In re Hindustan Agencies (GST AAR Karnataka)
i. Whether the applicant is entitled to collect GST on Supply of services which pertains to selling of agricultural produce as per APMC Act?
The applicant is liable to collect CGST @ 9% and KGST @ 9% on supply of services relating to sale or purchase of rice.
ii. Is there any special case where the applicant has to collect GST on the Service provided (Branded and unbranded)?
The applicant by canvassing for Branded and unbranded rice of millers and other traders is liable to pay CGST @ 9% and KGST @ 9% on the consideration received or receivable as commission from the rice miller or traders.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017
& UNDER SECTION 98(4) OF THE KGST ACT, 2017
M/s Hindustan Agencies, 306/1, Centenary Building, 2nd Floor, Albert Victor Road, Chamarajapet, Bangalore-580018 having GSTIN 29AAKPV6622R1ZL, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of the CGST Rules, 2017 and Section 97 of the KGST Act, 2017 read with Rule 104 of the KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Proprietary concern registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST/SGST Act respectively). The Applicant is a Rice canvassing commission agent for rice millers and traders and are selling Agricultural Produce (Rice) as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State.
3. The applicant has sought advance ruling in respect of the following questions:
1. Whether the applicant is entitled to collect GST on Supply of services which pertains to selling of agricultural produce as per APMC Act?
2. Is there any special case where the applicant has to collect GST on the Service provided (Branded and unbranded)?
4. Admissibility of the application: The question is about “determination of the liability to pay tax on any goods or services or both” and hence is admissible under Section 97(2)(e) of the CGST Act 2017.
5. Brief Facts of the case: The applicant furnishes some facts relevant to the issue:
5.1 The applicant states that he is rice canvassing commission agent for Rice millers and traders. They are selling agricultural produce (rice) as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State.
5.2 The applicant contends that they are not raising any sale invoices other than commission bill for their services rendered. Paddy and Rice are the Food Crops as per the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966. Paddy is a produce out of cultivation of paddy plants and it is meant for food. Rice is fashioned by nature in the form of paddy and it is embedded within paddy by outer covering of husk and the processing usually done by a cultivator or producer of paddy to separate rice from the outer covering of husk and this process is de husking or hulling of paddy into rice. Thus, de husking or hulling of paddy would be within the phraseology “such processing is done as is usually done by a cultivator or producer”. The next phraseology in the definition in clause (d) “which does not alter its essential characteristics but makes it marketable for primary market” would require to be construed by a combined reading i.e., “does not alter its essential characteristic” combined with the words “makes it marketable for primary market”.
5.3 The applicant further submits that de husking or hulling of paddy into rice, make the paddy marketable and it is from the point of view of the fact that paddy as such is not a marketable commodity and it is rice obtained out of paddy that is the marketable commodity. Therefore, the processing of de husking or hulling of paddy into rice does not alter the essential characteristic of paddy, it is submitted that the essential characteristic of paddy is that it is an agricultural produce meant for ‘food’ and this characteristic is not altered but retained even after the paddy is processed by de husking / hulling into rice.
5.4 The applicant contends that the language employed in the definition of `agricultural produce’ in clause (d) is that “which does not alter its essential characteristics but makes it marketable for primary market”, meaning that if the processing carried out is to make paddy marketable, it would not amount to altering its essential characteristic. The expression ‘marketable’ is qualified by the words ‘for primary market’. In respect of agricultural produce, the APMC Yards are the primary markets and de husking of paddy into rice satisfies the requirement that it is to make it marketable for the primary market of APMC Yards.
5.5 The applicant further places emphasis on the wordings in the definition in paragraph 2(d) of the notification – “does not alter its essential characteristics” and submit that the wordings are not “does not alter its essential identity” so as to postulate a contention that the process of de husking alters the identity of paddy into that of rice, a different commodity.
5.6 The applicant also relies on the ratio of judgment of the Hon’ble Supreme Court of India by larger bench of Hon’ble three Judges in the case of Deputy Commissioner of Sales Tax (Law) Board Revenue (Taxes), Ernakulam vs Pio Food Packers (1980) 46 STC 63 in which the decision of the Hon’ble Supreme Court is that pineapple fruit even after it is processed into slices, added with sugar as a preservative and canned, the essential characteristic of pineapple as a fruit is not altered:
“In the present case, there is no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form and by reason of being canned it is capable of storage without spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pineapple fruit.”
5.7 Thus, the applicant submits that its commission agency service for supply of rice to rice millers and traders would fall within clause (g) of S1 No. 54 – Heading 9986 read with the definition in paragraph 2 (d) of Notification No. 12/2017 Central Tax (Rate) dated 28-6-2017 as Services by any Agricultural Produce Marketing Committee or Board or Services provided by a commission agent for sale or purchase of agricultural produce” there is no GST on the service provided by them i.e., “canvassing of rice ” is exempt from GST.
6. This office has received the comments from the office of the Joint Commissioner of Central Tax (Legal) vide letter C.No IV/16/32/2017 Legal West 5379/3 dated 27.09.2021 which reads as under:
1. M/ s Hindustan Agencies (Legal name: Shri. Om Prakash Vaishnaw), Flat No.306/1, Centenary Building, 2nd Floor, Albert Victor Road, Chamarajapet, Bangalore-560018, having GSTIN 29AAKPV6622R1ZL, have filed an application for Advance Ruling under Section 97 of CGST/ KGST Act, 2017, in form GST ARA-01. They are functioning as Rice canvassing commission agent for Rice millers and traders and are selling Agricultural Produce (Rice) as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State.
2. The applicant was registered under the Goods and Services Act, 2017, as commission agent involved in supply of services under Service Code-SAC 998619 (i.e., other support services to agriculture, hunting, forestry and fishing). The applicant has sought advance ruling on the following issues;
a. Whether their activity of Rice canvassing as commission agent for Rice millers and traders and selling of Agricultural Produce (Rice) as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State is exempted Clause Sl.No.54 under heading “Services by any Agricultural Produce Marketing Committee or Board or Services provided by a commission agent for sale or purchase of Agricultural Produce”.
b. Are they required to collect GST under any of the provisions for Branded and un-branded goods?
c. Whether the said exemption is applicable for the activity of Commission Agent for Branded Rice canvassing done by them, which is Taxable under GST Act.
3. As stated by the applicant they are acting as “Commission Agent” i.e, services provided for commission towards sale or purchase of agricultural produce. The said activity falls under Service Code (SAC)/ Heading 998619 of Section 8 and chapter 99 of GST Tariff and the same reads as “Supporting services to agriculture, hunting, forestry and fishing – other support services to agriculture, hunting, forestry and fishing”.
4. The effective rates for the services are notified under Notification No. 11/2017-C.T. (Rate) and Notification No. 12/2017 Central Tax (Rate) dated 28-6-2017 and the said notifications list the activity of “Commission Agent” under clause (g) of Sl.No.24 and Sl.No.54 of the said notifications and description of the mentioned as “Services by any Agricultural Produce Marketing committee or Board or Services Provided by a commission agent for sale or purchase of agricultural produce”.
5. The terms “agricultural produce” has been defined under Notification No. 11/2017-C.T. (Rate) and Notification No. 12/2017 Central Tax (Rate) dated 28-6-2017 and the relevant portion is reproduced as under;
