CBIC not empower to issue clarification on GST Rate: Madras HC quashes CBIC Circular on Fish Meal used for making Cattle, Poultry, Aquatic Feed [Read Judgment]

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The Madras High Court while quashing the CBIC Circular in respect of fish meal used for making cattle / poultry / aquatic feed held that the CB​​IC is not empowered to issue clarification on GST rate.

The petitioner, Jenefa India, is a manufacturer of fish meal. The fish meal produced by the petitioner comes in powder form. The petitioner is registered under the Goods and Services Tax Department, within the jurisdiction of the third respondent and it is an assessee on the file of the officers subordinate and under the administrative control of the respondent.

Pursuant to the GST regime with effect from 01.07.2017, the Central Government issued two notifications called Notification No.1 of 2017 Central Tax (Rate) dated 28th June, 2017, in short “Notification No.1/17”, and Notification No.2 of 2017, Central Tax (Rate) dated 28th June 2017, in short would be called as “Notification No.2/17”.

In Notification No.1/17, the Rate of Tax (Schedules) for specified goods under CGST under these schedules ie., Schedule I to VI have been provided. This notification and Notification No. 2/17 were issued by the Central Government in exercise of their powers conferred by Sub-Section 1 of Section 9 & 11, respectively, of the Central Goods and Services Tax Act, 2017

Under Notification No.1/17, for goods specified in the first Schedule, the rate of tax has been fixed as 2.5% for Central share that means totally, 5%. Like that, in second Schedule goods, it is 6% ie., 12% in total. In the third Schedule, it is 9% ie., 18% in total. In the fourth Schedule, it is 14% ie., 28% in total. Like that, in the fifth Schedule, it is 1.5% ie., 3% in total. In 6th Schedule goods, it is 0.125%, ie., 0.250% in total.

By virtue of this Circular having been issued by the Board, the revenue has taken a stand that, the product of the petitioners ie., fish meal, since is also to be used as a raw material for the purpose of making cattle / poultry / aquatic feed, which is not exempted, therefore, tax are to be levied on these items at the rate of 5% and accordingly, they inspected the premises of the petitioners’ factories and demanded the tax and pursuant to which, the concerned officials of the Revenue ie., from Directorate General of GST Intelligence [DGGI] had issued summons that, there would be an enquiry proceedings conducted in the name of judicial proceedings within the meaning of Section 193 and Section 228 of the Indian Penal Code. Therefore, they should appear before the officer concerned of the DGGI ie., Directorate General of GST Intelligence.

Mr.Joseph Prabakar, Counsel appearing for the petitioners, has taken this Court extensively to the relevant entries made in Customs Tariff Act, 1975, to explain that, even from the year 1997-98, entries 2301 & 2309 were available in the Customs Tariff Act and it has never underwent any change for all these years despite the said Act especially the Schedule underwent various amendments over a period of time.

The single judge bench of Justice R. Suresh Kumar held that the impugned Circular insofar as Clause (ii) of the same, namely, fish meal and other raw materials used for making cattle / poultry / aquatic feed is concerned, is unsustainable and therefore, insofar as the said product is concerned, whatever the clarification issued in the impugned Circular dated 31.12.2018 is set aside. As a sequel, the petitioners, so long as they make a finished product from their manufacturing units, can enjoy the benefit of exemption as provided under Sl.No.102 of Exemption Notification No.2/17 dated 28.06.2017. Therefore, all consequential actions, if any taken on the part of the Revenue against the petitioners pursuant to the impugned Circular, would not stand in the legal scrutiny. Therefore, they are also declared to be invalid.

“No such attempt since has been made either by the Parliament or by the Central Government, by issuing a mere Circular exercising the powers under Section 168 of the CGST Act, 2017, such kind of right already vested, to get exemption, on the assessee, cannot be taken away by way of a clarificatory Circular, that too issued only to the benefit of the officials and staff of the department, as culled out from the language used in Section 168 of the Act. Therefore, for that reason also this Court feels that the impugned Circular would not stand in the legal scrutiny,” the court noted.

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