India had been agriculture based economy and the sector has significant contribution in GDP as well in terms of generation of employment. Monsoon has always played a crucial role in the health of economy in any financial year. However, being the core sector for the human needs and survival, the intention of the government has always been to provide the relief in the taxation, at least to the raw agriculture products and activities.
In India, different kind of cereals i.e. wheat, rice, millet, barley, ragi etc are being produced. These raw agriculture products are subject to various processes before they reach to consumer for consumption. Primary processing involves several different processes, designed to clean, sort and remove the inedible fractions from the grains. Primary processing of cereals includes cleaning, grading, hulling, milling, pounding, grinding, tempering, parboiling, soaking, drying, sieving.
As far as the raw agriculture products are concerned, they were never subject to any kind of direct or indirect taxes. However, for the processed cereals, the exemption as granted in the VAT regime whether the same was sold as branded or unbranded or under any registered name or otherwise. In the present article, we will examine the liability of GST on the supply of processed cereals.
As we know, the cereals have been sold in two different manners, where in first condition; these are sold in loose and does not bear any trade name or brand name. For example, one can go and purchase one kg. rice in loose from some grocery shop. There cannot be any GST liability on supply of such unbranded and loose cereals.
In today’s consumer oriented market, many suppliers are involved in selling of the cereals under their registered brand name or trade name in unit containers. The association of the brand with product develops the trust to the consumer, which is based on the reputation of the brand name/trade name owner. This trust is in form of quality of the product, where the consumer links the same with the reputation of brand and purchase the product.
Vide Notification number 1/2017-Central Tax (Rate) dated 28.06.2017; the cereals have been kept under Schedule-1 with total tax rate of 5% (2.5% CGST + 2.5 % SGST). The relevant entries of the notification is reproduced –
|45||10||All goods i.e. cereals, put up in unit container and bearing a registered brand name|
|46||1001||Wheat and meslin put up in unit container and bearing a registered brand name|
|47||1002||Rye put up in unit container and bearing a registered brand name|
|48||1003||Barley put up in unit container and bearing a registered brand name|
|49||1004||Oats put up in unit container and bearing a registered brand name|
|50||1005||Maize (corn) put up in unit container and bearing a registered brand name|
|51||1006||Rice put up in unit container and bearing a registered brand name|
|52||1007||Grain sorghum put up in unit container and bearing a registered brand name|
|53||1008||Buckwheat, millet and canary seed; other cereals such as Jawar, Bajra, Ragi] put up in unit container and bearing a registered brand name|
Further in notification number 2/2017-Central Tax (rate), the exemption has been extended to the goods covered in chapter 10 on fulfilling of certain conditions-
|65||1001||Wheat and meslin [other than those put up in unit container and bearing a registered brand name]|
|66||1002||Rye [other than those put up in unit container and bearing a registered brand name]|
|67||1003||Barley [other than those put up in unit container and bearing a registered brand name]|
|68||1004||Oats [other than those put up in unit container and bearing a registered brand name]|
|69||1005||Maize (corn) [other than those put up in unit container and bearing a registered brand name]|
|70||1006||Rice [other than those put up in unit container and bearing a registered brand name]|
|71||1007||Grain sorghum [other than those put up in unit container and bearing a registered brand name]|
|72||1008||Buckwheat, millet and canary seed; other cereals such as Jawar, Bajra, Ragi] [other than those put up in unit container and bearing a registered brand name]|
Explanation.- For the purposes of this Schedule,-
(i) The phrase “unit container” means a package, whether large or small (for example, tin, can, box, jar, bottle, bag, or carton, drum, barrel, or canister) designed to hold a predetermined quantity or number, which is indicated on such package.
(ii) The phrase “registered brand name” means brand name or trade name, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person, and which is registered under the Trade Marks Act, 1999.
Here, the exemption was granted to all cereals, which are not sold in unit containers and not bearing a registered brand name. Even sold in unit containers without any brand name, will not attract any tax liability. Further, the term unit container has been explained in the notification only, which includes all kind of packing having the determined quantity. Further, the definition of registered brand name is quite wide, which includes a name or mark like symbol, monogram, label, signature or invented words or writing, which is indicating any kind of connection between the goods and the person using such name and such brand name should be registered under Trade Marks Act, 1999.
