Gujarat High Court
M/S Dharti Industries vs Office Of Commissioner (Appeal) on 12 September, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 19190 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA Sd/-
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA Sd/-
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S DHARTI INDUSTRIES
Versus
OFFICE OF COMMISSIONER (APPEAL) & ORS.
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Appearance:
MR AMAN MIR(10881) for the Petitioner(s) No. 1
MR RUTVIK P PATEL(11688) for the Petitioner(s) No. 1
MS HETVI H SANCHETI(5618) for the Respondent(s) No. 2
NOTICE SERVED for the Respondent(s) No. 1,3
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 12/09/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
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1. Heard learned advocate Mr.Aman Mir for the
petitioner and learned Advocate Ms.Hetvi
H.Sancheti for the respondent no.2.
2. Though served no one appears for the
respondent no.1 and 3. Rule returnable
forthwith. Learned Advocate Ms.Sancheti
waives service of notice of Rule for
respondent no.2.
3. Having regard to the controversy involved
which is in a narrow compass, with the
consent of learned advocates for the
respective parties, the matter is taken up
for hearing.
4. By this petition under Article 227 of the
Constitution of India, the petitioner has
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prayed for the following reliefs:
"(a) quash and set aside the
impugned Order in Appeal No. AHM -
CGST-003-APP-ADC-85/2022-23 dated
11/01/2023 (Annexure B) well as the
impugned Order in Original No.01/RM/
SUPDT/GST/2021-22 dated 29/03/2022
(Annexure C) along with the Notice
No.F.NO.III/(20)1648/2021-CGST-
RANGE-1-KADI COMMISSIONERATE GNR
dated 24/01/2023 (Annexure A) and
all the related GST Audit Reports;
(b) pending the admission, hearing
and final disposal of this petition,
stay the implementation and
operation of the impugned Order in
Appeal No. AHM-CGST-003-APP-ADC-
85/2022-23 dated 11/01/2023
(Annexure B) as well as the impugned
Order in Original No.
01/RM/SUPDT/GST/2021-22 dated
29/03/2022 (Annexure C) along with
the Notice No. F.NO.III/(20)
1648/2021-CGST-RANGE-1-KADI
COMMISSIONERATE GNR dated 24/01/2023
(Annexure A) and all the related GST
Audit Reports;"
5. The brief facts of the case are as under:
5.1. The petitioner is a partnership firm
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having registration number under GST and
is engaged in manufacturing activity of
extracting cotton seed oil cake from
cotton seeds and supplying the same to the
customers. In the process of extracting
cotton seed oil from cotton seed, the
cotton seed oil cake (commonly known as
"KHOL" in the open market of Gujarat) is
produced as bi-product, which according to
the petitioner is used as cattle feed
having no other commercial use.
5.2. It is the case of the petitioner that
under the VAT 2003 that is "Pre GST era".
the sale of cotton seed oil cake was
exempted from levy of the tax as the same
was used as cattle feed and after coming
into force of the GST with effect from
01.07.2017, according to the petitioner,
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the cotton seed oil cake being used as
cattle feed was entitled to exemption vide
Entry no.102 of Notification no.2 of 2017
dated 28.06.2017 and accordingly, the
petitioner continued to avail exemption on
inward and outward supplies of cotton seed
oil cake as cattle feed.
5.3. It appears that during the course of
audit of financial records of the
petitioner, audit objections were raised
by the Respondent no.3 that during the
period from 01.07.2017 to 29.09.2017, if
the supply of the cotton seed oil cake is
for cattle feed then only the exemption
can be claimed and it was found that the
petitioner had supplied cotton seed oil
cake to the traders which amounted to
supplies for the purpose of trading or for
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further supplies and not for cattle feed
and the petitioner failed to establish
that supplies of the cotton seed oil cake
were used for cattle feed and thus,
wrongly availed the exemption under Entry
No.102 of Notification No.2 of 2017. It
was therefore concluded by the audit
objections that the petitioner has short
paid the GST on cotton seed oil cakes
under the Reverse Charge Mechanism under
Section 9(4) of the GST Act.
