2019 (10) TMI 1133 - AAR - GST

Commission earned from auctioning flowers qualifies for exemption under specific entries of Notification No.12/2017 - Central Tax (Rate).

In Re: M/s. International Flower Auction Bangalore Ltd.,

The Authority determined that the commission earned by a company from auctioning flowers qualifies for exemption under specific entries of Notification ... Classification of services - auctioning of flowers - providing services for sale or purchase of agricultural produce - applicability of exemption notification - commission earned from auctioning of flowers - covered under entry no. 54(e) & (g) of N/N.12/2017 - Central Tax (Rate) dated 28.06.2017 and entry no. 54(e) & (g) of Notification (12/2017) FD 48 CSL 2017 dated 29.06.2017? - Principal-agent relationship. HELD THAT:- The activity of the applicant is examined and found that the applicant is an auction house where the growers of the flowers bring the flowers to auction them and the buyers come and buy the produce. On successful auction, the applicant issues invoice on behalf of the growers and collect the sale price from the buyers and pays the consideration to the growers. Hence the applicant is acting as a Selling Commission Agent of the Growers. At the same time, he is also collecting commission for the services rendered to the buyer in providing the facilities etc. in connection with the flower auction. In the present case the applicant has presented sample copies of invoices where the applicant issues the invoices for further supply of goods on behalf of the principal. This shows that the provision of the goods by the growers to the applicant is covered under Entry 3 of Schedule I of the CGST Act, 2017. Accordingly the relationship between the applicant and the growers is that between a principal and its agent - however, the fact that the applicant has the authority to pass or receive the title of the goods on behalf of the principal shows that the applicant predominantly acts as the commission agent. Since the applicant is a “commission agent” within the meaning of the term, he also falls under the definition of agent - The “cut flowers” are covered under the definition of “agricultural produce” as is defined in the para 2(d) to the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Entry No.54 of the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 prescribes exemption for the “services relating to agricultural produce by way of services by a commission agent for sale or purchase of agricultural produce” - Since the applicant is a commission agent within the meaning of the term and he is providing services for sale or purchase of agricultural produce, the same is covered under clause (g) of entry no.54 of the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 and hence the services provided by the applicant is exempted from CGST - Similarly, the services are covered under clause (g) of entry no.54 of the Notification (12/2017) No. FD 48 CSL 2017 dated 29.06.2017 and hence are exempted from tax under the Karnataka Goods and Services Tax Act, 2017. Issues:- Whether commission earned from auctioning of flowers is covered under specific entries of Notification No.12/2017 - Central Tax (Rate) dated 28.06.2017.Analysis:- The applicant, a limited company, sought an advance ruling regarding the classification of commission earned from auctioning flowers under specific entries of the GST Act. The applicant facilitates the auction of flowers for growers and buyers, earning commission from both parties.- The applicant's activities involve creating a platform for growers and buyers, conducting auctions using a Dutch Auction system, and providing various services such as flower verification and payment clearance. The applicant collects 3.5% commission from growers and 1.5% from buyers for auctioning services.- The applicant considered their activities as falling under the definition of an 'Agent' as per the CGST Act, 2017. They argued that the commission earned should be exempt from GST under specific entries of Notification No.12/2017, which cover services by a commission agent for sale or purchase of agricultural produce.- The Authority examined the applicant's submissions, views of the Revenue department, and relevant provisions of the CGST Act. It was noted that the applicant acts as a Selling Commission Agent for growers and collects commission for services provided to buyers during the auction process.- Referring to Circular No. 57/31/2018-GST, the Authority determined that the relationship between the applicant and growers is that of a principal and agent. The invoices issued by the applicant on behalf of the growers indicated a principal-agent relationship, justifying the exemption under the CGST Act.- The Authority concluded that the cut flowers auctioned by the applicant qualify as agricultural produce, and the services provided by the applicant as a commission agent for the sale of such produce are exempt from CGST under specific entries of Notification No.12/2017. The commission received for facilitating the purchase and sale of cut flowers was deemed exempt from CGST and Karnataka Goods and Services Tax Act, 2017.This comprehensive analysis of the legal judgment provides a detailed overview of the issues involved, the arguments presented by the applicant, the examination by the Authority, and the final ruling based on relevant provisions and interpretations of the GST Act.