The Goods & Services Tax (GST) has just completed 4 years in operation. On this occasion, we take an opportunity to analyse impact and note major highlights of GST on Tea Industry of India. After water, Tea is said to be the most consumed drink worldwide. Tea (CHAI) is undoubtedly the most popular beverage in India. So instead of CHAI PE CHARCHA, let us do CHAI AUR GST PAR CHARCHA!!

Overview of GST impact on Indian Tea Industry -“CHAI AUR GST PAR CHARCHA”

Background of Tea Industry in India

India is the second-largest tea producer in the world after China. On an average 18% of the total tea production is exported and balance of 82% is consumed within the country. Tea is grown in 15 Indian states of which Assam, West Bengal, Tamil Nadu, and Kerala are the major producers accounting for close to 97% of our nation’s total Tea production. The Indian Tea industry is one of largest employer in India and is therefore a vital part of our nation’s agrarian economy. However, at present the industry is on the verge of a major crisis due to COVID 19 impact and further facing severe issues, major being pressing competition from Sri Lanka, China and Kenya: climatic change leading to less rainfall, and low wages to labour.

Taxability of tea under GST

At present, tea in form of tea leaves/green leaves only are treated as an agricultural produce and exempted under GST. Tea cultivators are exempted from taking registration under GST in case their supply is limited to tea cultivated from their agricultural land. Further, exemptions in respect of tea are provided under S.No. 54 of Notification no. 12/2017-Central tax (Rate) considering tea as an “agricultural produce”.

It is pertinent to note that the Govt. has issued a clarification on this matter vide Circular No. 16/16/2017-GST dated 15/11/2017 where it has clarified the scope of term “agricultural produce” and clearly specified that:

1. Tea used for making the beverage, such as black tea, green tea, white tea is a processed product made in tea factories after carrying out several processes, such as drying, rolling, shaping, refining, oxidation, packing etc. on green leaf. Therefore, green tea leaves would be regarded as an “agricultural produce” under GST and not manufactured tea.

2. Further, manufactured tea is not eligible for exemption available for loading, unloading, packing, storage or warehousing of an agricultural produce. Similarly manufactured tea would not be eligible for other exemptions provided in S.No. 54 of Notification no. 12/2017-Central tax (Rate).

A similar view has been held by AAR in M/s Nutan Warehousing Company Private Limited[1].

Now, on the contrary, to deliberate on whether processed tea could be considered as agricultural produce; it is pertinent to read the decision of the Supreme Court in the case of Commissioner of Sales Tax Vs. D.S. Bist[2] wherein the court observed thatUnlike many agricultural products, tea leaves are not marketable in the market fresh from the tea gardens. Nobody eats tea-leaves. It is meant to be boiled for extracting juice out of it to make tea li   quor. Tea-leaves are therefore only fit for marketing when, by a minimal process they are made fit for human consumption. The question before us whether after the tea leaf had been put through the process of withering, crushing, roasting and fermentation it continued to be agricultural produce. It was tea leaf when selected and plucked, and it continued to be a tea leaf when after the process of withering, crushing and roasting it was sold in the market.  The process applied was intended to bring out its potential qualities of flavour and colour.  The potential inhered in the tea leaf from the outset when still a leaf on the tea bush.  The potential surfaced in the tea leaf when the mechanical processes of withering, crushing and roasting, fermenting by covering with wet sheets and roasting again were applied.  The tea leaf was made fit for human consumption by subjecting it to those processes.  At no stage did it change its essential substance. It remained a tea leaf throughout.  In its basic nature, it continued to be agricultural produce.”.

Further, a writ petition challenging levy of GST on processed tea has been admitted by Gauhati HC in the case of Guwahati Tea Warehousing Association Vs. UOI[3]; where it has been argued that processed tea shall be treated as an agricultural produce under GST. The decision is still pending and if ordered in favour will be of great relief to the industry stakeholders who were facing the adverse comments from the revenue biased advance ruling authorities and could open floodgates of litigations in the industry.

Exemptions under GST

There are few exemptions provided under law vide NT. 12/2017- CT(R) which will be applicable only when such services are provided in relation to tea being in the nature of agricultural produce. As sale of tea leaves is exempted, it is vital to have these exemptions so that there is no cost escalation owing to taxes on inward supplies. Such exemptions are as follows:

1. Support services related to cultivation such as :

    • agricultural operations directly related to production i.e., cultivation, harvesting, threshing, plant protection, or testing;
    • supply of farm labour
    • 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;
    • renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
    • loading, unloading, packing, storage or warehousing
    • agricultural extension services;
    • services by any Agricultural Produce Marketing Committee or Board
    • services provided by a commission agent
    • fumigation in a warehouse

2. Transportation by rail or a vessel within India.

3. Road transportation by Goods transport agency (GTA)

4. General insurance/ crop insurance

5. Job – work services.

However, it is to be noted that aforesaid exemption is only applicable to the tea leaves and not to processed or manufactured tea.

