Nil GST on Storage or Warehousing of cereals, pulses, fruits & vegetables: AAR Uttarakhand

In re Stellar Cold Chain Inc. (GST AAR Uttarakhand)

M/s Stellar Cold Chain Inc. sought an advance ruling under Section 97 of the Central Goods and Services Tax (CGST) Act, 2017, and Uttarakhand State Goods and Services Tax (SGST) Act, 2017. The applicant, engaged in the cold storage business in Uttarakhand, processes raw green peas into frozen peas and provides storage and refrigeration services to other companies. They charged 5% GST on processing services and 18% GST on storage services but questioned whether storage services for frozen green peas should be subject to NIL GST under Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022.

Key Issues for Advance Ruling

The advance ruling sought by M/s Stellar Cold Chain Inc. raised several critical issues related to the taxability of their services under the GST Act and the applicability of specific GST notifications. Here are the key issues identified:

1. Taxability of Storage Charges under GST Act: The primary issue brought forth by the applicant was the taxability of storage charges imposed for frozen green peas kept in cold storage facilities. The applicant sought clarity on whether these storage charges are subject to Goods and Services Tax (GST) under the provisions of the GST Act, 2017. This query aimed to determine the appropriate GST treatment applicable to the services rendered by M/s Stellar Cold Chain Inc., specifically concerning the storage of processed and frozen green peas.
2. Applicability of NIL GST Tariff on Storage Charges: A crucial aspect of the applicant’s query pertained to the applicability of the NIL GST Tariff as specified under Notification No. 04/2022-Central Tax (Rate). The applicant argued that their storage services for frozen green peas should be exempt from GST based on this notification. Notification No. 04/2022-Central Tax (Rate) categorizes services related to storage or warehousing of cereals, pulses, fruits, and vegetables under a NIL GST rate. The applicant contended that since green peas are classified as vegetables, their storage services should fall within the purview of this exemption. This issue necessitated an examination of whether the services provided by the applicant qualified for the NIL GST rate under the specific terms outlined in the notification.
3. Relevance of Notification No. 04/2022-Central Tax (Rate) for the Applicant: Additionally, the applicant sought clarification on the applicability of Notification No. 04/2022-Central Tax (Rate) to their particular case. They requested the Advance Ruling Authority to ascertain whether the provisions of this notification, which exempt certain categories of storage services from GST, specifically applied to the services offered by M/s Stellar Cold Chain Inc. This inquiry aimed to determine the scope and extent to which the provisions of the notification could be interpreted to exempt the storage charges levied by the applicant for storing frozen green peas.

Applicant’s Submissions

In their application for an advance ruling, the applicant, M/s Stellar Cold Chain Inc., put forth several key contentions regarding the taxability of their services related to the storage of processed and frozen green peas. These submissions were pivotal in shaping the authority’s decision-making process. Here are the applicant’s main contentions:

1. Nature of Business Activities: The applicant described their core business operations, which encompass multiple facets within the cold storage sector. They outlined that their business model involves not only the purchase, processing, and subsequent sale of frozen green peas but also extends to providing storage facilities for green peas owned by other companies. For these storage services, they levy charges that include GST at the rate of 18%.
2. Reference to Notification No. 04/2022-Central Tax (Rate): Central to their argument was their interpretation of Notification No. 04/2022-Central Tax (Rate), issued under the GST framework. They contended that the services they provide—specifically, the storage of green peas—should qualify for exemption from GST under this notification. They based their claim on the notification’s provision that services related to the storage or warehousing of cereals, pulses, fruits, and vegetables are eligible for a NIL GST rate.
3. Classification of Green Peas as Vegetables: Another significant aspect of their argument centered around the classification of green peas as vegetables. They asserted that since green peas are categorized under vegetables, they should inherently fall under the scope of the exemption provided in Notification No. 04/2022-Central Tax (Rate). This classification, according to the applicant, justified their position that the storage services they offer should be exempt from GST.
4. Seeking Clarity and Confirmation: The applicant sought clarity from the Advance Ruling Authority on whether their interpretation of Notification No. 04/2022-Central Tax (Rate) was accurate and applicable to their specific case. They sought confirmation that the services they provide for the storage of green peas, including processed and frozen varieties, should indeed be exempt from GST under the provisions of the aforementioned notification.

Personal Hearing and Clarification

During a personal hearing on 26.07.2023, the applicant confirmed that they store “Frozen Green Peas.” The Deputy Commissioner from the State Authority was present and requested a decision based on merits.

