GST ON STORAGE & WAREHOUSING OF AGRICULTURAL PRODUCE

On a question of taxability of warehousing services used for packaging and storage of tea, Authority for Advance Ruling (AAR), Maharashtra interpreted the taxability and exemption in relation to ‘tea’ in Re: Nutan Warehousing Company Pvt. Ltd. 2018 (8) TMI 1073 - AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA, as also confirmed by Appellate Authority for Advance Ruling.

Facts and Advance Ruling

The applicant was a storage and warehousing service provider which stored final products of M/s Unilever in its godown. The final product was Lipton Pure and  simple 100s tea bags resulting from several processes carried out on raw tea leaves or semi-processed tea leaves resulting in new product - 'Tea'.

The applicant sought advance ruling on 'whether the supply of warehouse services used for packing & storage of tea, under above mentioned facts & circumstances was/is exempted vide Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate) or otherwise.

The second issue on which applicant sought Advance Ruling was 'applicability of  exemption  for the activity of providing Services in the nature of warehousing for loading, unloading, packing, storage or warehousing of agriculture produce'.

The applicant considered tea as an agricultural produce. Agricultural produce is defined as per clause 2(d) of the Notification No. 1212017-C.T. (Rate), dated 28-6-2017  as under-

'Agricultural produce' means any produce out of cultivation of plants an 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”.

In the instant case, assessee was of  strong view that the tea, procured in bulk, either from public tea auctions or directly from manufacturers of tea is an agricultural produce as defined in clause 2(d) of the Notification No. 12/2017-CT (Rate) dated 28.6.2017. Further, storage & warehousing of tea post procurement, blending and packing undertaken by M/s Unilever is exempted under E. No. 54(e) of the Notification No. 12/2017-CT (Rate) dated 28.6.2017. Based on this understanding, applicant had neither taken GST registration nor discharged the GST liability. After, insistence from Applicant's client, M/s Unilever, applicant had taken registration and regularly discharging GST liability.

It claimed that the storage and warehousing of tea is exempted vide Serial No 54(e) of Notification No. 12/2017- Central tax (rate), i.e.,

1. agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;
2. supply or farm labour;
3. 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;
4. renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
5. loading, unloading, packing, storage or warehousing of agricultural produce;
6. agricultural extension services;                                           
7. services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

It believed that ‘tea’ is an agricultural produce. The AAR ruled that the goods being stored in the applicant's godown are not agricultural produce as per definition given in Notification No. 12/2017- Central Tax (Rate) dated 28th June, 2017 and the same has been reiterated by Board Circular No.16/16/2017-GST issued under F. No. 354/173/2017- TRU, dated 15.11.2017.

Appellate Ruling

Being aggrieved, assessee preferred an appeal before Appellate Authority for Advance Ruling (AAAR) to reconsider and decide upon whether the tea leaves of the various qualities, which is precisely black tea, procured in bulk either from public tea auctions or directly from manufacturers of tea in 50 Kg bags, after undergoing various stages of the processing as detailed above, by the appellant's client for storage in the warehouse owned by the appellant are agricultural produce or otherwise.

It was submitted before AAAR that the green tea leaves which are plucked from the tea gardens are not suitable for human consumption due to the presence of bitter taste inhered into it. The appellant further submitted that it is made suitable for consumption by subjecting the same under the various stages of processing, which are enumerated below:

1. Exposing of the tea leaves under the sun or heating of the tea leaves for drying up;
2. Rolling of the dried up tea leaves by hand or machines to break the leaf cells and extracting juices or enzymes inhered into it;
3. Complete drying up by heating under the fire or sun or current of the hot air;
4. Fermentation of the tea leaves;
5. Sieving;
6. Roasting of the tea leaves with the charcoal to obtain the suitable flavour and colour.

All these above processes were mostly carried out by the manufacturers after procuring the green tea leaves from the producers of the green tea leaves. As a result of these processes, the tea leaves acquired the new flavour and colour which are suitable for the human consumption. Thus, original unprocessed green tea leaves change its nature as also the name, i.e. black tea.

However, it needs to be seen whether the manufactured product, ‘black tea’ can be construed as agricultural product or not.  In terms of definition of agricultural produce as per clause 2(d) of Notification No. 12/2017-CT (Rate) dated 28.06.2017, the following two characteristic parameters will determine any goods to be the agricultural produce or otherwise.

(i)   It should be produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products;

(ii)  It should be subjected to either no further processing or such processing by the cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

It is a fact that though the product is a produce out of cultivation of the plants, the same is obtained as a result of the specific manufacturing processes, carried out by the manufacturers on the original agricultural produce i.e. green tea leaves for making them suitable for consumption by imparting the desired flavor and colour by the above discussed methods. All these processes, which change the characteristics of the green tea leaves, are carried out by the manufacturers and not the cultivators or the producers of the green tea leaves as envisaged under the definition of the agricultural produce. Thus, the manufactured products do not fulfill the above prescribed criteria of the agricultural produce, and thus cannot be considered as agricultural produce.

According to exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017, if tea stored in appellant's warehouse is agricultural produce, same should be covered under the said notification without any doubt. But the processes carried out by the client of the appellant (and not the cultivator or producer). It actually loses the nature and characteristics of an agricultural produce in terms of the definition of 'agricultural produce' and are ready for secondary or tertiary market. The intention of legislature has never been to exempt agricultural produce at every stage. Had it been the case, then all agricultural produce, processed or manufactured by the person other than the cultivator or producers, would have been exempted from GST. However, that is not the case. As the unprocessed green tea leaves are exempted, while the Tea, whether or not flavoured (other than unprocessed green leaves of tea) are exigible to 5% GST.

This inference also gets support from the fact that the ‘unprocessed green leaves of tea’ falling under heading 0902 is subject to Nil rate of duty as per the Notification No. 2/2017-C.T. (Rate) dated 28.06.2017, while the processed tea which include the black tea, the product in question, falling under the heading 0902 30 attract 5 % of GST(2.5% CGST + 2.5% SGST) in terms of its entry at Sr. 36 of the Schedule I to the Notification 1/2017-C.T.(Rate) dated 28.06.2017. It appears that it was never the intention of the legislature to tax the primary agricultural produce on which no processing is done or such processing is done either by the cultivator or the producers which does not alter the essential characteristics but makes it marketable for primary market. Thus, the notification levying GST on the processed tea product including black tea is clearly indicate that the disputed product is not an agricultural produce, rather the same is a manufactured produce.

Further, in respect of blending etc being undertaken by clients in rented warehouses, since these processes of the blending and packaging were being performed by the appellant's client, they were certainly not the cultivator or producers of the tea. Thus, the blended and packaged product, which are to sold to the overseas markets are definitely not the primary markets as envisaged in the definition of the agricultural markets.

It observed that it is the manufacturers other than the cultivator or producers of the tea, who is undertaking various manufacturing processes to convert green tea leaves to the tea fit for human consumption. It is only after the manufacturing of the black tea from the green tea leaves, that its clients is procuring the same for storage in the warehouse for further processing the same by way of blending and packaging prior to exporting the same to the overseas market.

It thus, concluded that products stored in the warehouse were not agricultural produce and no exemption would be available to the assessee. It further ruled that Circular No. 16/2017-GST dated 15.11.2017 was not contrary to the Notification but consistent with the same. Board is empowered to issue circulars for purpose of uniformity in implementation of Act and all officers and all other persons employed in implementation of Act shall observe and follow such orders / circulars. [In Re: Nutan Warehousing Company Pvt. Ltd.2018 (12) TMI 651 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA]