GST applicable on brokerage of agricultural produce & Broker liable to Register

In re Gayatri Enterprises (GST AAR Andhra Pradesh)

The question of Goods and Services Tax (GST) applicability on the brokerage of agricultural produce has been a matter of uncertainty for entities operating within this domain. In a significant ruling, the Authority for Advance Rulings (AAR) in Andhra Pradesh addressed this issue, providing much-needed clarity. M/s. Gayatri Enterprises sought an advance ruling regarding the GST implications on their brokerage services for agricultural produce. This article explores the AAR’s findings and their implications for similar businesses.

Detailed Analysis

Case Overview: M/s. Gayatri Enterprises, engaged in facilitating transactions between wholesalers, millers, and farmers by acting as a commissioning agent/broker, sought clarity on their GST obligations. Specifically, they inquired about the necessity of GST registration and the applicable GST rate for their services.

Legal Framework and Interpretation: The applicant argued that since their brokerage services pertain to agricultural produce, which is generally exempt from GST, they should not be subject to GST. They referenced various GST notifications, including Notification No. 11/2017-Central Tax (Rate) and Notification No. 12/2017-Central Tax (Rate), to support their position. However, they faced resistance from their clients across India regarding the applicability of GST on their services.

Authority’s Ruling: The AAR examined the nature of the applicant’s services and the agricultural products involved, which require processing such as de-husking or splitting to become marketable. The AAR clarified that processed agricultural products fall outside the definition of ‘agricultural produce’ as per the GST law. Consequently, the exemption from GST available to raw or unprocessed agricultural produce does not extend to services related to processed agricultural products.

The AAR ruled that the applicant is liable for GST registration and must charge GST on their brokerage services. The applicable GST rate, as per Notification No. 11/2017-Central Tax (Rate), is 18% (CGST 9% + SGST 9%).

Conclusion: This ruling has pivotal implications for brokers and commission agents dealing with agricultural produce. It establishes that while raw agricultural produce may be exempt from GST, services related to processed agricultural products are taxable. Entities providing brokerage services for such products must obtain GST registration and comply with the applicable GST rates.

Businesses in similar sectors should take note of this ruling to ensure compliance with GST laws, thereby avoiding potential legal and financial repercussions. This decision not only clarifies the GST framework for brokerage services in the agricultural sector but also serves as a guideline for entities operating in or entering this market segment.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH

(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub-section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)

1. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and SGST Act, 2017 are In parimateria and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the APGST Act.

2. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 201.7 (hereinafter referred to CGST Act and APGST Act respectively) by M/s. Gayatri Enterprises(hereinafter referred to as applicant), registered under the AP Goods & Services Tax Act, 2017.

3. Brief Facts of the case:

3.1 M/s Gayatri Enterprises (Hereinafter referred to as “applicant”) is doing a Commissioning Agent/Broker dealing in brokerage of Agricultural Produce. I facilitate transactions between wholesalers and millers/farmers.

3.2 For doing this, I charge a fixed price per bag of brokerage from the parties. Our name will not be mentioned anywhere in the sale or purchase invoice of the transactions. We raise invoice to the parties only for brokerage amount either on monthly/quarterly/half yearly/annually basis. Applicant is having GST Registration number37ANUPK6901H1ZL.

4. Questions raised before the authority:

The applicant seeks advance ruling on the following:

1. Since we are dealing in brokerage of agricultural produce which is exempt, are we liable for GST Registration?

2. If we are liable for GST Registration, do we need to charge GST?

3. If Yes, What is the rate of GST?

On Verification of basic information of the applicant, it is observed that the applicant is under State jurisdiction i.e, Park Road Circle, Vijayawada-I Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the Central Tax authorities to offer their remarks as per Sec. 98(1) of CGST /APGST Act 2017.

In response, remarks are received from the Central jurisdictional officer concerned stating that no proceedings lying pending with the issue, for which the advance ruling sought by the applicant.

5. Applicant’s Interpretation of Law:

5.1 We are dealing in brokerage of Agricultural products like Urad, Urad Dhall, Urad Ghota, Urad Husk, Moong, Moong Dall, Moong Husk, Toor, Jawar and Karamani. These are the only items we are dealing with as of now. It is pertinent to note that, most of these products require processing/milling/dehiscing to bring them into a marketable form.

5.2 As we are dealing with brokerage of agricultural produce (which require processing), we have obtained GST Registration and we are charging GST at the rate of 18%. Please let us know, is our interpretation correct? We are getting a lot of resistance from the parties all over India, that GST is not applicable for us. In this regard, We thought of seeking the help of Advance Ruling Authority to clarify

6. Personal Hearing:

The proceedings of Personal Hearing were conducted on 01.12.2023, for which the authorized representative, K.M.V.L. Pavan Kumar, Manager, attended and reiterated the submissions already made.

