GST Case Law briefing on activities of milk chilling & packing services

M/s. Gujarat Co-operative Milk Marketing Federation Limited V/s High Court of Gujarat at Ahmedabad (Gujarat)

Brief about the Applicant:

The M/s. Gujarat Co-operative Milk Marketing Federation Limited (Applicant) is a Co-operative Society registered under the Gujarat Co-operative Societies Act,1961 and is an apex body for marketing of milk and milk products produced by the various District Co-operative Milk producers Unions which are co-operative societies of farmers & agriculturists of various districts and also registered as co-operative societies under the said Act.

In the normal course of their activities, the dairies have engaged various contractors for maintaining and operating milk chilling centers, where milk belonging to the dairies is stored at a particular temperature. In addition to providing such services of chilling and storing of milk, the contractors are also providing packing service to the dairies in respect of pouch packing of milk. Regular agreements are made between the dairies and such contractors, most of whom are individuals or firm of individuals.

Contention of the Petitioner:

It is the case of the petitioners that the dairies have been paying milk chilling charges as well as packing charges to the service providers in accordance with the rates agreed between the parties. The charges are paid by the dairies based on the quantum of work executed or service rendered by the contractors and the packing charges are paid on the quantum of milk packed. The dairies have made payment to the contractors in accordance with such invoices, which according to the petitioners have always been in accordance with rates agreed under the agreements between the parties.

By virtue of the Explanation under serial No.24 of the notification, the Government has explained as to what are the support services qualifying for nil rate of tax. The term "agricultural produce" is also explained by virtue of paragraph 4(vii) of the notification. It is the case of the petitioners that since any produce out of rearing of any life form of animals(except rearing of horses) is considered to be an agricultural produce for the notification, milk is an agricultural produce for the purpose of this notification, inasmuch as milk is a produce out of rearing of animals like cows and buffalos. Since packing as well as storage of agricultural produce is considered to be support service to agriculture for the purpose of this notification, chilling and packing of agricultural produce like milk are support services to agriculture, and hence chargeable to nil rate of tax. Accordingly, the contractors of the dairies, that is, petitioners had not been discharging liability of GST on chilling and packing services for milk. However, for any other services, that is, other than the chilling and packing of milk, the levy of GST is discharged by the contractors at appropriate leviable rates.

In view of the above, the applicant(petitioner) has sought declaration in respect of the following:

-That activity of Milk chilling & packing services provided by contractors to petitioner’s dairies were exempted by virtue of Serial No.24 of Notification No.11/2017- dated 28/06/2017 and also challenged and circular F.No.354/292/2018-TRU, dated 09/08/2018 issued by Tax Research Unit denying such exemption.

HC Briefings & Findings:

As per the information provided to the HC, HC has found following points:

In the present case, the agricultural produce in respect of which support services are availed is raw unprocessed milk. It cannot be disputed that for storage of milk it would have to be chilled. Milk cannot be stored without chilling as otherwise it would get spoiled. Therefore, storage of milk would include chilling of milk. Chilling of milk does not alter any of its essential characteristics and it still remains raw milk, and it is this raw milk which is thereafter packed. Therefore, chilling and storage of raw milk and packing it would clearly fall under sub-clause (e) of clause (i) of the Explanation. Consequently, if the raw milk is only stored and packed, the support services would fall under Heading 9986 of the Table to Notification No.11/2017 - Central Tax (Rate).

Support services to agriculture, forestry, fishing, animal husbandry.

Explanation. - "Support services to agriculture, forestry, fishing, animal husbandry" mean-

(c) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market."

On a perusal of paragraph 3 of the impugned circular, it is evident that the same is based on sub-clause (c) of clause (i) of the Explanation to clause (i) under Heading 9986, inasmuch as, according to the respondents the process of chilling and packing of milk is not usually done by the cultivator or producer and are not carried out at an agricultural farm.

Judgement:

It was held that activities of chilling and packing of milk as contained in impugned letter/circular dated 9-8-2019 is not in consonance with provisions contained in Serial No. 24 of Notification No. 11/2017, dated 28-6-2017 and, therefore, impugned letter/circular could not be sustained and same was to be quashed and set aside and, thus, milk chilling and packing service provided by contractors to petitioners are exempted by virtue of Serial No. 24 of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017.