Case Law Details

Case Name : In re M/s Bhaktawar Mal Kamra & Sons (GST AAR Haryana)
Appeal Number : Advance Ruling No. HAR/HAAR/R/2018-19/10
Date of Judgement/Order : 30/08/2018
Related Assessment Year :
Courts : AAR Haryana (22) Advance Rulings (770)

In re  M/s Bhaktawar Mal Kamra & Sons (GST AAR Haryana)

Whether Commission agent, providing services in relation to sale or purchase of Agriculture produce, is liable to obtain registration and is liable for tax under reverse charge mechanism on services provided in sale of Raw Cotton vide notification no. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Service Tax Act-2017 read with corresponding notification no. 43/2017 dated 14-11-2017 issued under Central Goods & Service Tax Act-2017.

Ruling

As per the above discussions, a commission agent who is making supplies on behalf of such agriculturist, who is not a taxable person, is not liable for compulsory registration under clause (vii) of section 24 of the CGST/HGST Act, 2017. However, if the aggregate turnover of supply of exempted as well as taxable goods by commission agents (Kachha Arhatia) exceeds the threshold limit, such commission agents shall be liable for registration as per section 22 (1) of CGST/HGST Act, 2017.

As per notification no. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Service Tax Act-2017 read with corresponding notification no. 43/2017 dated 14-11-2017 issued under Central Goods & Service Tax Act-2017, raw cotton has been inserted at sr. no. 4A in the table notified vide notification no. 38/ST-2, dated 30.06.2017 under the HGST Act, 2017 and corresponding notification no. 4/2017-Central Tax (Rate), dated 28.06.2017 under the CGST Act, 2017. The notification specifies that the tax on the supply of goods (raw cotton) by an culturist shall be payable on reverse charge basis by any registered person as e recipient of such supply. As discussed supra, a commission agent who becomes liable for registration under section 22 (1) of the Acts ibid, shall also become liable to pay tax on supply of raw cotton by an agriculturist on reverse charge basis being a registered person.

It is however, made clear that a commission agent (Pucca Arhatia) who does not inform his constituent as to the third party with whom he has entered into a contract on his behalf, rather he acts himself as the recipient of goods, has a personal interest of his own when he enters into a transaction in as much as he can also supply his own goods to the principal. Such commission agents are liable for registration since they qualify as agents under schedule I subject to the provisions of section 22 (1) of the Acts ibid where the aggregate turnover of supply of exempted as well as taxable goods or services or both exceeds the threshold limit. Such commission agents shall also be liable for compulsory registration as per provision of section 24 (1) (vii) of the Acts ibid and they shall be liable to charge tax on RCM on supply of ‘Raw Cotton’.

FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, HARYANA

Factual Background As Per Applicant

1. The applicant is engaged in business of Commission agents wherein they are engaged in business of providing services to the farmers for selling the agriculture produce to various buyers being the traders, manufacturers or stockiest. The goods are also purchase by government under various welfare schemes e.g., Paddy and/or wheat.

2. The farmer, being cultivator, brings the goods in area notified, popularly known as Grain market and avail the services of Commission agent of his choice. The commission agents, having registrations under APMC Act, are pure agents who conduct the auction of agriculture produce on behalf of farmer. The auction of agriculture produce is held in presence of Market Committee officials and Traders intend to buy the produce. Once the auction is completed the agent gets the goods cleaned from dust and makes the weighment of the goods. Buyers then lift the s and the liability to pay for the goods arise immediately.

3. The highest bidder lifts the goods after obtaining the Form-I (title of goods) from mmission agent and make transportation of its own course.

4. consideration for goods is auction price which is also recorded by officials of arket Committee and the consideration of services like cleaning, weighment is at agreed price, which is uniform for whole Grain Market on basis of type of crop, and all the services charges along with the commission is mentioned by the commission agent in the Title document called as Form I. The Agent also issues the Form J to the farmer mentioning the detail of buyer and price at which the bidder had purchased the goods due to highest bid.

5. The Commission agent collects the payment from the buyer on behalf of the farmer and remits the same to the farmer. In case the commission agent had already advanced the amount he adjusts his outstanding balance from the amount received and remit the balance, if any, to the farmer.

6. The services provided by commission agent had been exempted vide Notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 for CGST and notification no 47/ST-2 dated 30-06-2017 for levy of SGST vide entry no 54.