Discussion and Findings

The Advance Ruling Authority meticulously examined whether the storage services provided for processed and frozen green peas qualify for exemption under Notification No. 12/2017-Central Tax (Rate), as amended by Notification No. 04/2022-Central Tax (Rate). The key considerations and findings are summarized below:

1. Definition of Agricultural Produce: The authority first referenced the definition provided in the relevant notifications. Agricultural produce, as per these notifications, pertains to products derived from cultivation that either undergo no further processing or minimal processing that does not fundamentally alter their essential characteristics. This definition is crucial as it determines the applicability of GST exemptions specifically aimed at unprocessed or minimally processed agricultural goods.
2. Nature of Frozen Green Peas: The central focus of the inquiry was on the nature of frozen green peas handled by the applicant. It was established that the process of transforming raw green peas into frozen green peas involves significant alteration of the product’s essential characteristics. Unlike raw produce that retains its primary attributes post-harvest or undergoes minimal processing typical of cultivation or primary market preparation, frozen green peas are subject to processing that modifies their original state.
3. Exemption Under Notification No. 04/2022-Central Tax (Rate): The authority then proceeded to assess whether the storage services provided for processed and frozen green peas could qualify for the NIL GST tariff under the specific notification. Notification No. 04/2022-Central Tax (Rate) provides a NIL rate of GST for services related to storage or warehousing of cereals, pulses, fruits, and vegetables. However, the exemption is explicitly aimed at unprocessed or minimally processed items falling under the category of agricultural produce, as per the defined criteria.
4. Conclusion on Applicability: Based on the analysis of the definitions and the nature of the product involved, the authority concluded that processed frozen green peas do not qualify as agricultural produce under the stipulated definitions. Therefore, the services related to the storage of processed and frozen green peas do not fall within the ambit of the NIL GST tariff provided under Notification No. 04/2022-Central Tax (Rate).

Conclusion

The authority concluded that processed frozen green peas are not considered agricultural produce as the transformation from raw to frozen peas alters their essential characteristics. Consequently, the NIL GST exemption under Notification No. 04/2022-Central Tax (Rate) is not applicable to processed or frozen vegetables, including frozen green peas, as the exemption only applies to unprocessed vegetables.

Ruling

The taxability of storage charges for frozen green peas under the GST Act has been affirmed, indicating that such charges are indeed taxable. The applicability of the NIL GST Tariff for “Services by way of Storage or Warehousing of cereals, pulses, fruits, and vegetables” does not extend to storage charges for frozen green peas, as these peas are considered processed and do not fall within the defined category of unprocessed agricultural produce. Therefore, the Notification No. 04/2022-Central Tax (Rate), which exempts storage services for certain unprocessed agricultural goods, does not apply to storage services for processed frozen green peas, thus necessitating the imposition of standard GST rates on these services.

The ruling clarifies that storage services for frozen green peas do not qualify for NIL GST and must be taxed as per the standard rates under GST provisions.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTARAKHAND

This is an application under Sub-Section (1) of Section 97 of the Central Goods & Service Tax Act, 2017 and Uttarakhand State Goods & Service Tax Act, 2017 (hereinafter referred to as CGST/SGST Act) and the rules made there under filed by M/s Stellar Cold Chain Inc., Narayan Nagar, Industrial Estate, C/o Jindal Vegetables Products Limited, Bazpur Road, Kashipur, Udham Singh Nagar, Uttarakhand- 244713 (herein after referred to as the “applicant”) and registered with GSTIN 05ACMFS6830N1ZJ under the CGST Act, 2017 read with the provisions of the UKGST Act, 2017.

2. At the outset, we would like to state that the provisions of both the CGST Act and the SGST 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 same provisions under the SGST Act.

3. The Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub section (1) of section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

4. As per the said sub-section (2) of Section 97 of the Act advance ruling can be sought by an applicant in respect of:-

(a) Classification of any goods or services or both

(b) Applicability of a notification issued under the provisions of this Act,

(c) Determination of time and value of supply of goods or services or both,

(d) Admissibility of input tax credit of tax paid or deemed to have been paid

(e) Determination of the liability to pay tax on any goods or services or both

(f) Whether the applicant is required to be registered

(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term.

4.2 In the present case applicant has sought advance ruling on the determination of the liability to pay tax on services, therefore, in terms of said Section 97(2) (b) of CGST/SGST Act, 2017, the present application is hereby admitted.

BRIEF FACTS OF THE CASE

5. In the application dated 08.06.2023, the applicant submitted that:

a. They i.e. M/s Stellar Cold Chain Inc., is a Partnership firm having registered place of business at Narayan Nagai’, Industrial Estate, C/o Jindal Vegetable Products Limited, Bazpur Road, Kashipur – 244713 (Udham Singh Nagar) Uttarakhand, is in the Cold Storage business. They purchases raw green peas from the market and after processing the same, sale the said Frozen Green peas in the market. They also provide refrigeration and storage facilities in their cold storage to other companies also and charge storage and or refrigeration charges from such entities.

b. They also process the green peas of other companies and charge processing charges from them with 5% GST on it. Companies also store green peas in their cold storage and they charge Storage Charges with GST @ 18% on it for such activity.

c. Now, the companies has raised the query that the storage charges come under NIL GST Tariff through the Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 issued by the GST Department under the heading of “Services by way of Storage or Warehousing of cereals, pulses, fruits and vegetables, as green peas comes under the vegetables and therefore, the same is covered under the aforesaid notification.

QUESTION

In view of the above facts, ‘the applicant’ is seeking advance ruling as to;

1. Whether the Storage Charges charged from the companies for storage of frozen green peas in the cold storage is taxable under GST Act?

2. Whether the Storage Charges comes under NIL GST Tariff under “Services by way of Storage or Warehousing of cereals, pulses, fruits and vegetables” vide  Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 ?

