Cotton Stored by CCI in Warehouses taxable @ 18% GST

In re Kakkirala Ramesh (GST AAR Tealangana)

 Appellant has sought an advance ruling on whether the Godown Rent collected from the Cotton Corporation of India (CCI) is exempted as per the Notification 21/2019 – Central Tax (Rate)  (NN. 21/2019) dated September 30, 2019 read with the Circular No.16/16/2017-GST dated November 15, 2017.

The Honorable Telangana State Authority of Advance Ruling (“AAR”) noted that the CCI has purchased raw cotton from farmers in the primary market and then processed it in ginning mills on a job work basis. CCI has paid tax on ginning and pressing to the ginning mills as it cannot claim exemption under Entry 24 of the modified Notification No. 11/2017 – Central Tax (Rate) dated October 13, 2017 (NN 11/2017).  This processing is not meant for the primary market and hence It cannot be treated as raw cotton. Therefore it cannot be claimed that the cotton stored by CCI in the warehouses of the applicant falls under Entry 24B of NN 21/2019.

“The warehousing services rendered by the applicant to CCI do not fall under Entry 24B NN 21/2019 and hence are taxable at the rate of 9% under CGST and SGST each,” the AAR said.

FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, TELANGANA

[ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE TEALANGANA GOODS AND SERVICES TAX ACT, 2017.]

1. M/s. Kakkirala Ramesh, Survey No 56 64, Behind Janata Hotel, Gouraram Village, Wargal Mandal, Medak, Telangana – 502279 (GSTIN No. 36ABXPK8604N1ZS) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.

2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further, for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

3. It is observed that the Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- for SGST and Rs. 5,000/- for CGST towards the fee for Advance Ruling. The applicant has declared that the questions raised in the application have neither been decided by nor are pending before any authority under any provisions of the GST Act. The application is therefore, admitted

4. Brief facts of the case:

M/s. Kakkirala Ramesh is Providing storage services to different customers and also to the Cotton Corporation of India which consists of storage of ‘Fully Pressed Cotton Bales’. They have submitted that Cotton Corporation of India is objecting to levy of GST on storage service by relying on Circular No.16/16/2017-GST issued by the Central Warehousing Corporation.

As per the said Notification and Circular, the applicant argues that it is not storing agricultural products such as Raw Cotton, Jute etc, but storing commercially processed products called ‘Fully Pressed Cotton Bales’, hence the that the same is taxable. It is understood that the services by way of storage or warehousing of Raw Cotton is exempted from tax. Hence, the applicant requests for advance ruling as to whether the said notification / circular is applicable to them and whether the storage of such fully pressed cotton bales is exempted service.

5. Questions raised:

1. Whether the Godown Rent collected from the CCI is exempted as per the Notification 21/2019 – Central Tax (Rate) Dated 30.09.2019 based on the Circular No.16/16/2017-GST

6. Personal Hearing:

The Authorized representatives of the unit namely Sri N. Satish Kumar, CA & AR attended the personal hearing held on 09-07-2021. The authorized representatives reiterated their averments in the application submitted and contended as follows:

1. That the applicant is provider of godowns/warehouses on lease mainly to CCI. The CCI is storing processed cotton bales in the said godowns.

2. The applicant is desirous of ascertaining whether the processed cotton bales or agricultural produce as per Notification No.11/2017 and 12/2017 at Serial No. 24 and 54 respectively and if so whether the rentals received on leasing of such godowns qualify for exemption under GST Act.

7. Discussion & Findings:

The applicant has argued that they are supplying the service of storing bailed and pressed cotton in their warehouses to M/s. Cotton Corporation of India. As seen from Entry 24B of Notification 21/2019 – Central Tax (Rate) Dated 30.09.2019 the following items falling under service heads 9967 or 9985 are exempt from levy of GST.

“Services by way of storage or warehousing of cereals, pulses, fruits, nuts and vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres such as cotton, flax, jute etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, coffee and tea.

A plain reading of the entry suggests that raw vegetable fibres such as cotton, flags, jute etc. are included for exemption under this service head. Obviously, this entry aims to exempt produce of the farmer which is in its raw or unmanufactured stage. Hence the words “raw” and “unmanufactured” are predicating various agricultural commodities in this entry.

Further, while exempting the support services to agriculture, hunting, forestry, fishing, mining and utilities under service head 9986 in Notification No. 20/2019 -Central Tax (Rate) dt 30.09.2019, the Notification No. 11/2017 was modified to include Entry 24 wherein these activities are defined to include only such activities which are done on farm for making it marketable for the primary market.

“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.”

As seen from the above only such processes which make the agricultural produce marketable for the primary market by the farmer are included in these processes.

However, the processing of raw cotton by way of ginning and then pressing and then into bails is not covered by this exemption notification. For this reason cotton ginning and pressing activity is treated as supply of service and it is revealed that Cotton Corporation of India (CCI) is paying GST on ginning charges for the services supplied by cotton ginning mills in the State of Telangana.

The CCI has purchased raw cotton from farmers in the primary market and then processed it in ginning mills on job work basis. CCI has paid tax on ginning and pressing to the ginning mills as it cannot claim exemption under Entry 24 of the modified Notification No. 11/2017. This processing is not meant for primary market and hence It cannot be treated as raw cotton. Therefore it cannot be claimed that the cotton stored by CCI in the warehouses of the applicant fall under Entry 24B of Notification 21/2019 – Central Tax (Rate) Dated 30.09.2019.

The warehousing services rendered by the applicant to CCI do not fall under Entry 24B Notification 21/2019 – Central Tax (Rate) Dated 30.09.2019 and hence are taxable at the rate of 9% under CGST and SGST each.

8. The ruling is given as below:

The application filed by M/s. KAKKIRALA RAMESH, Gouraram, Warangal, is disposed accordingly.

*****

(Author can be reached at [email protected])