Madras High Court quashes part of CBIC circular on fish meal

The Madras High Court has set aside a particular clause in a circular issued by the Central Board of Indirect Taxes and Customs (CBIC), which had taken away an exemption from goods and services tax (GST) granted to fish meal that is used as a raw material for making animal feed.  

CBIC had issued the circular in December 2018 to clarify that fish meal and other raw material used for making animal feed cannot be exempted from GST. It limited the exemption to only final fish meal or animal feed and not to the fish meal used as raw material.  

This circular had clarified an earlier circular, issued a few days ahead of the roll out of GST from July 1, 2017. The earlier circular had said fish meal, along with other animal feed, would draw zero GST. It did not differentiate between their use as a raw material or a finished product. 

Armed with the new circular, tax authorities inspected the factories of Jenefa India, which is a manufacturer of fish meal, and demanded five per cent tax. Subsequent to this, officials of the directorate general of GST intelligence issued summons to the company. 

Aggrieved, the company moved to the Madurai bench of the Madras high court.

The company argued that it manufactures fish meal which can be used as a finished product for feeding fish and also as one of the raw materials for making further finished products for animal feed.

The company said whatever be the usage of fish meal, it is covered under the exempted category.

The court said that the circular issued in December, 2018 is unsustainable to the extent that it took away GST exemption from fish meal and other raw materials for making animal feed.

Sandeep Sehgal, director tax and regulatory at AKM Global, a tax and consulting firm, said the high court has reiterated the already established principle that the circular issued by the Board cannot override the substantive relief allowed by Parliament.

The court has rightly held that fish meal is exempt from GST since it will retain the character of a finished product even though a certain industry may be using it as a raw material for certain other product, he said.

An arbitrary distinction provided by the circular of the Board cannot make it taxable, Sehgal said.