Calcutta High Court (Appellete Side)
M/S. Jai Lokenath Flour Mills Private ... vs Additional Director on 5 October, 2024
3 IN THE HIGH COURT AT CALCUTTA
05.10.2024 CONSTITUTIONAL WRIT JURISDICTION
sb
Ct 5 APPELLATE SIDE
WPA 25112 of 2024
M/s. Jai Lokenath Flour Mills Private Limited & Anr.
Versus
Additional Director, Directorate General of Goods and Services
Tax Intelligence (DGGI) & Ors.
Mr. Vinay Sharff
Mr. Dev Kumar Agarwal
... For the petitioner.
Mr. Tapan Bhanja
... For the respondent DGGI
Mr. A. Ray, Ld. GP Mr. T. M. Siddiqui Mr. T. Chakraborty Mr. S. Sanyal Mr. D. Sahu ... For the State
1. The instant writ petition has been filed not only challenging a show cause notice dated 1st August, 2024 passed under Section 74 of the Central/West Bengal Goods and Services Tax Act, 2017(hereinafter referred to as the "said Act') but also questioning the Notification No.12/2017 Central Tax (Rate) dated 28th June, 2017, as regards entries under serial nos. 3 and 3A thereof.
2. The petitioner no.1 claim to be engaged in the business of flour milling industry. It provides services of milling, fortification and packing of wheat and converting the same into fortified atta and packing thereof. In usual course of business, the petitioner no.1 entered into a contract with the State of West Bengal represented by the District Controller of Food and supplies on 14th 2 December, 2018, for conversion of wheat into atta provided and owned by the State Government. The terms of such conversion agreement included that the State Government at all material point of time shall retain the ownership of the goods while the petitioner shall be required to add certain nutrients thereto. The particulars of the contractual terms would morefully corroborate from the statement made in paragraph 4.7 of the writ petition which is reproduced hereinbelow:
a) "That the petitioner had been selected for empanelment of crushing of wheat meal atta and fortify it by premixing of micro nutrients containing (i) Vitamin A-500 ug RE-750 ug RE,
(ii) VitaminB-12-0.75ug 1.25 ug (ii) Iron:
Ferrous(II) Citrate: 28mg-42.5mg or Sodium Iron (III)EDTA: 14mg-21.5 mg, (iv) Folic Acid -75 ug 125 ug per kg in 1 kg poly pouch/packet (1 kg wheat =950 gm fortified atta) (having thickness of poly pouch not less than 50 microns).
b) That the petitioner shall obtain stock of wheat from the State Government. The ownership of wheat remains with the State Government and the Applicant Company is required to convert the wheat into atta by way of crushing and mixing other ingredients as mentioned.
c) That as per the contract, the State Government and /or Director shall have the right to reduce 3 and enhance the allocation of wheat of the existing mills any time depending upon inclusion of new mills in the scheme and exclusion of existing mills or changes in demand/requirement or any other reasons as deemed fit by the State Government and/or Director.
d) That the contract specified that the out-turn ratio of atta will be minimum of 95% per quintal of wheat allowing refraction of 1% for cleaning and 4% for debranning to the maximum.
e) That the petitioner was to retain 1Kg refraction and 4kg bran for conversion of each 100kg wheat.
f) The petitioner was to retain 2 gunny bags in which 100kgs of wheat was supplied to the petitioner itself".
