2018 (8) TMI 1859 - AAR - GST

Commission agents for agricultural produce not required to register under Section 24(vii) when representing non-taxable agriculturists, but must register under Section 22(1) if turnover exceeds threshold

The AAR-Haryana ruled that commission agents dealing in agricultural produce are not mandatorily required to register under Section 24(vii) of CGST/HGST ... Levy of GST - reverse charge mechanism (RCM) - supply of raw cotton - services by commission agent in relation to sale or purchase of Agricultural produce - requirement of registration - Whether commission agent, providing services in relation to sale or purchase of Agricultural produce, is liable to obtain registration and is liable for tax under reverse charge mechanism on services provided in sale of Raw Cotton vide N/N. 121 /ST-2, dated 14-11-2017 issued under Haryana Goods & Services Tax Act, 2017 (hereinafter referred as HGST) read with corresponding N/N. 43/2017, dated 14-11-2017 issued under Central Goods & Services Tax Act, 2017? HELD THAT:- A commission agent who is making supplies on behalf of such agriculturist, who is not a taxable person, is not liable for compulsory registration under clause (vii) of Section 24 of the CGST/HGST Act, 2017. However, if the aggregate turnover of supply of exempted as well as taxable goods by commission agents (Kachha Arhatia) exceeds the threshold limit, such commission agents shall be liable for registration as per Section 22(1) of CGST/ HGST Act, 2017. As per Notification No. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Services Tax Act, 2017 read with corresponding Notification No. 43/2017, dated 14-11-2017 issued under Central Goods & Services Tax Act, 2017, raw cotton has been inserted at Sr. No. 4A in the table notified vide Notification No. 381ST -2, dated 30-6-2017 under the HGST Act, 2017 and corresponding Notification No. 4/2017-Central Tax (Rate), dated 28-6-2017 under the CGST Act, 2017, The notification specifies that the tax on the supply of goods (raw cotton) by an agriculturist shall be payable on reverse charge basis by any registered person as the recipient of such supply. Thus, a commission agent who becomes liable for registration under Section 22(1) of the Acts ibid, shall also become liable to pay tax on supply of raw cotton by an agriculturist on reverse charge basis being a registered person. Issues Involved:1. Whether commission agents providing services related to the sale or purchase of agricultural produce are liable to obtain registration under GST.2. Whether commission agents are liable to pay tax under the reverse charge mechanism on services provided in the sale of raw cotton.Detailed Analysis:Issue 1: Registration Requirement for Commission AgentsThe applicant, engaged in providing services to farmers for selling agricultural produce, argued that their services are exempt under Notification No. 12/2017-Central Tax (Rate) and corresponding state notifications. Consequently, they surrendered their provisional GST registration. The services provided by the commission agents, as per APMC norms, include facilitating the sale of agricultural produce like raw cotton, which attracts 5% GST.The authority noted that the Government, through Notification No. 43/2017-Central (Rate) and corresponding state notifications, had included raw cotton under reverse charge mechanism, making the recipient liable for tax payment. The applicant sought clarity on whether they could be considered recipients of supply for tax purposes.The authority explained that commission agents (Kachha Arhatia) act on behalf of agriculturists, who are not liable for registration under Section 23(1)(b) of the CGST/HGST Act, 2017. Therefore, commission agents making supplies on behalf of such agriculturists are not liable for compulsory registration under Section 24(vii) of the Act. However, if the aggregate turnover of exempted and taxable goods by commission agents exceeds the threshold limit, they must register under Section 22(1) of the CGST/HGST Act, 2017.Issue 2: Tax Liability under Reverse Charge MechanismThe applicant contended that taxes on raw cotton purchases were being deposited by the buyers, and the commission agents' services were exempt as they constituted a composite supply. They argued that neither the farmer nor the commission agent should be liable for tax collection and payment.The authority clarified that as per Notification No. 121/ST-2 and corresponding central notifications, raw cotton was included under reverse charge mechanism, making the registered recipient liable for tax payment. The commission agent, if registered under Section 22(1) due to exceeding the turnover threshold, would also be liable to pay tax on raw cotton supplied by an agriculturist under reverse charge basis.The authority further distinguished between Kachha Arhatia and Pucca Arhatia. Kachha Arhatia acts solely as an agent without dominion over goods, while Pucca Arhatia acts as a principal with personal interest, including supplying their own goods. Pucca Arhatia, being liable for registration under Section 24(1)(vii) and exceeding the threshold limit, must charge tax or reverse charge on raw cotton supply.Ruling:A commission agent making supplies on behalf of an agriculturist, who is not a taxable person, is not liable for compulsory registration under Section 24(vii) of the CGST/HGST Act, 2017. However, if their aggregate turnover exceeds the threshold limit, they must register under Section 22(1) and pay tax on raw cotton supply under reverse charge basis. Pucca Arhatia, acting as a principal, must register and charge tax or reverse charge on raw cotton supply subject to the threshold limit.Conclusion:The judgment clarified the registration and tax liability of commission agents under GST, distinguishing between Kachha Arhatia and Pucca Arhatia, and outlining conditions under which they must register and pay tax on raw cotton supply under reverse charge mechanism.