No GST on supplies to Department for Women, Children, Disabled & Senior Citizens through HACA

In re Narayan Trading Corporation (GST AAR Telangana)

The case of “In re Narayan Trading Corporation (GST AAR Telangana)” involves an application for an Advance Ruling submitted by Narayan Trading Corporation to the Authority for Advance Ruling (AAR), Telangana. The application seeks clarity on the applicability of the Goods and Services Tax (GST) on certain supplies made by the applicant. Here’s a detailed exploration of the case:

Background: Narayan Trading Corporation, a registered taxpayer under the Central Goods and Services Tax (CGST) and the Telangana Goods and Services Tax (TGST) Act, 2017, is engaged in trading food grains, sugars, edible oils, etc. They have been a government contractor for over 30 years, supplying these items through various nodal agencies appointed by the Ministry.

Notification and Clarifications Sought: The application was triggered by the introduction of Notification No. 6/2022 – Central Tax (Rate) dated 13th July 2022, which amended the GST taxability criteria for unbranded food grains, pulses, flours, etc., specifying that such goods would be taxable if they are “pre-packaged and labeled”. Narayan Trading Corporation sought clarification on whether their supplies through the Hyderabad Agricultural Co-operative Association Limited (HACA) would attract GST, particularly in light of this notification and subsequent FAQs published by the Ministry of Finance.

Questions Raised: The applicant raised two main questions for Advance Ruling:

1. Whether the Department for Women, Children, Disabled & Senior Citizens is covered under the definition of “industrial consumer or institutional consumer”.

2. Whether the goods supplied by the applicant through HACA attract GST.

Personal Hearing and Arguments: During a personal hearing, the representatives of Narayan Trading Corporation reiterated their submission, emphasizing that their case was neither pending nor decided in any proceedings under the provisions of the CGST/TGST Act.

Discussion and Ruling: The Authority for Advance Ruling (AAR) Telangana examined the classification of the commodities in question, the relevant GST notifications, and the definitions provided under the Legal Metrology Act, 2009, and its rules. The ruling was based on the interpretation of “pre-packaged and labeled” goods and the specific exclusions provided for institutional and industrial consumers under the Legal Metrology (Packaged Commodities) Rules, 2011.

1. Ruling on the First Question: The Department for Women, Children, Disabled & Senior Citizens qualifies as an “institutional consumer” under the GST regime, provided certain conditions are met, including the requirement that packaged commodities bear a declaration ‘not for retail sale’, and the purchases are made directly from the manufacturer or wholesale dealer for non-commercial, institutional use.

2. Ruling on the Second Question: The goods supplied by the applicant through HACA do not attract GST, provided they meet the same conditions applied for institutional consumers, essentially mirroring the criteria established for the first question.

Conclusion:The AAR ruled favorably for Narayan Trading Corporation, clarifying that supplies made to the Department for Women, Children, Disabled & Senior Citizens through HACA would not attract GST, provided specific conditions related to packaging, sale declarations, and the nature of the consumer are met. This ruling provides valuable guidance on the interpretation and application of GST laws, particularly in relation to the supply of food grains and other essentials, and underscores the importance of regulatory definitions in determining tax liabilities.

FULL TEXT OF THE ORDER OF AUTHORITY FOR 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. Narayan Trading Corporation, Shop No 136, Sri Krupa Market, Malakpet, Hyderabad, Telangana- 500 036 (36AABFN4585E1Z9) 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 queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- under SGST and Rs. 5,000/- under CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided nor are pending before any authority under any provisions of the CGST/TGST Act’2017. The application is, therefore, admitted after examining it and the records called for and after hearing the applicant as per section 98(2) of TGST Act’2017

4. BRIEF FACTS OF THE CASE:

The applicant M/s. Narayan Trading Corporation “GSTIN:36AABFN4585E1Z9” is a registered taxpayer under the CGST & SGST Act, 2017 and is actively engaged in the trading of Food grains, Sugars, Edible Oils etc., for the past 30 Years and is a government contractor for supply of above said items directly and through nodal agencies as appointed by the Ministry from time to time.

It is submitted by the applicant that they are making supplies to M/s. Hyderabad Agricultural Co­operative Association Limited (HACA) Hyderabad, which has come into being in the year 1949, to serve the farming community of the erstwhile State of Hyderabad. That HACA commenced functioning from 01.07.1949. Originally, the area of operation of the society covering (16) districts of the then Hyderabad State. The Society thus comes under the Multi State Co­operative Societies Act 1984. HACA is an Apex Co-operative Marketing Society of the erstwhile state of Hyderabad.

They submitted that the levy of GST on unbranded food grains, pulses, flours etc., has come to forefront only after the introduction of Notification No. 6/2022 – Central Tax (Rate) dated 13th July 2022. A copy of the notification is enclosed herewith. The relevant extracts of the notification are as follows:

S. No. B(xvi) “for the portion beginning with the words “and put up in unit container and bearing a brand name”, the words “pre-packaged and labeled” shall be substituted;”

That the press release dated 18th July 2022, titled FAQS on GST has clarified applicability on ‘pre- packaged and labeled’ goods. They require a clarification in this regard. Hence this application.

4.2 Company Background:

M/s. Narayan Trading Corporation is a registered taxpayer under the CGST & SGST Act, 2017 and is actively engaged in the trading of Food grains, Sugars, Edible Oils etc., for the past 30 Years and is a government contractor for supply of above said items directly and through nodal agencies as appointed by the Ministry from time to time. M/s. Hyderabad Agricultural Co-operative Association Limited (HACA) Hyderabad has come into being in the year 1949, to serve the farmers community of the erstwhile State of Hyderabad and commenced functioning from 01.07.1949. Originally, the area of operation of the society covering 16 districts of the then Hyderabad State. The Society thus comes under the Multi State Co-operative Societies Act 1984.

