Tea Stored In Warehouse Is An Agricultural Produce, Not Exigible To Service Tax: Bombay High Court

The Bombay High Court has issued a writ of certiorari against the Appellate Authority of Advance Ruling (AAAR) and held that “tea” stored in warehouses is agricultural produce and is not eligible for service tax.

The bench of Justice G. S. Kulkarni and Justice Jitendra Jain has observed that a writ of certiorari can be issued only when there is a failure of justice and that it cannot be issued merely because it may be legally permissible to do so. There must be an error apparent on the face of the record, as the High Court acts merely in a supervisory capacity. An error apparent on the face of the record means an error that strikes one by mere sight and does not mean a long-drawn-out process of reasoning on points where there may conceivably be two opinions. Such errors should not require any extraneous matter to show their incorrectness.

The petitioner/assessee had let out its warehouse to M/s. Unilever India Exports Ltd. on payment of compensation as per the provisions of the Bombay Warehouses Act, 1959.

The petitioner has contended that Unilever procured bulk 'tea' of various qualities either from public tea auctions or directly from manufacturers of tea in 50 kg bags and stored them in the petitioner's warehouse. The procured tea leaves normally underwent standard processes prior to their procurement.

The petitioner, in its application made to the Authority for Advance Ruling, claimed that the storage and warehousing of tea was exempted vide Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate).

The AAR answered the question posed by the petitioner in the negative and against the petitioner in its order dated May 23, 2018.

Being aggrieved by the order passed by the AAR, the petitioner approached the AAAR in an appeal filed under Section 101 of the CGST Act/MGST Act, 2017. The AAAR, by the impugned order, has dismissed the petitioner's appeal.

The assessee contended that the AAR ought to have held that tea is an agricultural product. Hence, for the purpose of exemption from payment of service tax, it ought to have been held to be covered under the heading 9986 Sr. No. 54 as contained in the said 2017 Notification. All of the activities and processes that were undertaken with the tea stored in the petitioner's warehouse did not alter its essential characteristics so as to make it marketable for the primary market.

The department contended that the tea as stored in the petitioner's warehouse did not fall within the definition of 'agricultural produce' as defined in Clause 2(d) of the 2017 Notification, for the reason that in the godown itself the tea undergoes further processing, namely, by the process of blending, etc., as pointed out by the petitioner; hence, the final product, namely tea, which is sought to be exported, cannot be called agricultural produce for the purpose of any exemption under the 2017 notification.

The court noted that the essential characteristic of the tea being an 'agricultural produce' would not stand extinguished by mere processing and packing in whatever form. The AAAR has also not considered the decision of the AAR by applying the principles of law that were imperative to be applied.

The court held that when there is an error of law and when it is apparent, a writ of certiorari can be issued even if the authorities below have not transgressed their jurisdiction in any way.

Counsel For Petitioner: Shriram Sridharan

Counsel For Respondent: Karan Adik

Case Title: Nutan Warehousing Company Pvt. Ltd. Versus The Commissioner

Case No.: Writ Petition No. 12775 Of 2019

Click Here To Read The Order