notification No. 11/2017 – Central Tax (Rate). The petitioners also sought the return of GST amounts recovered from them. The dairies engage contractors for chilling and packing milk, which they consider an agricultural produce. Prior to GST, these services were not subject to excise or service tax. The TRU circular clarified that chilling and packing of milk are not exempted and attract GST at 5% as job work services for food products.

Key Issues

1. Whether milk chilling and packing services provided to the petitioners' dairies qualify as support services to agriculture, forestry, fishing, and animal husbandry, thereby attracting a nil rate of GST under serial No. 24 of Notification No. 11/2017 – Central Tax (Rate)? (Question of law). Petitioner's arguments: The petitioners contended that milk is an agricultural produce and that chilling, storage, and packing of milk are support services to agriculture, falling under sub-clause (e) of the Explanation to Heading 9986, which includes "loading, unloading, packing, storage or warehousing of agricultural produce." They argued that chilling is essential for milk storage and does not alter its characteristics as raw milk, which is an agricultural produce. They further argued that the TRU circular incorrectly applied sub-clause (c) of the Explanation, which requires processes to be carried out at an agricultural farm, a condition not applicable to sub-clause (e). They also contended that the reference to job work at 5% GST was misplaced as the services qualified for nil rate under Heading 9986. Revenue's arguments: The respondents, through the TRU circular, argued that chilling and packing of milk are not exempted. They considered these activities as job work on food products attracting 5% GST. They also seemed to base their reasoning on sub-clause (c) of the Explanation to Heading 9986, implying the processes were not carried out at an agricultural farm and that chilled and packed milk for retail sale was not agricultural produce. They also referred to other exemption entries for transportation, which the petitioners argued were irrelevant.