7. In view of above exemption, the provisional registration under GST was surrendered by the applicant and thus became the unregistered dealer.

8. As per Section 9(4) of HGST Act-2017, the purchases by registered person from unregistered person was taxable under reverse charge, wherein the tax was to be deposited by the recipient of goods, buyers in auction, and same was being deposited. Thus the revenue was protected and the Traders deposit the Tax and availed input on it.

9. The applicability of Section 9(4) of CGST Act and HGST Act-2017 was deferred w.e.f 13-10-2017 upto 31-03-2018 vide notification no 38/2017 dated 13-10-2017 issued under CGST Act and vide notification no 108/ST-2 dated 18-10-2017 issued under HGST Act. The applicability of said section had further been deferred to 30-06-2018 vide notification 10/2018 dated 23-03-2018 issued under CGST Act and 44/ST-2 dated 30-03-2018 issued under HGST Act.

10. In order to protect the revenue, the raw cotton was then notified under section 9(3) of the Act on 14-11-2017 vide notification no 121/ST-2 dated 14-11-2017, wherein for the purchase of the goods, being raw cotton, any registered recipient of goods was made liable for payment of tax on reverse charge mechanism.

11. The applicant had been party to sale and purchase of raw cotton by farmer and purchaser respectively as being engaged as an agent of farmer.

12. The definition of recipient includes a person by whom consideration for goods is payable. As the recipient had been made taxable under reverse charge for purchase of Kapas, a clarification is required whether commission agent is covered under said notification so as to get registered and pay taxes.

Question(s) on which advance ruling is required

Whether Commission agent, providing services in relation to sale or purchase of Agriculture produce, is liable to obtain registration and is liable for tax under reverse charge mechanism on services provided in sale of Raw Cotton vide notification no. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Service ct-2017 (hereinafter referred as HGST ) read with corresponding notification 3/2017 dated 14-11-2017 issued under Central Goods & Service Tax Act-2017 hereinafter called as CGST).

Applicant’s interpretation of law and/or facts, in respect of the aforesaid question(s)

1. The taxes on the purchase of raw cotton are duly being deposited by the buyers of the goods which as per applicant is correct interpretation of law.

2. The commission agent is only supplying the services and delivery of goods is naturally bundled with provision of service which make this case as Composite supply and services of agent being predominant service is exempt and hence supply of such goods is tax free as far as commission agent is concerned due to services being exempt.

3. The farmers had been exempt from the levy of tax on agriculture produce: Thus neither the farmer and nor the commission agent is liable to collect and pay tax.

4. As per circular issued by CBIC (earlier Central Board of Excise & Customs) titled as ‘GST (Goods and service Tax) Pure Agent Concept’ the commission agent is pure agent and does not supply the goods of his own and works for his commission only.

5. As per starting para of notification no 38/2, the notification is for intra state supply of goods. The Commission agent is supplying the services and the goods had been supplied by the farmer and the buyer had been recipient of intra state supply of goods. The farmer supplies the goods through farmer and the buyer of the auction is the recipient of the goods.

6. The Agriculturist supplies goods through commission agent and not supplying goods to commission agent. The recipient here means the buyer of goods and not the supplier of goods.

7. Since the payment to farmer is made by the commission agent, there is lack of clarity that whether he be treated as recipient in terms of definition as per section 2(93) and liable for registration and payment of tax. If yes then following question arises:-

7.1. Who is supplier as the title of transfer of property is given by the Commission agent.

7.2. Can one person be treated as supplier as well as recipient.

8. The supplier is defined in section 2(105) so as to include agent who is supplying the goods on the behalf of farmer and is to be treated as supplier and not the recipient and both the definitions i.e., of supplier and recipient are mutually exclusive, as the supplier needs to collect the consideration from the recipient on the behalf of supplier. Once the agent had fallen in steps of supplier he is collecting the payment from recipient on the behalf of the supplier.

9. Further the definition of recipient makes person liable to pay The word consideration is meant as any payment made in respect of supply of goods and for supply there is need to two people and one man cannot supply the goods to himself so as to treat him as recipient of the goods.

10. The consideration is payable by the person who had taken the supply of goods and not by the person who had caused the supply of goods on the behalf of the farmer who had been exempted from the tax vide section 23 (1)(b). If the supply is to be considered as made by the commission agent then there would have been no need of exempting the farmer. The law applicable on farmer will also be applicable on commission agent as per the concept of pure agent. Further for any two transactions- there is need of supplier and recipient.

