I have prepared an article on Treatment of Leasing services of Machinery, Godowns and where houses services provided to Agricultural Sector Under GST. Some of colleagues are raised certain questions on this aspect. So, I am trying to clarify their doubt through this article at my best of knowledge. This article only for education purpose only.
1. If any person or organization has providing services relating to supply by way of leasing of vacant land is taxable or exempt under GST?
Under Entry No.54(d) and SAC Code 9986 ,Vacant land was given by land owner either any person or Government for cultivation is not taxable under GST. In this regard Kerala Advance Ruling Authority has given ruling in the case of The Cochin Plantations Ltd-2018(11) TMI 280 dated. 20.10.2018 (AAR-Kerala) .
The appellant held vacant land on perpetual lease from the Kerala Government and paid lease rent/quit to Government through Forest Department. The applicant cultivated coffee plantation in the land. As per the Forest Department, lease rent is taxable @18% as per SAC Code 9973. However, the applicant contended that SAC code 9973 will not applicable for rent on land leased for agricultural, and it is exempt under entry 54(d) SAC Code 9986. It was held that Quit rent is a tax or land tax imposed by Government on occupants of freehold or lease land in lieu of services to a higher land owning authority. In the instant case, vacant land was given by erstwhile Cochin State to the applicant for cultivation on lease rent. Accordingly the petitioners converted the vacant land to Coffee Plantation. Therefore, the lease rent collected by Government through Forest Department is exempted under entry 54(d)-SAC Code 9986.
2. If any person or organization has providing services relating to loading, unloading, packing, storage or warehousing of agricultural produce are exempt or taxable under GST?
As per entry no.no.24 of N.No.11/2017-CTR-dated.28.6.2017 and entry 54( e) of N.No.12/2017-CTR-dated.28.6.2017 ,services provided in relation to loading, unloading, packing, storage or warehousing of agricultural produce are exempted from GST Tax.
It may be noted that this entry does not cover merely renting of warehouse. Where a storage owner only rents the storage premises, then he does not provide any service, such as loading, unloading, stacking, security etc.
Thus mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods. Essential tests are whether the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area.
3. IS GST applicable on warehousing of agricultural produce such as tea, processed coffee beans or power pulses (de-husked or split), jiggery, processed spices, processed dry fruits, processed cashew nuts etc.,?
1. As per Circular No.16/16/2017-GST, dated 15.11.2017 and Notification No.11/2017-CTR, S.No.24 and Notification No.12/2017-CTR, S.NO.54, dated.28.6.2017, the GST rate on loading, unloading, packing, storage, or warehousing of agricultural produce is NIL.
2. Agricultural produce in the notification has been defined to mean “ 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”.
3. 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 and is the processed output of the same.
4. Thus, green tea leaves and not tea is the “agricultural produce” eligible for exemption available for loading, unloading, packing, storage or warehousing of agricultural produce. Same is the case with coffee obtained after processing of coffee beans.
5. Similarly, processing of sugarcane into jiggery changes it essential characteristics. Thus, jiggery is also not an agricultural produce.
6. Pulses commonly known as dal are obtained after de-husking or splitting or both. The process of de-husking or splitting is usually not carried out by farmers or at farm level but by the pulse millers. Therefore pulses (de-husking or split) are also not agricultural produce. However, whole pulse grains such as whole gram, rajma etc., are covered in the definition of agricultural produce.
7. In view of the above, it is hereby clarified that processed product such as tea, processed coffee beans or power , pulses (de-husking or split), jiggery, processed spices, processed dry fruits, processed cashew nuts etc, fall outside the definition of agricultural produce given in Notification NO. 11/2017-CTR and N.NO. 12/2017-CTR and corresponding notifications issued under IGST and UTGSR Acts; therefore the exemption from GST is not available to their loading, unloading, packing, warehousing etc.
4. What is the difference between Renting of premises Vs. Warehousing service under GST ?
There is difference between “storage and warehousing services” and renting of storage premises services. The storage and warehousing service provider normally make arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, keeps inventory of goods, make security arrangements and provide insurance cover etc,.
In a case where a person only rents the storage premises, he does not provide any service such as loading/unloading, stacking security etc,. Mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods.
5. Whether entry 54( e) of N.No.12/2017-CTR-dated.28.6.2017 is applicable to farmers as well as traders under GST?
Yes, M/s.S.S.S.V.K Cold storage (P) Limited file an advance ruling application sought advance ruling on “whether the storage of agricultural produce falls under SAC 9986/9 or 996721? and Whether the entry no.54 (e) is applicable to both farmers and traders. The advance ruling committee held that heading SAC code 9967 deals with support services in transportation, whereas, SAC code 9986 deal with support service to agricultural , forestry, fishing, animal husbandry. Accordingly , the correct SAC code is 9986, as seen from the plain reading of the entry 54 and 55, it is evident that the services provided in activity of cultivation, from the initial stages up to the marketable stage, subject to conditions was NIL rated, as long as the commodities fall under the purview and ambit of “agricultural produce”. Further, exemption under N.No. 2/2017-CTR,is service specific and not person specific. Hence the entry no 54 (e ) is equally applicable for agricultural produce of both the farmers as well as the trader.
6. What are the tax implications on Private Entrepreneurs Godowns ( PEG) hired on rent by FCI for storage through State Nodal Agencies?
These following Tax implications are applicable on Private Entrepreneurs Godowns ( PEG) hired on rent by FCI for storage through State Nodal Agencies:-
(1). Supply of services by way of renting of immovable property for commercial purposes is taxable supply under the GST Law and attract levy of GST Tax @18%,
(2). Having said so, services in the nature of storage and warehousing of agriculture produce and rice are fully exempted from GST,
(3). Further renting or leasing of vacant land with or without a structure incidental to its use, in relation to agricultural produce would also be exempted from GST,
(4). Accordingly, depending on the nature of the transaction, GST implications on the same would arise viz:-
(a). If the service provided by the vendor/lessor is in the nature of renting of immovable property (Other than vacant land in relation to agricultural produce), the said lessor would charge GST @18%,
(b). If the service provided by the vendor/lessor s in the nature of storage/warehousing of agricultural produce and rice , the said services would not attract any levy of GST.
On the issue of on Private Entrepreneurs Godowns ( PEG ), there is an advance ruling issued by AAR-Haryana in the case of Alwa Infra-2019(2) TMI 1002 , dated.11.09.2018. In this case, Under the Private Entrepreneurs Godowns ( PEG ) Scheme of the Central Government/FCI, the Haryana State Cooperative Supply and Marketing Federation Ltd., (HAFED) was notified as nodal agency for construction of godowns in the State of Haryana. The godown were to be constructed by the private investors. There were two types of Categrories:-
(1). Lease only basis: in this case, godowns have been built by the Private Investor an d have been leased out to Haryana State Cooperative Supply and Marketing Federation Ltd (HAFED), who manages storage, preservation ad warehousing of the stocks of the FCI stored therein,
(2). Lease and Services basis: In this case, godowns have been built by the Private Investor and have been leased out to Haryana State Cooperative Supply and Marketing Federation Ltd HAFED) and the storage, preservation and warehousing of the stocks of the FCI stored therein is managed by the Private Investor under the supervision of Haryana State Cooperative Supply and Marketing Federation Ltd (HAFED).
In the applicant’s case, as per its agreement with Haryana State Cooperative Supply and Marketing Federation Ltd(HAFED), falls under the second category of Private Entrepreneurs Godowns (PRG). i.e. Lease and Service Basis.