5.4. The respondent no.2 therefore on the
basis of such audit objections issued
show-cause notice dated 18.02.2021 calling
upon the petitioner as to why the
petitioner would not be liable to pay the
tax on the supply of cotton seed oil cake
valued at Rs.61,10,724/- as the same would
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be for the trading purpose.
5.5. The petitioner thereafter filed reply
to the show-cause notice contending inter
alia that the petitioner has sold cotton
seed oil cake for cattle feed only and it
is not for the petitioner to ascertain the
end use of such supply and therefore, the
petitioner has rightly availed exemption
from payment of GST by treating the supply
of cotton seed oil cake as cattle feed
vide Entry No.102 of Notification No.2 of
2017.
5.6. However, the respondent no.2 after
considering the reply of the petitioner
passed the Order-in-Original dated
29.03.2022 confirming the levy of GST upon
supply of cotton seed oil cake.
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5.7. Being aggrieved, the petitioner
preferred an appeal before the Appellate
Authority i.e. Respondent no.1 herein
objecting to levy of GST on the supply of
the cotton seed oil cake on the ground of
the same being exempt under Entry No.102
of Notification No.2 of 2017.
5.8. The petitioner also raised an
objection that with effect from 22.09.2017
as per the Notification No.28 of 2017 vide
Entry No.102A, the cotton seed oil cake
was also made eligible for exemption as
per the recommendations made by the GST
Council in its 21st meeting held on
09.09.2017. The Appellate Commissioner
however while recording the fact that the
cotton seed oil cake is used as cattle
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feed but in view of the Notification dated
22.09.2017 came to the conclusion that the
same would not be applicable
retrospectively with effect from
01.07.2017 and hence the petitioner would
be liable to the levy of GST from
01.07.2017 to 21.09.2017.
5.9. Being aggrieved, the petitioner has
preferred this petition challenging the
order of the Appellate Authority in
absence of GST Tribunal.
6. Learned advocate Mr.Aman Mir for the
petitioner submitted that the petitioner
has done trading of cotton seed oil cake
to be used as a cattle feed only and as
there is no denial either by the Audit
Party or by the Respondent No.2 with
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regard to the use of cotton seed oil cake
produced as bi-product by the petitioner
to be used as cattle feed. It was
submitted that the end use of the product
is not relevant as the petitioner has
traded in cotton seed oil cakes for the
purpose to cattle feed only.
6.1. In support of his submissions,
reliance was placed on the decision of the
Hon'ble Supreme Court in case of
Commissioner of Central Excise Vs.
Gopsons Papers Limited and Another
reported in (2015) 17 SCC 176, wherein the
Hon'ble Apex Court has held as under:
"4. It is clear from the above
that insofar as the assessee is
concerned, it is undertaking the
work of printing alone and is
supplying to those who place
orders in this behalf. The end
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use of the said product at the
hands of the purchaser is not the
concern of the assessee and
cannot be the consideration for
classifying the goods in
question. It is the respondent
which is to be assessed under the
Central Excise Act and it has to
pay the excise duty on the
manufacturing process undertaken
by it."
6.2. It was further submitted that as per
the Notification No.28 of 2017 dated
22.09.2017, the insertion of Entry No.102A
would relate back to the exemption from
the inception and the Appellate Authority
was not justified in restricting or
applying such notification from the date
of publication by relyin upon Section 9 of
the GST Act. It was submitted that it is
true that the rate of GST to be applied
from the notification but when the
exemption is granted on the specific item
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the same would apply from the date of
exemption notification.