Notable judgments in GST so far

The following advance rulings could be noted for taxability on:

1. Packaging tea bags – The activity of stuffing tea in pouches and making tea bags where the raw materials such as tea and packing materials are provided by the principal is taxable supply under GST. At present, there is an ambiguity on the classification and tax rate of the said activity i.e., whether it should be treated as an ancillary service to principal activity of manufacturing tea and chargeable at 5% or it should be treated as a separate service like in terms of job work chargeable at 18%. Held by AAR in Vedika Exports Tea Pvt Ltd[4]. However, this matter was brought before the Appellate Authority for Advance Ruling of West Bengal (Appeal Case No. 04/WBAAAR/APPEAL/2019 dated 28.02.2019), wherein the two members of the Appellate Authority had divergent views. One appellate members’ view was similar to that of AAR stating it to be taxed at 18% as packaging service while the other members opined it to be taxed @ 5% being manufacturing activities. In light of divergent views, it was held that no Advance Ruling can be given on this aspect the original AAR also was deemed to be withdrawn.

2. Job work – The activity of removing caffeine from tea powder which is imported from a foreign party and re-exported is taxable under GST and treated as intra-state supply since the place of supply would be the location where service is actually performed. Held by AAR in Synthite Industries[5].

Levy of TCS on auction of tea

The Tea Board of India operates an electronic auction system for trading of tea across the country including for collection and settlement of payments and thereby falls under the category of electronic commerce operator liable to collect Tax at Source (TCS). CBIC had clarified vide Circular No.74/2018-GST dated 05/11/2018, that TCS at the rate of 1% shall be collected by Tea Board of India from:

1. sellers (i.e. tea producers) on the net value of supply of goods i.e. tea; and

2. auctioneers on the net value of supply of services (i.e. brokerage)

Such sellers or auctioneers from whom TCS is being collected can claim benefit of such TCS paid since it would be deposited and reflected in their electronic cash ledger which can further be used for making payment of taxes or interest etc. The unutilised TCS may be claimed as refund by such person.

Onerous requirement of maintaining books of accounts for auctioneer:

In case where tea is sold through auction, the seller supplies tea to the auctioneer charging GST and the auctioneer claims ITC and further sells tea to the buyer in the auction. CBEC had issued clarification vide Circular No.23/23/2017-GST dated 21/12/2017 in respect of maintenance of books of accounts relating to additional place of business by a principal or an auctioneer for the purpose of auction of tea where ITC is claimed by the auctioneer. The principal as well as the auctioneer is required to disclose warehouses where the stock meant for auction is stored as their additional place of business in the GST registration certificate i.e., FORM REG-06. Further, the buyer is also required to disclose such warehouse as his additional place of business if he wants to store the goods purchased through auction in such warehouses.

For e.g.: A is a seller located in Assam and sells tea through an auctioneer B in West Bengal, then A would need to keep stock of tea in a warehouse in West Bengal and accordingly will have to apply for GST registration. On other hand, B would need to disclose such warehouse as its additional place of business.

Taxability for Tea Brokers

Tea brokers play a significant role in the industry in terms of being a middle man between sellers and buyers. They generally earn a commission on quantum basis by facilitating sale where seller directly invoices to the buyer and broker issues a commission invoice to the seller.

However, the services of such tea brokers are not merely limited to a commission agent; there are various business auxiliary services that are provided by tea brokers or agents which involves organising auction for sale, drawing samples, undertaking printing of catalogues, distribution of samples to their buyers, conduct of auction, issuing delivery orders, billing work and collection of sale proceeds on behalf of their clients. Such business auxiliary services that are provided by the tea brokers who holds out to be mere commission agent are also taxable under GST.

Impact on Input tax credit (ITC):

It has been discussed in the earlier part that the supply of tea leaves is exempted. Section 17(2) of CGST Act, 2017 provides that ITC may not be claimed on inward supply of goods or services which are used to provide the exempted outward supplies. If the cultivator is merely engaged in the sale of tea as agricultural produce, it would not be entitled to claim ITC on various expenses, major cost being of fertilisers.

On the other hand, if the tea grower has its own manufacturing/processing facilities, it would be having both exempted supplies (i.e. sale of tea leaves) and taxable supplies (i.e., manufacturing and sale of processed tea); and hence such entities would need to make reversal of common Input tax credit in accordance with Rule 42 (for inputs & input services) and Rule 43 (for capital goods) of CGST Rules, 2017.

Similarly, one of the practice in the industry is distribution of free trade samples by tea producers to brokers or other customers before sale at auction. This practise of issuing free trade samples would require reversal of applicable input in accordance to Section 17(5) (h) ibid. In case quantification of input for reversal is not possible then it is suggested to charge GST on such supplies of free samples. Further, records of such free samples need to be maintained in accordance with Rule 56 ibid.

Withdrawal of green leaf cess in Assam

The Assam government levies a green leaf cess of 0.40 paise per kilogram of green leaf for big plantation under the Assam Taxation on Specific Land; which has been recently withdrawn for small tea grower and according to statistics small grower produce 40% of Assam green leaf. However, notification to give effect of the withdrawal is still not issued by the ministry although it has been passed in the Assembly. The same is expected to be issued soon.


In nutshell, the tea sector has been little unorganised sector in the past but with the introduction of GST, there may be need of having more organised business practices. Considering the thrust of the Government on the compliance, the risk of non -compliance could always be substantial. Further, there still exists ambiguity on a fundamental question that whether processed tea will be considered as agricultural produce under GST. Let us hope that same will be answered by the judicial authorities or CBIC in near future.


[2] (1979) 44 STC 392

[3] 2018 (15) G.S.T.L. J168 (Gau)




The article has been vetted by CA Madhukar N. Hiregange and CA Gagan Kedia. Request you to give your feedback to the author at – [email protected].

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October 2021