After refer the copy of the Contract /agreement with Haryana State Cooperative Supply and Marketing Federation Ltd (HAFED), it was observed that the applicant , who falls in the second category of Lease and Service Basis, is providing both the services , i.e. the support services in relation to agricultural produce as well as real Estate Services in terms of SAC Code 997212. It was held that since both these services are capable of being provided independent of each other and since these cannot be understood to be naturally bundled and supplied conjointly in the ordinary course of business. Therefore , the applicant is providing “Mixed Supply” as per section 2(74) of the CGST Act,2017, and attract tax rate of that particular supply which attract the highest rate of tax in terms of section 8(b) of the CGST Act,2017.
7. If a person or organization providing services in Construction, Erection, Commissioning, Or Installation of original works pertaining to mechanized food grain handling system, Whether GST is applicable or exempted, If applicable what is the applicable rate under GST?
Erection or installation of machineries or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages, GST is leviable @12% . Because they are setup wheat flour mill for processing. Wheat processing is an agricultural produce, Thus, erection or installation of machines or equipment for dal mills , rice mills, milk dairies or cotton ginning mills would be taxable @12%.
8. How can treat services relating to Custom Milling of Paddy and is it “Intermediate Process under GST?
Milling od paddy is not an intermediate production processes in relation to cultivation of plant. It is a process carried out after the process of cultivation is over and paddy has been harvested. Further, processing of paddy into rice is not usually carried out by cultivations but rice millers. Milling of paddy into rice also changes its essential characteristics. Therefore, milling of paddy into rice cannot be considered as an intermediate production process in relation to cultivation of plants for food, fibre or other similar products or agricultural produce.
In view of the above , it is clarified that milling of paddy into rice is not eligible for exemption under S.No. 55 of Notification No.11/2017 –CT (Rate) ,dated.28.6.2017 and corresponding notifications issued under IGST and UTGST Acts.
GST rate on services by way of job work in relation to all food and food products falling under Chapter 1 to 22 has been reduced from 18% to 5% vide Notification No.31/2017 CT (R) and Notification No.11/2017 –CT (Rate) ,dated.28.6.2017. S.No 26. Therefore, it is here by clarified that milling of paddy into rice on job work basis is liable to GST @ 5% on the processing charges and not on the entire value of rice.
9. What is the impact on milling of wheat into floor or paddy into rice for distribution by State Governments under PDS under GST?
The CBIC clarified through its Circular No. 153/09/2021-GST,dated.17.06.2021, that GST on milling of wheat into flour or paddy into rice for distribution by State Governments under PDS. As per Entry at SL. No.3A of Notification NO.12/2017-Cetral Tax (Rate) ,date June’28,2017, exempts “Composite supply of goods and services in which the value of supply of goods constitutes not more than 25% of the value of the said composite supply provided to the Central Government, State Government or Union Territory or Local authority or a Government authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243 G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution”.
As per the recommendation of the GST Council the issue is clarified as below.
3.1 Public Distribution specifically figures at entry 28 of the 11th Schedule to the Constitution, which lists the activities that may be entrusted to a Panchayat under Article 243G of the Constitution. Hence, said entry no.3A would apply to composite supply of milling of wheat and fortification thereof by miller, or of paddy into rice, provided that value of goods supplied in such composite supply (goods used for fortification, packing material etc) does not exceed 25% of the value of composite supply. It is a matter of fact as to whether the value of goods in such composite supply is up to 25% and required ascertainment on case to case basis.
In case the supply of service by way of milling of wheat into flour or of paddy into rice, is not eligible for exemption under SL. No.3A of Notification NO.12/2017-Cetral Tax (Rate) ,date June’28,2017 for the reason that value of goods supply in such a composite supply exceeds 25% then the applicable GST rate would be 5% if such composite supply is provided to a registered person, being a job work service (entry 26 of N.No.11/2017-CT(Rate), dt.28.6.2017. Combined reading of the definition of job work (sec.2(68),2(94),22,24,25 and section 51) of the CGST Act is also a registered person for the purpose of the said entry No.26 and thus said supply to such person is also entitled for 5%.
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