Tvl.Vibis Natural Bee Farms vs. The Deputy State Tax Officer - Madras High Court (26 July, 2024)

Court: Madras High Court

Judge: Honourable Mr. Justice C. Saravanan

Case Numbers: W.P.(MD) Nos. 17237 to 17240 of 2024

Date: 26 July 2024

Petitioner: Tvl. Vibis Natural Bee Farms, represented by its Proprietor, S. Josephine Arokia Mary

Respondent: The Deputy State Tax Officer-1, O/o. the Assistant Commissioner (ST), Madurai Rural (East) Assessment Circle, Madurai

Background:

The petitioner, Tvl. Vibis Natural Bee Farms, is a small-scale business engaged in the sale of live honey bees. The petitioner challenged the assessment orders issued by the Deputy State Tax Officer for the financial years 2018-19, 2019-20, 2020-21, and 2021-22. The assessments demanded taxes based on the valuation of packing materials used in the sale of live honey bees.

Facts of the Case:

• Nature of Business: The petitioner operates a small business that supplies live honey bees, which are exempted from GST under Schedule I of the GST Act, 2017.
• Assessment Orders: The respondent issued assessment orders for the financial years 2018-19, 2019-20, 2020-21, and 2021-22, demanding taxes on the packing materials used in the sale of live honey bees. The petitioner was unaware of the notices issued before these assessments and thus did not participate in the proceedings.
• Demand Amounts:
  1. 2018-19: ₹4,05,458 (Order dated 31.07.2023)
  2. 2019-20: ₹6,94,948 (Order dated 01.08.2023)
  3. 2020-21: ₹8,61,634 (Order dated 31.07.2023)
  4. 2021-22: ₹5,23,488 (Order dated 31.07.2023)

Contentions of the Petitioner:

1. Exemption from GST: The petitioner argued that live honey bees are exempt from GST under Schedule I of the GST Act, 2017, and therefore, the tax demand on packing materials was erroneous.
2. Composite Supply: The petitioner contended that the packing materials should be considered part of a composite supply, as per Section 2(30) read with Section 8(a) of the GST Act, where the principal supply (live honey bees) is exempt from tax.
3. Lack of Awareness: The petitioner claimed that they were unaware of the notices and subsequent orders due to their small-scale operations, which led to their non-participation in the proceedings.

Contentions of the Respondent:

1. Delay and Laches: The respondent argued that the petitions should be dismissed due to the petitioner’s delay in approaching the court, citing the Supreme Court’s decision in Assistant Commissioner (CT) LTU, Kakinada and others vs. Glaxo Smith Kline Consumer Health Care Limited (2020 SCC Online SC 440).
2. Limitation on Appeal: The respondent also cited Singh Enterprises vs. Commissioner of Central Excise, Jamshedpur and others (2008) 3 SCC 70, arguing that the petitioner’s appeals were time-barred under Section 107 of the GST Act.

Court’s Findings:

1. Prima Facie Case: The court found that the petitioner had made a prima facie case that live honey bees, being exempt from GST, should not be taxed through the valuation of packing materials, which are part of a composite supply.
2. Opportunity to Respond: The court noted that the petitioner did not respond to the initial notices due to a lack of awareness but showed a willingness to comply with conditions set by the court to revisit the assessment.
3. Interference Warranted: Considering the merits of the case, the court determined that interference with the impugned orders was justified, albeit on the condition that the petitioner deposits ₹1,00,000 with the respondent within 30 days.

Conclusion:

The Madras High Court, acknowledging the petitioner’s claims and the procedural lapses, quashed the impugned assessment orders and directed the petitioner to deposit ₹1,00,000 with the respondent. The court instructed the respondent to treat the quashed orders as addendums to the original show cause notices and to allow the petitioner 30 days to file a reply. The respondent was further directed to pass fresh orders on the merits of the case, following a fair hearing, within two months.

This decision highlights the importance of procedural fairness and the need to ensure that small businesses are not unduly penalized due to technical oversights. The court’s ruling offers the petitioner an opportunity to present their case afresh, ensuring that the principles of natural justice are upheld.