3. Whether the Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 issued by the GST Department is applicable on the applicant case or not?

APPLICANT SUBMISSION

6. From the record submitted by the applicant we find that applicant is registered in Uttarakhand with GSTIN bearing No. 05ACMFS6830N1ZJ. Before proceeding in the present case, we have to first go through the submissions made by the applicant which are as under:

i. They are a Partnership firm having registered place of business at Narayan Nagar, Industrial Estate, C/o Jindal Vegetable Products Limited, Bazpur Road, Kashipur -244713 (Udham Singh Nagar) Uttarakhand, engaged in the business of Cold Storage. They purchases raw green peas from the market and after processing the same, sale the said Frozen Green peas in the market.

ii. They also process the green peas of other companies and charge processing charges from them with 5% GST on it. ,

iii. They also provide refrigeration and storage facilities in their cold storage to other firms/ entities and charge storage and or refrigeration charges from such firms/ entities with GST @ 18% on it.

iv. Now, the firms/ entities using their storage facilities has raised the query that the storage charges come under NIL GST Tariff through the Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 issued by the GST Department under the heading of “Services by way of Storage or Warehousing of cereals, pulses, fruits and vegetables, as green peas comes under the vegetables and therefore, the same is covered under the aforesaid notification.

PERSONAL HEARING

Accordingly opportunity of personal hearing was granted to the applicant on 26.07.2023. Sh. Apurva Jindal, Partner of the Firm, on behalf of the applicant appeared for personal hearing on the said date and re-iterated the submission already made in their application. During hearing he was asked to clarify the type of green Peas stored by the applicant, whereupon he submitted that “Frozen Green Peas” are stored by them. Sh. Deepak Brijwal, Deputy Commissioner, Concerned Officer from the State Authority was also present during the hearing proceedings. He presented the facts and requested the authority to decide the case on merits. Further, with reference to a query raised during hearing, the applicant vide letter dated 26.07.2023 (sent through email), clarified that they store Frozen Green Peas.

DISCUSSION AND FINDINGS

7. In the present case we are not deciding any wider question but restricting our conclusion to the facts and circumstances which were filed by the applicant for our consideration. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by applicant and his authorized representatives during the hearing. We have also considered the issue involved on which advance ruling is sought by the applicant, relevant facts and the applicant s interpretation of law. Now we proceed by taking up the issue.

8. We have carefully considered, all the submissions made by the Applicant. In the instant case the applicant is engaged in the business of Cold Storage after processing of raw green peas purchased from the market, they store the same for sale in the market. The applicant also undertake same process for other companies and charge processing charges from them with 5% GST on it. However, they also provide refrigeration and storage facilities to other firms/ entities and charge storage and /or refrigeration charges from such firms/ entities under GST 18% on it. The applicant has now sought advance ruling in the back drop of the Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 wherein “Services by way of Storage or Warehousing of cereals, pulses, fruits and vegetables” have wholly been exempted from tax.

In the instant case the issue before us is whether, service of storage of processed green peas (in frozen state), is covered under the ambit of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022. For better perspective, the relevant portion of the said notification is reproduced as under:

“G.S.R…(E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-

Table

We find that as amended by Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 in SI. No. 24B of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 issued under subsection (1) of section 11 of the Central Goods and Services Tax (CGST) Act, 2017, the intra-State supply of services of description as specified in column (3) of the Table have been exempted from payment of applicable tax, accordingly by virtue of the provisions of the said notification the “Services by way of storage or warehousing of cereals, pulses, fruits and vegetables” falling under service tariff code 9967 or 9985 have been subjected to NIL rate of tax.

Upon closer look of the usage of the words used in the notification it is revealed that the word “vegetables” have been used, and in the instant case, which is part ot Agriculture Product but as submitted by the applicant they are storing processed and frozen green peas. It is seen that as per the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017; agricultural produce has been defined as under:

“(d) “agricultural produce” means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market;”

We find that as per the above definition, agricultural produce is the produce out of cultivation of plants on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

In this regard, we are of the opinion that various processes involved to change the Raw Green Peas into Frozen Green Peas, changes the basic essence and character of the product and after processing, it does not fall under the agricultural product or vegetable. We hold that the spirit of the law is to give exemption for storage of Green Peas in the form as defined at Para 2(d) of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 only, and not for Processed Frozen Green Peas.

Hence, we hold that Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017as amended by Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 , does not exempt the services of storage of processed frozen green peas and applicable GST has to be paid by the applicant.

9. In view of the discussions held above, we rule as under:

RULING

1. Whether the Storage Charges charged from the companies for storage of frozen green peas in the cold storage is taxable under GST Act?

Answer- Yes.

2. Whether the Storage Charges comes under NIL GST Tariff under “Services by way of Storage or Warehousing of cereals, pulses, fruits and vegetables” Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022?

Answer- Yes, as per Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017“Services by way of Storage or Warehousing of cereals, pulses, fruits and vegetables” have been subjected to NIL rate of tax.

3. Whether the Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022 issued by the GST Department is applicable on the applicant case or not?

Answer- No.