Hence in the view of applicant the question is to be determined on the basis of combined reading of definitions of supplier, recipient, supply, consideration and intent of law and not only on the basis of the literal meaning of word recipient and thus it is requested to provide the correct interpretation of law by Advance ruling u/s 97.

Comment of the Officer under section 98 (1) of the CGST/HGST Act, 2017

The Deputy Excise & Taxation Commissioner, Sirsa being the jurisdictional officer had submitted his comments as required under section 98 (1) of the CGST/HGST Act, 2017 as under:-

1 It is a fact that commission agent receives the supply from farmer/agriculturist i.e. from a unregistered person.

2 As per definition contained in section 2(93) of HGST Act, the commission agent is recipient of supply of goods. The provisions of section 2(93) of HGST Act are reproduced as under

(a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) Where no consideration is payable for the supply of service, the person to whom the service is rendered,

And any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied:

From the above definition contained in the provisions of section 2(93) of HGST Act, it is obvious that the commission agent is recipient of supply of goods.

3 As per definition of Reverse charge contained in section 2(98) of HGST Act, commission agent being recipient is liable to pay tax as reverse charge. The provisions of section 2(98) of HGST Act are reproduced as under:-

2(98) – “reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section(3) or sub-section(4) of section 9, or under sub-section(3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act;

4 Section 9(4) of HGST Act makes it crystal clear that the State tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on Reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is person liable for paying the tax in relation to the supply of such goods or es or both although the payment of tax on reverse charge u/s 9(4) of HGST as been deferred upto 30th Sept 2018.

5. It is pertinent to mention that raw cotton i.e. ‘Narma Kapas’ has been placed under purview of section 9(3) of HGST Act by inserting entry 4A after serial No. 4 of the table prescribed u/s 9(3) of HGST Act vide notification dated 14th Nov 2017 effective w.e.f 15th Nov 2017. Thus after insertion of entry 4A in the table u/s 9(3) of HGST Act, the agriculturist has been considered as supplier of goods and the registered person i.e commission agent has been considered as recipient of supply. Tax on RCM has become payable on raw cotton i.e ‘Narma kapas’.

6 Further, as per provisions of section 9(1) of HGST Act, tax shall be levied on all the intra state supplies of goods or services or both on the value determined u/s 15 of GST Act and shall be collected and shall be paid by the taxable person. Thus in view of section 9(1) of GST Act, Commission agent being a taxable person shall be liable to pay tax on the value so determined u/s 15 of HGST Act.

7 From the above points mentioned at Sr. No. 1 to 6, it is obvious that commission agent shall first deposit the tax as reverse charge being recipient and shall reflect in the relevant returns, the details of reverse charge deposited and thereafter shall work out his tax liability on the supply of goods to be made either to factory owner or ‘Pucca Arhtia’ and shall get the benefit of amount of tax paid as reverse charge after due verification of payment of tax.

8 Besides above submissions, even if the commission agent falls in the definition of pure agent, though it does not so fall, even then he is compulsorily registerable as per provisions of section 24 of HGST Act.

The relevant part of the provisions of section 24 of HGST Act are reproduced as under:

24 “Notwithstanding anything contained in sub section (1) of section 22, the following categories of persons shall be required to be registered under this Act.

(vii) Persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise.”

The provisions of GST Act are not applicable to the persons who deal exclusively in the goods which are not liable to tax. Thus the commission agents who deal exclusively in supplying of goods which are not liable to tax i.e if he deals exclusively in wheat and paddy which are not liable to tax, then the provisions are not applicable otherwise, if he deals in taxable goods i.e Narma, Kapas, Sarson etc, then the provisions of GST Act are fully applicable to the commission agents and are compulsorily registerable u/ s 24 of Haryana VAT Act.

Record of Personal Hearing

Personal hearing in the case was conducted on 25.07.2018 which was attended by Sh. Manish Bansal, CA, (POA) alongwith Sh. Gurdeep Kumar, Sole Proprietor and Sh. Shyam Lal, Manager of the firm. The applicant besides reiterating the submissions made in their application had given additional submissions which were taken on record. After detailed discussions the application was admitted being covered by clause (b) of section 97 (2) of the CGST/HGST Act 2017. As regard merits, the decision was reserved which is being released today.

