Gujarat High Court Rejects Plea Against Tribunal Order Granting VAT Exemption For Seeds Used For Sowing

The Gujarat High Court has dismissed the State's plea against Western Agri Seeds Ltd., ruling that the state failed to prove the company's seeds were not used for sowing and were therefore outside the scope of the Value Added Tax exemption notification.

"The petitioner Department has miserably failed to prove before us that the seeds which are procured by the respondents are not used for sowing purposes," the court observed while upholding the Gujarat VAT tribunal's decision to quash revisional proceedings that had revived a tax demand of ₹1.72 crore.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati also found no error in the tribunal's conclusion that the revisional proceedings were unsustainable after the original assessment order had merged with the appellate order.

Western Agri Seeds is engaged in procuring seeds, processing them through a research and development programme, and producing certified seeds for sowing. The original assessment order raised a VAT demand of ₹1.77 crore, comprising tax, interest and penalty. After adjusting the amount already paid by the company, the net demand stood at ₹1.72 crore.

The company challenged the assessment before the Deputy Commissioner. The appellate authority substantially reduced the demand, and that order attained finality after it was not challenged further.

The Deputy Commissioner later invoked revisional powers under Section 75 of the Gujarat VAT Act and revived the original tax demand by revising the assessment order. Western Agri Seeds challenged that order before the Gujarat VAT tribunal, which allowed its revision application and set aside the revisional order. The State then approached the high court.

Before the high court, the State argued that the seeds procured by the company were not used for sowing and therefore did not qualify for exemption under the notification dated April 29, 2006. It also contended that the tribunal had erred in distinguishing the earlier determination in Green India Farm Biotech and in considering the subsequent determination in King and Queen Seeds Corporation.

The company argued that the revisional authority had ignored the appellate order, which had already attained finality. Since the original assessment order had merged with the appellate order, it contended, the revisional authority could not reopen the assessment.

On merits, it submitted that the seeds were developed through a research and development programme, underwent germination and genetic testing, and were ultimately used only for sowing, bringing them within the exemption notification.

Accepting those submissions, the high court noted that the Department had not denied that the company carried out research and processing before supplying certified seeds for sowing. It also recorded that the Department had neither claimed the company imported seeds nor established that the processed seeds were used for any purpose other than sowing.

The high court also observed that the tribunal had distinguished the earlier determination in Green India Farm Biotech. It further noted the subsequent determination in King and Queen Seeds Corporation, where the Joint Commissioner of Tax (Legal), on similar facts, held that seeds used in a research and development programme could not be treated as business purchases.

"The Tribunal has also considered the order passed by determining authorities in case of King and Queen Seeds Corporation wherein the Joint Commissioner of Tax (Legal) in similar set of facts has held that the seeds which are used for research and development program, cannot be said to be of business and purchase.", the court noted. 

Finding no merit in the State's challenge, the high court dismissed the writ petition and upheld the tribunal's order setting aside the revisional proceedings.

For Petitioner: Parth Patel, AGP

For Respondent: Senior Advocate Tushar Hemani, with Vaibhavi K. Parikh