The notification was further amended vide notification number 28/2017-Central Tax (Rate), dated 22/09/2017, where the condition for exemption was further modified as-
“(iii) against serial numbers 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 77 and 78, in column (3), for the words “other than those put up in unit container and bearing a registered brand name”, the words, brackets and letters “other than those put up in unit container and,- (a) bearing a registered brand name; or (b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or enforceable right in respect of such brand name has been foregone voluntarily, subject to the conditions as in the ANNEXURE I]”, shall be substituted;”
Here, the exemption was extended in case of unregistered brand name also, where the supplier foregoes the actionable claim or enforceable right on such unregistered brand name. For availing this exemption, the supplier needs to fulfill two conditions- (i) A declaration in the format Annexure-I needs to be filed before the jurisdictional commissioner of Central Tax or state tax, as the case may be and (ii) On the unit containers of the goods, the supplier needs to mention in English and in local language in indelible ink about forgoing his actionable claim and enforceable rights against such brand name, voluntarily. However for the goods having the registered brand name and packed in the unit containers, no exemption is available and the supplier needs to pay 5% GST.
In past, the department has booked certain cases where it was alleged that the suppliers are neither fulfilling the conditions of the notification, nor paying appropriate tax on supply of branded cereals. There are certain other issues also cropped up in the proceedings.
Recently Tripura High Court has dealt the issue in case of ‘Sarvasidhi Agtrotech Pvt Ltd Vs Union of India’ (W.P.(C) No. 279/2021). Here, the department had issued the notice to the supplier on the count that they are selling the rice under the marking as Aahar normal, Aahar Gold, Aahar premium. It was alleged by the department that these markings are nothing but the brand name and since the supplier has not forgone the actionable claim/ enforceable right, they are supposed to discharge GST at 5% on the clearance. On the other side, the supplier has taken the plea that the words like Aahar normal, Aahar Gold, Aahar premium are not the brand name, but their internal arrangement to indicate the quality variety. While disposing the petition, it was observed by Hon’ble High Court-
“9. We do not find any error in the view of the authorities. Firstly, the conclusions of these authorities are based on assessment of materials on record. Secondly, the seizure of sizable quantity of packaged branded rice was an indication of the petitioner dealing in such product. Thirdly, the tax is not demanded on rice stored and seized but on the quantity of rice already supplied which was assessed from the bill books and invoices seized from the premises of the petitioner-company. Further, the petitioner’s defence that the quantity of rice lying in the godowns was merely for internal use was also not backed by any evidence. Close to three thousand bags of rice were found lying in the godown. The petitioner’s bare contention that it was not meant for supply but only for internal purposes of grading the rice or part of the stock was lying because of quality disputes, was not backed by any evidence and was therefore correctly not accepted by the authorities. Lastly, the petitioner’s contention that the brand was not a registered brand and therefore the petitioner had no liability to pay tax also was rightly not accepted. As pointed out by the counsel for the petitioner himself under a Notification dated 22.09.2017 issued by the Government of India, following amendment in the previous Notification was made:
“(v) in S. No. 49, in column (3), for the words “put up in unit container and bearing a registered brand name”, the words brackets and letters “put up in unit container and, –
(a) bearing a registered brand name; or
(b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any such actionable claim or enforceable right in respect of such brand name has been voluntarily foregone, subject to the conditions as specified in the ANNEXURE]”, shall be substituted;”
10. As per this amendment, thus, for the original expression of “put up in unit container and bearing a registered brand name” what is now substituted is that it should be put in unit container and may be bearing a registered brand name or bearing a brand name on which an actionable claim or enforceable right in a court of law is available. Thus, from the previous requirement of supply of goods in unit container and bearing a registered brand name, the expanded requirement is of the same either bearing of registered brand name or bearing a brand name on which actionable claim or enforceable right in a court of law is available. Thus, the requirement of the brand name being registered is no longer necessary. This Notification itself, however, provides that the exemption could be availed where such actionable claim or enforceable right in respect of such brand name has been voluntarily forgone subject to the conditions specified in the Notification.
11. The brand names under which the petitioner was selling the rice may not have been registered, nevertheless it could lead to an actionable claim in a court of law. In order to avoid inviting liability of tax, the petitioner had to forgone such actionable claim which also the authorities found the petitioner had not done.”
The intention of the legislature is quite clear and supplying the branded cereal under the guise of quality or grade will not be entitled for the exemption and will invite the litigation. It’s clear that the intention is to discontinue the link/brand reputation to the goods sold in the market and even such brand name exists, the person using the same should not have any actionable claim or right against any person, who violates his infrangible rights.
It has also seen that some of the suppliers have already surrendered their registered brand name after GST introduced. However, de-registration of the same had taken some time, as it can be done only after fulfilling of the legal requirements. Question can arise about the liability on the goods cleared during the interim period, the registered brand name gets de-registered. Here, it’s important to note that any registered brand name, till it’s de-registered, will be having the nomenclature as registered brand name only. Hence, even if after making the application for surrender of the registered brand name, the supplier clears the goods under exemption and even if he is mentioning on the unit containers about forgoing of the actionable claim or enforceable rights, the exemption will not be available, as even during the process of de-registration, the brand name will be treated as registered only and cannot take the colour of unregistered brand name.