In re Bansal Industries (GST AAAR Punjab)
The GST AAAR Punjab has delivered a landmark ruling on Bansal Industries, examining the applicability and interpretation of the Notification no. 43/2017-Central Tax (Rate). This judgement sheds light on the contentious issue of who bears the responsibility of tax payment under the Reverse Charge Mechanism (RCM) when raw cotton is supplied by a farmer via a Kacha Arhtiya.
The ruling analyses the work carried out by the Kacha Arhtiya, the definitions of terms like ‘supplier’, ‘Agriculturist’, ‘recipient’, and ‘registered person’ under the CGST Act, and the nature of the transaction between the appellant, Kacha Arhtiya, and the agriculturist. The court found that the Kacha Arhtiya qualifies as an agent under the CGST Act, carrying out business on behalf of the agriculturist. However, since the Kacha Arhtiya does not hold title to the raw cotton but instead provides services in relation to the goods, the transaction is treated as a supply of services rather than goods.
GST AAAR Punjab ruled that the transaction between the agriculturist and the Kacha Arhtiya involves a supply of services, not goods, and therefore does not fall under the RCM Notification No. b4/2017-CT. Even if the Kacha Arhtiya were to be considered an agent of the agriculturist, making him liable for GST would defeat the purpose of RCM, which is to place tax liability on the more organized party in the transaction. The ruling provides clarity on the application of GST rules and regulations, specifically regarding the applicability and interpretation of the Notification no. 43/2017-Central Tax (Rate)
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, PUNJAB
At the outset, we would like to make it clear that the provisions of both the Central Goods and Services Tax Act, 2017 and the Punjab Goods and Services Tax Act, 2017, (hereinafter referred to as, “CGST Act” and “PGST Act”) are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the corresponding similar provisions under the PGST Act.
A. Facts of the Case:
M/s Bansal Industries, as detailed in the table above and hereinafter referred to as ‘appellant’ is a partnership firm engaged in the business of ginning and pressing of cotton as well as crushing of oil seeds (Cotton Seeds obtained in the ginning of raw cotton (narma)). The appellant had requested an advance ruling seeking to know whether Purchase of raw cotton from Kacha Arhtiya, who is a registered taxpayer, constitutes a purchase from agriculturist so as to attract liability under Reverse Charge Mechanism in view of sub-section (3) of section 9 of CGST/PGST Act,2017.
B. Order Of the Authority for Advance Ruling: .
Relevant extract of the order No. AAR/GST/PB/30 dated 10th of November, 2022 issued by the Punjab Authority for Advance Ruling (for brevity, “AAR”) is reproduced hereunder:
“The applicant is liable to pay GST under reverse charge basis being a registered person in terms of Notification no. 13/2017-Central Tax(Rate) dated 28th June, 2017 as amended vide notification no. 43/2017-Central Tax(Rate) dated 14th November,2017 and not the Kacha Arhtiya.”
C. Submission of the appellant:
(i) The appellant herein purchases raw cotton from Kacha Arhtiyas, who issues Form-I (under Agricultural Produce Marketing Committee Act (APMC Act)) on behalf of the agriculturists. Form-I is issued in the name of the Kacha Arhtiya detailing wherein the quantity of raw cotton (Narma) and the incidental charges. The payment is also made to Kacha Arhtiya in his account through banking channels. Kacha Arhtiya issues Form-J to the agriculturist and also transfers the amount to agriculturist after deducting its commission.
(ii) From above it is clear that Form J is issued to the agriculturist and Form Ito the purchaser. Kacha Arhtiya does not purchase goods but is only acting as an agent of the farmer and does not engage in the purchase of raw cotton. Kacha Arhtiya is getting the raw cotton cleaned, packaging, weighing, sewing of bags etc. and the amounts are indicated in Form-I.
(iii) The appellant has contended that a Kacha Arhtiya is not an agriculturist within the meaning of section 2(7) of the CGST Act,2017 and therefore, is not covered under the notification no. 43/2017-Central Tax(Rate) dated 14th November,2017. It was contended that the Kacha Arhtiya is an agent of the agriculturist within the scope of circular No. 57/31/2018 dated 04th of September, 2018 and is therefore, the recipient of goods from the agriculturist and liable to pay GST under reverse charge mechanism.
(iv) On the date of personal hearing i.e. 09th of February,2023, Mr Rishab Singla, Advocate, appeared on the behalf of the appellant and reiterated the facts as illustrated above. On being asked, whether Kacha Arhtiya or the farmer is raising any invoice on the appellant to which he replied that there is no separate invoice being raised by the Kacha Arhtiya or the farmer but the bill of Kacha Arhtiya is itself an invoice.
(v) The cotton is eventually purchased by the Kacha Arhtiya and payment is made to the farmer. The advocate submitted that Kacha Arhtiya is an agent of farmer. He pleaded that similar dispute had come up before the Appellate Authority for Advance Ruling, Haryana in the case of M/s Bhaktawar Mal Kamra and Sons and the said authority vide order dated 30th of August, 2018 had held that the commission agent is liable to be registered under the CGST Act, 2017.
(vi) The appellate authority desired to know as to whether farmer advices Kacha Arhtiya to sell the cotton not below a particular price, for which the advocate replied that the farmer is not present during the bidding process and Kacha Arhtiya sells the goods as per the prevailing market prices.
D. Discussion and Findings:
1. The primary issue that emerges from the appeal filed by the appellant is regarding the interpretation and the applicability of the Notification no. 43/2017-Central Tax (Rate) dated le November,2017 where the raw cotton (narma) is being procured by the appellant from the Kacha Arhtiya. The question to be answered is who shall be liable to pay tax through Reverse Charge Mechanism (for brevity, “RCM”) where the raw cotton is being supplied by the farmer through the Kacha Arhtiya to the appellant.
2. It is pertinent to mention here that the AAR in its order has given reference to the Notification No. 13/2017-Central Tax(Rate) dated 28th June, 2017 as amended vide notification no. 43/2017-Central Tax (Rate) dated 14th November,2017 which is not the correct notification for the purpose of issue under consideration. The Notification No. 13/2017-Central Tax(Rate) dated 28th June,2017 was issued for notifying the services that would be subject to RCM under sub-section (3) of section 9 of the CGST Act. The Notification No. 4/2017-Central Tax(Rate) dated 28th June,2017 was issued for notifying the goods that would be subject to RCM under sub-section (3) of section 9 of the CGST Act. The said notification was further amended by Notification no. 43/2017-Central Tax (Rate) dated 14th November,2017 which is germane to the issue under consideration.
3. Before going into the legal aspects of the case, it would be useful if one goes into the basic work being carried out by the kaccha Arhtiya. The appellant themselves have accepted that kaccha Arhtiya acts as an agent of the agriculturist and the appellant procures raw cotton from the kaccha Arhtiya. From the Form I and Form J issued by the Kacha Arhtiya, it is evident that he charges remuneration under various heads namely, commission, brokerage, dressing, cleaning, unloading, palledari, filling charges and other charges. From the heads of remuneration, it is clear that the Kacha Arhtiyais charging commission for the services rendered by him to the agriculturist, loading/unloading, cleaning of goods, bag sewing charges etc. It is a commonly known fact that the Kaccha Arhtiya receives cotton from the agriculturist, stores it, cleans it, fills the produce in the bag and then sells it by way of auction. So, it is clear that Kacha Arhtiya is carrying out various activities for selling the goods by way of auctioning it.
4. In order to comprehend the issue under consideration it would be pertinent to reproduce the contentious entry of the said notification so that a clarity can be developed regarding the identification of the person liable to pay tax on RCM.
