[Opinion] Tax Exemption for Tea Warehousing – A High Court Victory for Agriculture

Yubaraj Chatterjee – [2023] 157 taxmann.com 280 (Article)

Introduction

In a landmark decision of Nutan Warehousing Co. (P.) Ltd. v. Commissioner Writ Petition No. 12775 Of 2019, the Bombay High Court has declared “tea” stored in warehouses to be an agricultural produce, exempting it from GST under Notification No. 12/ 2017-Central Tax (Rate). This ruling in favor of Nutan Warehousing Company Pvt. Ltd., has significant implications for the taxation of tea storage and processing activities.

Previously, the Appellate Authority of Advance Ruling (AAAR) had denied the exemption, arguing that the stored tea underwent further processing, such as blending, altering its agricultural character. However, the High Court found this reasoning flawed, highlighting that minor processing and packing don’t negate the essential nature of tea as an agricultural product.

This decision clarifies the tax treatment of tea storage and paves the way for potential tax savings for warehouse owners and related businesses. It also underscores the importance of legal principles and precedent in tax rulings, emphasizing the need for careful consideration before denying exemptions.

Facts

Nutan Warehousing, a company that leased its warehouse to M/s. Unilever, found itself embroiled in a tax dispute regarding tea storage. Unilever stored bulk tea in Nutan’s warehouse, undergoing standard processing like procurement and blending for potential export. Nutan claimed this activity qualified for exemption from GST under a notification classifying “agricultural produce” storage as tax-free. The Commissioner argued the processing transformed the tea into a manufactured product, disqualifying it from the exemption. The Appellate Authority of Advance Ruling (AAAR) agreed with the Commissioner, denying the exemption. Nutan, however, challenged this decision in the Bombay High Court, claiming the AAAR made an error of law by misapplying legal principles and overlooking the tea’s essential character as an agricultural product, even after processing.

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