Discussion and finding of the authority

It is the case of the applicant that they are engaged in the business of commission agent wherein they provide services to the farmers for selling the agriculture produce to various buyers being traders, manufacturers or stockists. The goods are also purchased by Government and its agencies through them.

The Government vide notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 and corresponding State notification no. 47/ST-2, dated 30.06.2017 had exempted the services provided by commission agents so far as these related to sale or purchase of agricultural produce provided by commission agents. In view of this exemption, the applicant, as mentioned, had surrendered their provisional ID under the GST laws. Understandably, the applicant had been providing services for sale or purchase of agriculture produce as per the norms of APMC. Besides, the agriculture produce exempted from GST, the applicant was also providing services for sale and purchase of Raw Cotton, i.e., Narma and Oil seeds which attract 5% GST.

Since, the Government, vide notification no. 43/2017-Central Tax (Rate) dated 14.11.2017 and corresponding State notification no. 121/ST-2, dated 14.11.2017 had inserted entry 4 A in notification no. 4/2017 Central Tax (Rate), dated 28.06.2017 and corresponding State notification no. 38/ST-2, dated 30.06.2017 to include raw cotton on which tax became payable under reverse charge mechanism by the recipient of supply, i.e., any registered person. It is in view of this amendment that the applicant wants a clarity on the issue whether they can be considered as recipient of supply for the purpose of paying tax on reverse charge on supply of raw cotton by way of providing their services for sale and purchase of goods (raw cotton in this case) between the farmer and the registered purchasers.

As per the fact understood by us a farmer sells it’s agricultural produce by utilising the services of the applicant who is a commission agent as per the APMC Act of the State. The applicant facilitates buying and selling of agricultural produce between the farmer and the buyers and receives by way of remuneration, a commission or percentage upon the amount involved in such transaction. The commission agent, applicant in this case, issues Form-I to the buyer of the goods and Form-J to the farmer being the seller of the corresponding goods.

To understand the controversy, it is important to note the nature of transactions facilitated by the commission agents. As per trade practice there are two types of Commission Agents for food grains giving their services as per the APMC Act in the State. One is known by a prevalent name of “Kaccha Arhtia” and the other is a “Pucca Arhtia”. An analysis of distinction between the two shall bring more clarity in understanding the controversy posed before us by the applicant.

Kaccha Arhatia;

(i) A Kachha Arhatia acts only as an agent of his constituent and never acts as a principal. A Pacca Arhatia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his al account and, thus, he acts as a principal as regards his constituent;

(ii) A Kachha Arhatiabrings a privity contract between his constituent and the third at each becomes liable to the other, The Pacca Arhatia, on the other hand, self liable upon the contract not only to the third party but also to his nt;

(iii) Though the Kachha Arhatia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent, i.e., Form ‘J’ is issued to the farmer seller in which the name of the purchaser and the price at which goods had been purchased is mentioned. The Pacca Arhatia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf, rather he acts himself as the recipient of goods.

(iv) The Kachha Arhatia unlike the Pacca Arhatia, does not have any dominion over the goods;

(v) The Kachha Arhatia has no personal interest of his own when he enters into a transaction and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a Pacca Arhatia has a personal interest of his own when he enters into a transaction in as much as he can also supply his own goods to the principal.

In view of the above discussions, it can be understood that generally, a commission agent (Kachha Arhatia) under the APMC Act makes supplies on behalf of an agriculturist. Further, as per provisions of clause (b) of sub section (1) of section 23 of the CGST/HGST Act, 2017 an agriculturist who supplies produce out of cultivation of land is not liable for registration and therefore, cannot be regarded as ‘Taxable Person’ in terms of clause (vii) of section 24 of the CGST/HGST Act, 2017. Thus, a commission agent who is making supplies on behalf of such agriculturist, who is not a taxable person, is not liable for compulsory registration under clause (vii) of section 24 of the Act ibid.

However, the term “agent” has been defined under sub-section (5) of section 2 of the CGST Act as follows:

“agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

The term ‘Arhatia’ used in the above definition is wide enough to include a ‘Kachha Arhatia’. The business of a Kachha Arhatia as explained by the applicants could be understood to bring into existing the relation of vender and purchaser. The nature of the business carried on by the applicant can be described thus:-

‘Cultivators bring their produce to the applicant for sale. The goods are weighed as his shop and then supplied to the ‘Pucca Arhatia’ or to other entities. Price of the commodity in full or part is paid by the applicant to the cultivators directly. The price from the purchasers is realised afterwards. In any case it is not the responsibility of the cultivators to realise the price from the purchasers. On the contrary, it is the applicant, i.e., the ‘Kachha Arhatia’ who is responsible for the payment of the price to the cultivators. Sometimes the cultivators are also paid advances and these are adjusted when the price of the produce is paid to the cultivators.’