7. Discussion and Findings:

We have examined the issues raised in the application in light of the facts and arguments submitted by the applicant. We have considered the submissions made by the applicant in their application for Advance Ruling. We have considered the issues involved from which advance ruling is sought by the applicant and the relevant facts along with arguments made by the applicant and also their submissions made during the time of the personal hearing.

The applicant submits that they are dealing in brokerage of Agricultural products like Urad, Urad Dhall, Urad Ghota, Urad Husk, Moong, Moong Dall, Moong Husk, Toor, Jawar and Karamani. These are the only items they are dealing with as of now. Further the applicant submitted that most of these products require processing/milling/dehusking to bring them into a marketable form. The applicant further submits that as they are dealing with brokerage of agricultural produce (which require processing), they have obtained GST Registration and are charging GST at the rate of 18%.

The issue at hand is to determine whether the applicant needs to obtain GST registration and if so, what would be the tax rate applicable for the business dealt by him.

At this juncture, attention of the applicant is here by invited to the following GST Notifications:

As per GST Notification No. 11/2017-Central Tax (Rate) ,28/06/2017, S. No. 24 SI. No :24 ; and notification No. 12/2017-Central Tax (Rate), S. No. 54, dated 28th June 2017 Heading 9986 The following services only have NIL GST:

(i) Support services to agriculture, forestry, fishing, animal husbandry. Explanation.

– ”Support services to agriculture, forestry, fishing, animal husbandry” mean –

(i) Services relating to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce by way of—

(a) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant^– protection or testing;

(b) supply of farm labour;

(c) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

(d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(e) loading, unloading, packing, storage or warehousing of agricultural produce;

(f) agricultural extension services;

(g0 services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

(h) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables.

(i) Carrying out an intermediate production process as job work in relation to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce.

Agricultural Produce: Agricultural produce in the notification has been defined to mean “any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market”

In the instant case the applicant is involved in processing of the agricultural produce such as de-husking or splitting of the pulses to make the product marketable. Pulses commonly known as dal are obtained after dehiscing or splitting or both. The process of de-husking or splitting is usually not carried out by farmers or at farm level but by the pulse millers. Therefore pulses (dehisced or split) are also not agricultural produce. However whole pulse grains such as whole gram, rajma etc. are covered in the definition of agricultural produce.

In view of the above it is clarified that processed pulses fall outside the definition of agricultural produce given in Notification No. 11/2017-Central Tax (Rate) ,28/06/2017 and notification No. 12/2017-Central Tax (Rate), S. No. 54, dated 28th June 2017 and corresponding notifications issued under IGST and SGST Acts and therefore the exemption from GST is not available to them.

The applicant has submitted that they are processing (dehiscing/milling) the products to make them marketable. On examination of the documents and bills submitted by the applicant along with the application the tax payer is collecting GST on the brokerage charges.

Commission and brokerage

Commission agent under GST Section 2 sub- section (5) of the CGST Act, 2017:- As per section 2 sub-section (5) of the CGST Act 2017, ‘agent’ means a person, including a factor, broker, commissioner, agent, arhatia, del credere agent, an auctioneer of any other mercantile agent, by whatever name called, who carried on the business at supply of receipt of goods of Sofitel or both on behalf of another. “Commission typically refers to income earned by a person for arranging a trentartion between two patties and earning a percentage of the sales proceeds. The commission earned in such a scenario Is taxable under GST as a service at 18%,” GST registration applies to all commission and brokerage income irrespective of the turnover limits of the taxpayer. “Persons who make taxable supplies of goods or services or both on behalf of other taxable persons whether as an agent or not are required to take registration regardless of turnover.

In the instant case the applicant is involved in the processing of the products and also facilitates the transactions between buyer and seller and collects brokerage charges. Therefore the applicant is required to obtain registration as well has to pay CGST P9% and SGST P9To as per Notification No. 11/2017-Central Tax (Rate) ,28/06/2017 given below, irrespective of whether the goods involved in the transaction arc exempted or taxable under GST.

As per Notification No. 11/2017-Central Tax (Rate) ,28/06/2017

RULING

(Under Section 98 of Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017)

Question: Since we are dealing In brokerage of agricultural produce which is exempt, are we liable for GST Registration?

Answer : Yes

Question: If we are liable for GST Registration, do we need to charge GST?

Answer : Yes.

Question: If yes, What is the rate of GST?

Answer : As per Notification No. 11/2017-Central Tax (Rate) ,28/06/20177, the transactions fall under sl.no :5 ,Heading 9961 and taxable at CGST ­9% and SGST-9%.