5. QUESTIONS RAISED:

Q.1 Whether Department for Women, Children, Disabled & Senior Citizens is covered under the definition of “industrial consumer or institutional consumer”?

Q.2 Whether the goods supplied by the applicant through the Nodal Agency – Hyderabad Agricultural Co-operative Association Limited (HACA) attracts GST?

6. PERSONAL HEARING:

The Authorized representatives Sri M. Ravi Teja Reddy, CA & AR attended the personal hearing held on 20.03.2023. The authorized representatives reiterated their averments in the application submitted and contended as follows:

Further, the Authorized Representative/Applicant M/s. Narayan Trading Corporation, Hyderabad, reiterated that their case /Similar Case is not pending in any proceedings in the applicant’s case under any of the provision of the Act and have not already decided in any proceedings in the applicant’s case under any of the provisions of the Act.

7. DISCUSSION & FINDINGS:

The commodity under question i.e., redgram or pigeon pea is classified as HSN 0713 60 00. As on 13-07-2022, S.No.215 of Schedule-I of Notification No.1 of 2017 as amended vide Notification No.18 of 2018 dt: 26-07-2018 stood as follows with respect to this commodity:

The Notification No. 6/2022 – Central Tax (Rate) dated 13th July 2022, changed this position and certain commodities were made taxable if they are in Pre-Packaged &Labeled form. And the amendment to this entry was made as under:

(v) against S.No.25, column (3), for the portion beginning with the words “put up in” and ending with the words as in the ANNEXURE}”, the words, “, pre-packaged and labelled” shall substituted;

The Notification No. 6/2022 – Central Tax (Rate) dated 13th July 2022 has replaced explanation in clause (ii) after the Schedule-VII as follows:

‘The expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (l) of section 2 of the Legal Metrology Act,2009 (1 of 2010) where, the package in which the commodity is pre-packed or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made there under.’

Thus as per Notification No. 6/2022 – Central Tax (Rate) dated 13th July 2022, certain commodities were made to be taxed if they are in Pre-Packaged & Labelled form.

The expression ‘pre-packaged and labelled’ was given the same meaning as ‘pre-packaged commodity’ defined in clause (l) of section 2 of the Legal Metrology Act, 2009 (1 of 2010).

Further, the Ministry of Finance has issued FAQs on applicability of GST on pre-packaged and labelled goods on 18.07.2022 and at FAQ No.7 for the question regarding industrial / institutional it is clarified as follows:

Q: Whether tax is payable if such packaged commodities are supplied for consumption by industrial consumers or institutional consumers?

Clarification: Supply of packaged commodity for consumption by industrial consumer or institutional consumer is excluded from the purview of the Legal Metrology Act by virtue of rule 3 (c) of Chapter-II of Legal Metrology (Packaged Commodities) Rules, 2011. Therefore, if supplied in such manner as to attract exclusion provided under the said rule 3(c), it will not be considered as pre-packaged and labelled for the purposes of GST levy.

As per Rule 3 of Legal Metrology (Packaged Commodities) rules 2011 as amended from 01.01.2018 vide Notification of Ministry of Consumer affairs in G.S.R.629 (E) dt: 23.06.2017 the application of these rules under the chapter shall not apply to:

(a) Packages of commodities containing quantity of more than 25 kilogram or 25 litre;

(b) Cement, fertilizer and agricultural farm produce sold in bags above 50 kilogram; and

(c) Packaged commodities meant for industrial consumers or institutional consumers.

Thus Supply of packaged commodity for consumption by industrial consumer or institutional

consumer is excluded from chapter-II of legal Metrology (Packaged Commodities) rules 2011.

Hence such supplies do not attract CGST & SGST.

The definition of institutional consumer was amended by substituting clause (bc) to rule 2 of the The definition of institutional consumer is given rule 2(bc) of Legal Metrology (Packaged Commodities) Rules, as amended vide Notification of Ministry of Consumer affairs in G.S.R.629 (E) dt: 23.06.2017 stands as follows:

‘(bc) “institutional consumer” means the institution which buys packaged commodities bearing a declaration ‘not for retail sale”, directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purpose.

The Department for Women, Children, Disabled & Senior Citizens in September 2022 has floated a tender for supply of Red Gram Dal Procurement through HACA who are nominated as nodal agency vide G.O. RT No. 69 dated 07/04/2017. The the supply of Red Gram is meant for all the ICDS projects in the state. The HACA will call for tenders on behalf of the Women Dev. & Child Welfare Dept., for the supply of Red Gram Dall. HACA is an agency to provide service for the proper qualitative and timely supply of Red Gram Dall to above Department as per their norms/requirements. Thus HACA is an agent on behalf of The Department for Women, Children, Disabled & Senior Citizens who is the principal who as nominated HACA as a nodal agency for the specific purpose of calling for tenders on behalf of the principal and ensure proper qualitative and timely supply of Red Gram Dall.

According to the applicant the Department for Women, Children, Disabled & Senior Citizens of the State of Telangana is buying packaged commodities, directly from the manufacturer or from wholesale dealers for use by that institution and not for commercial or trade purpose. Therefore the said department will qualify to be an institutional consumer as long as the following conditions are fulfilled:

i. The packaged commodities are bearing a declaration ‘not for retail sale”,

ii. The purchase is made directly from the manufacturer or from an importer or from wholesale dealer

iii. The purchase is made for use by that institution and not for commercial or trade purpose The supplies made by the applicant will be exempt from CGST & SGST if made to the institutional consumer who is satisfying the above conditions.

8. In view of the foregoing, we rule as follows:

In view of the above discussion, the questions raised by the applicant are clarified as below: