HC: Sets aside clarificatory circular taking away assesse’s substantive right by denying exemption on fish meal

The Madras High Court has ruled in favour of Jenefa India, a fish meal manufacturer. The court decided that a clarification circular issued by the department could not override the substantive exemption granted by a previous notification. The court emphasised that merely because fish meal is used as a raw material for other products does not negate its status as a finished product eligible for exemption.

In Jenefa India vs. Union of India & Ors. [W.P.(MD) No.16770/2019 decided on October 5, 2021] Hon'ble Madras High Court upheld the validity of Sl. No.102 of Notification No. 2/2017 dated June 28, 2017("Goods Exemption Notification") over Clause (ii) of Circular No. 80/54/2018-GST ("Clarification Circular") in case where M/s Jenefa India ("the Petitioner") is a manufacturer of finished product, fish meal.

Department contended that the Petitioner is a manufacturer of fish meal which is also used as a raw material for the purpose of making taxable goods namely, cattle/poultry/aquatic feed and does not fall under the ambit of Goods Exemption Notification.

The Hon'ble Madras High Court observed that, merely because a finished product manufactured by the Petitioner is also used as a raw material for purpose of further manufacturing of animal feed or poultry feed, it cannot be stated that, it is only a raw material and not a finished product.

Observed that, the exemption provided by the Govt. by exercising its powers either under Section 11(1) of Central Goods and Services Tax Act, 2017 ("the CGST Act") or under Section 6(1) of Integrated Goods and Services Tax Act, 2017 ("the IGST Act") are the substantive rights - such kind of exemptions cannot be taken away or done away by issuing Clarification Circulars by the board, which must be procedural in nature as not the scenario in the present case.

Held that, Clarification Circular issued in terms of Section 168 (1) of CGST Act cannot override the exemption provided under the Goods Exemption Notification.

Held that, right to get exemption available by virtue of Goods Exemption Notificationcannot be taken away from the Petitioner by issuing a circular under Section 168 of the CGST Act and further observed that such circulars are issued only to the benefit of the officials and staff of the department.

Held that, as long as Petitioner manufactures the finished product, fish meal, it can enjoy the benefit of exemption provided under Goods Exemption Notification.