Since the scope of supply under the GST Act also covers the activities in scheduled by or undertaken through an agent, the key ingredient for determine  relationship would be whether the invoice for the further supply of goods on behalf the principal is being issued by agent or not. In other words, the crucial point is whether or not the agent has the authority to pass on the title of the goods on the principal.

In the instant case, the commission agent supplies goods to the buyer against ‘Form-I’ as prescribed under the APMC Act of the State. By issuance of ‘Form-I’ which as per the APMC Act is ‘Bill of Kachha Arhatia’, the title of the goods is passed on to the buyer against an agreed upon rate of the goods. The commission agent also charges its commission and other incidental and market charges from the buyer.

However, vide Notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 and the corresponding notification under the State Tax the services by the commission agents for sale or purchase of agricultural produce has been exempted. The term ‘agricultural produce’ has further been defined at clause 1 (d) appended to the said notification. Therefore, the ‘Services’ provided by the commission agent for sale or purchase of such defined agricultural produce is exempted. Such commission agents, even when they qualify as agents under Schedule-I, are not liable to be registered according to sub clause — (a) of sub section (1) of section 23, if the supply of agricultural produce, and / or other goods or services supplied by them are not liable to tax or are wholly exempt under GST. However, in cases where the supply of agricultural produce is not exempted and liable to tax, such commission agents shall be liable for registration if the aggregate turnover, in terms of section 2 (6) of the CGST/HGST Act, 2017, in a financial year exceeds 20 lakh rupees as per section 22 (1) of the said Act.

Advance ruling under section 98 of the CGST/HGST Act 2017

In the backdrop of above discussions and findings the advance ruling on the questions is pronounced as under: –

Whether Commission agent, providing services in relation to sale or purchase of Agriculture produce, is liable to obtain registration and is liable for tax under reverse charge mechanism on services provided in sale of Raw Cotton vide notification no. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Service Tax Act-2017 read with corresponding notification no. 43/2017 dated 14-11-2017 issued under Central Goods & Service Tax Act-2017.

Ruling

As per the above discussions, a commission agent who is making supplies on behalf of such agriculturist, who is not a taxable person, is not liable for compulsory registration under clause (vii) of section 24 of the CGST/HGST Act, 2017. However, if the aggregate turnover of supply of exempted as well as taxable goods by commission agents (Kachha Arhatia) exceeds the threshold limit, such commission agents shall be liable for registration as per section 22 (1) of CGST/HGST Act, 2017.

As per notification no. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Service Tax Act-2017 read with corresponding notification no. 43/2017 dated 14-11-2017 issued under Central Goods & Service Tax Act-2017, raw cotton has been inserted at sr. no. 4A in the table notified vide notification no. 38/ST-2, dated 30.06.2017 under the HGST Act, 2017 and corresponding notification no. 4/2017-Central Tax (Rate), dated 28.06.2017 under the CGST Act, 2017. The notification specifies that the tax on the supply of goods (raw cotton) by an culturist shall be payable on reverse charge basis by any registered person as e recipient of such supply. As discussed supra, a commission agent who becomes liable for registration under section 22 (1) of the Acts ibid, shall also become liable to pay tax on supply of raw cotton by an agriculturist on reverse charge basis being a registered person.

It is however, made clear that a commission agent (Pucca Arhatia) who does not inform his constituent as to the third party with whom he has entered into a contract on his behalf, rather he acts himself as the recipient of goods, has a personal interest of his own when he enters into a transaction in as much as he can also supply his own goods to the principal. Such commission agents are liable for registration since they qualify as agents under schedule I subject to the provisions of section 22 (1) of the Acts ibid where the aggregate turnover of supply of exempted as well as taxable goods or services or both exceeds the threshold limit. Such commission agents shall also be liable for compulsory registration as per provision of section 24 (1) (vii) of the Acts ibid and they shall be liable to charge tax on RCM on supply of ‘Raw Cotton’.

Ordered accordingly.
To be communicated.

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