6.3. It was further submitted that Entry
No.107 of the exemption notification was
modified accordingly by separate
Notification No.27 of 2017 whereby in
column No.3 of serial no.107 of
Notification No.2 of 2017, the cotton seed
oil cake was excluded from the entry from
cattle feed. It was pointed out that the
Serial No.107 in column no.(3), for the
words "other than aquatic feed including
shrimp feed and prawn feed, poultry feed &
cattle feed, including grass, hay & straw,
supplement & husk of pulses, concentrates
& additives, wheat bran & de-oiled cake",
the words "other than cotton seed oil
cake", shall be substituted."
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6.4. It was therefore submitted that the
Notification No.28 of 2017 by inserting
Entry No.102A would be operative from
01.07.2017 only. It was submitted that the
applicability of Notification No.28 of
2017 is only on the alternative as the
case of the petitioner is that the supply
of cotton seed oil cake is part of the
cattle feed and would be covered by Entry
No.102 only.
7. On the other hand, learned advocate
Ms.Hetvi Sancheti for the respondent
submitted that as per the objection raised
during the course of audit, the
Adjudicating Authority has rightly
considered the use of the cotton seed oil
cake supplied by the petitioner. It was
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pointed out that the petitioner has failed
to submit that the cotton seed oil cake
sold by the petitioner was used for cattle
feed. It was also pointed out that the
petitioner has supplied the cotton seed
oil cake to various GSTIN holders who are
the traders and therefore, it is the fact
that the petitioner has never supplied
cotton seed oil cake as cattle feed. It
was therefore submitted that for the
period from 01.07.2017 till 21.09.2017,
the petitioner was liable to levy of GST
at the rate of 5% as per Notification No.1
of 2017.
8. Having heard learned advocates for the
respective parties and considering the
facts of the case, it appears that the
petitioner was not liable to pay the VAT
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into Pre-GST Regime on the sale of cotton
seed oil cake as the same was exempted as
cattle feed. The GST Act has subsumed the
earlier VAT Act and as per the Entry
No.102 of Notification No.2 of 2017, it
clearly provides for exemption to levy of
GST on cattle feed. Even on perusal of the
show-cause notice, it is revealed that the
respondent Authority has reproduced
objections raised by the Audit Party which
clearly shows that the Audit Party while
considering the replies made by the
petitioner during the course of Audit and
deliberations on the issues though
recorded that the petitioner was not able
to prove or state the status of the cotton
seed oil cake purchasers with GSTIN but
such purchasers also declined to pay up
the tax on such outward supplies with the
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contention that since end use of the
cotton seed oil cakes is only for cattle
feed the product has to be exempted,
meaning thereby that the merely the supply
of the cotton seed oil cake to the traders
would not determine the levy of GST as end
use of cattle feed is not in dispute. The
Hon'ble Supreme Court in case of Gopsons
Papers Limited (Supra) has therefore, in
such circumstances in the facts of the
said case held that end use of the product
at the ends of the purchaser is not the
concern of the assessee and cannot be the
consideration for classifying the goods in
question.
9. We are therefore of the opinion that in
the facts of the case when the petitioner
has made supply of the cotton seed oil
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cake as cattle feed, the petitioner was
entitled to exemption under Serial No.102
of Exemption Notification No.2 of 2017.
10. In view of such findings we are not
analyzing the applicability of the
Notification No.28 of 2017 retrospectively
or prospectively as supply of cotton seed
oil cake would be exempted as cattle feed
from 01.07.2017 and more particularly,
from 22.09.2017 as per the Entry No.102A
of the Act.
11. In view of the foregoing reasons, the
petition succeeds and is accordingly
allowed. The impugned orders dated
11.01.2023 passed by the Adjudicating
Authority as well as order dated
29.03.2022 passed by the Appellate
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Authority are hereby quashed and set
aside. Rule is made absolute to the
aforesaid extent. No order as to costs.
Sd/-
(BHARGAV D. KARIA, J)
Sd/-
(NIRAL R. MEHTA,J)
URIL RANA