3. According to the petitioners, the consideration involves both monetary and non-monetary, which are detailed herein below:
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4. Mr. Shraff, learned advocate appearing on behalf of the petitioners by drawing attention of this Court to the definition of composite supply as appearing in Section 2(30) of the said Act and by referring to Section 8 of the said Act would submit that in the present case the supply effected by the petitioners is a composite supply comprising of two or more supplies of which the wheat is the principal supply. The tax liability of the petitioners is to be charged on the principal supply and the supply effected is to be treated as a composite supply in terms of the deeming provision of Section 8(a) of the said Act. By drawing attention of this Court to the provisions contained in Section 7 and Schedule II of the said Act and entry no. 3 thereof, he would submit that the said Schedule recognizes that any treatment or process which is supplied to another person's goods is considered as supply of services. Since, in the instant case, the petitioner no. 1 is only treating the goods belonging to 5 the State Government (Wheat), the same is to be treated as supply of services. Having regard thereto, he would submit that petitioner no. 1 is covered under entry no.3 of the Notification No.12/2017 Central Tax (Rate) dated 28th June, 2017. The wording of such entry to the extent the same excludes composite supplies involving supply of goods is, however, ultra vires the provisions of the said Act. He would also submit that serial no.3A of the above Notification which refers to composite supply of goods and services is a redundant entry having regard to provisions contained in Section 8(a) and Section 7 of the said Act and on such ground the aforesaid entry should be struck down. He would also submit that although, in terms of entry no.3 as aforesaid, the supply of the petitioner no.1 is to be treated as fully exempted services, the respondents have purported to issue a show cause dated 1st August, 2024. On such ground the aforesaid show cause dated 1st August 2024 cannot be sustained. He submits that although, the petitioners have filed a response to the said show cause, since the issue raised herein goes to the very root of jurisdiction of the respondents to issue the show cause, this Hon'ble Court may admit the writ petition and stay all further proceedings in relation to the show cause notice.
5. Mr. Bhanja, learned advocate appearing for the CGST authorities submits that the petitioners cannot be permitted to blow hot and cold at the same time. While on one hand the petitioners claim exemption on the basis of serial no. 3A to the notification no. 12/2017-Central Tax 6 (Rate) dated 28th June 2017 and the advance ruling issued under Section 97 of the said Act, on the other hand, the petitioners have challenged the said notification itself. He would, however, submit that the advance ruling whereby a relief has been granted to the petitioners by relying on serial no. 3A of the above notification, is not applicable in the facts of the case and such aspect has duly been considered in the show cause notice. The circumstances under which the advance ruling can be avoided, has already been spelt out in the said Act itself and by relying on such provision, the show cause notice has been issued. He further submits that the matter is in the show cause stage and the petitioners having proceeded by filing a response, though to a different authority, interference of this Court at this stage is not called for. It is submitted that the petition suffer from multifariousness and on such ground, no relief should be afforded to the petitioners.
6. Mr. Siddiqui, learned advocate appearing for the State respondents submits that ordinarily no case for challenging the validity of the notification has been made out especially having regard to the fact that the petitioners have obtained benefits thereon. He, however, seeks leave to file affidavit in opposition to the present writ petition.
7. Having heard the learned advocates appearing for the respective parties and by taking note of the provisions of Sections 7 and 8 of the said Act, the definition of composite supply and the Schedule II entry no.3 thereof, I find that the 7 writ petition raises a jurisdictional issue, especially having regard to the levy of tax, based on composite supply and the exemption provided under entry no. 3 to the notification no. 12/2017-Central Tax (Rate) dated 28th June 2017. In any event, on the basis of advance ruling issued by the advance ruling authority under Section 97 of the said Act, having regard to serial no. 3A of the notification no. 12/2017- Central Tax (Rate) dated 28th June 2017 the supplies effected by the petitioners appear to be exempted. However, since a detailed show cause notice has been issued identifying the circumstances for invocation thereof by avoiding the advance ruling, and the response having already been filed by the petitioners, without going into the challenge thrown by the petitioners to the validity of the entry nos. 3 and 3A of the notification no. 12/2017- Central Tax (Rate) dated 28th June 2017, I am of the view, it would be prudent at this stage to permit the proceedings to go on.
8. The final determination to be made by the respondents is to abide by the result of the writ petition and the order to be passed by the proper officer shall not be given effect to without leave of this Court.
9. Let affidavit in opposition to the present writ petition be filed within a period of 6 weeks after annual vacation. Reply, if any, thereto, be filed within 4 weeks thereafter.
10. Liberty to mention immediately upon expiry of the period for filing of affidavits.
11. Liberty to apply.
(Raja Basu Chowdhury, J.) 8