2021 (12) TMI 722 - AAR - GST

Ruling: Rice Commission Agent Liable for GST on Services

The applicant, a rice canvassing commission agent, sought an advance ruling on whether their services are exempt from GST under the Agricultural Produce ... Benefit of exemption from GST - Services of ‘Commission Agent' for rice millers and traders - Supply of services which pertains to selling of agricultural produce as per APMC Act - Is there any special case where the applicant has to collect GST on the Service provided (Branded and unbranded)? - paragraph 2 (d) of Notification No. 12/2017 - Central Tax (Rate) dated 28-6-2017 - HELD THAT:- It is an admitted fact that the activity carried out by the applicant is Rice canvassing commission agent for Rice millers and traders and selling of Agricultural Produce (Rice) as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State. In the instant case, the applicant is engaged in providing the services of ‘Commission Agent' for rice millers and traders, where in applicant is of the opinion that the said transaction falls under entry at Si No. 54 of the Notification No12/2017-C.T. (Rate), dated 28.06.2017, and exempted from levy of GST. Clauses (a) to (f) of S1 No. 54 cover the services relating to agricultural operations, supply of farm labour, processing of agricultural produce, leasing of agro machinery and land, services relating to agricultural produce and agricultural extension services. Commission agent services do not fall in any of the said clauses, and the same is also not claimed by the applicant. In the instant case the product viz., rice is a product of milling process involving de-husking, steaming, de-browning, polishing, sorting etc. of paddy, which is a produce out of cultivation of plants. Thus, both rice and paddy are produce out of cultivation of plants. But rice and paddy are not the same as rice is the outcome of milling process of paddy. While rice is readily consumable, paddy when subjected to milling processes yield rice, husk and rice barn. Milling process is not normally done by the paddy producer or cultivator, but is undertaken by the millers. Milling process also changes the essential characteristics of the produce from paddy to rice, which are both distinctly identifiable and separately marketable commodities. Thus, the criteria (ii), and (iv) above are not satisfied in the instant case, in as much as the processing is not done by the cultivator or the producer and the essential character of the produce has also undergone change. Therefore, rice cannot be treated as agricultural produce in terms of para 2(d) of the said Notification, and the commission agent services for sale or purchase of rice does not fall in the ambit of SI.No. 54 of the Notification 11/2017-CT(Rate) dtd 28.06.2017 and therefore not eligible for any exemption from levy of GST. The services by a commission agent should be directly linked to the services relating to the cultivation and this is made amply clear by the use of the words “by way of which links the cultivation process and the marketing process. The applicant is not assisting the cultivators of paddy, instead is assisting the manufacturers of rice/rice millers and traders, and hence the link is not established in this case. Hence the activity of the applicant is not covered under clause (g) of Entry No.54 of Notification No.12/2017- CT (rate) dated 28.06.2021 and hence is not exempted - the activity of the applicant in the instant case viz., the activity of canvassing for Rice as 'Commission Agent' is covered under SAC 9961. Further, the applicant is only charging service charges and not issuing sale invoices on behalf of the principals. Hence the activities of Commission Agent by canvassing for Rice by the applicant attracts Central Tax-CGST @ 9% and KGST @ 9% towards marketing of ‘Rice' including 'branded Rice' also. It is pertinent to note that the applicant is providing the marketing service for Rice millers and traders supplying both branded and unbranded rice on a commission basis, the activities rendered by the applicant is taxable in terms of the provisions of CGST/KGST Act - hence the applicant is required to register in terms of section 22 of CGST Act, 2017 and is also required to discharge -CGST @ 9% and KGST @ 9% for which commission is received. Issues Involved:1. Whether the applicant is entitled to collect GST on the supply of services pertaining to the selling of agricultural produce as per the APMC Act.2. Whether there is any special case where the applicant has to collect GST on the service provided (branded and unbranded).Detailed Analysis:Issue 1: GST on Supply of Services Pertaining to Selling of Agricultural Produce as per APMC ActThe applicant, a rice canvassing commission agent for rice millers and traders, sought an advance ruling on whether their services are exempt from GST under the Agricultural Produce Marketing Committee Act (APMC Act). The applicant argued that their services should be exempt as they are selling agricultural produce (rice) and that rice is considered an agricultural produce under the APMC Act.The Authority examined the definition of 'agricultural produce' as per Notification No. 12/2017-C.T. (Rate) dated 28.06.2017, which states that agricultural produce means any produce out of the cultivation of plants and rearing of animals, on which either no further processing is done or such processing is done as usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for the primary market.The Authority found that rice, which is obtained through the milling process of paddy, does not qualify as agricultural produce because:- The milling process involves de-husking, steaming, de-browning, polishing, sorting, etc., which are not usually done by the cultivator or producer.- The essential characteristics of paddy are altered during the milling process, resulting in rice, husk, and rice bran, which are distinctly identifiable and marketable commodities.Thus, the Authority concluded that rice does not qualify as agricultural produce under the said Notification, and the commission agent services for the sale or purchase of rice do not fall under the exemption provided in Sl.No. 54 of the Notification No. 12/2017-C.T. (Rate). Consequently, the applicant is liable to collect CGST @ 9% and KGST @ 9% on the supply of services relating to the sale or purchase of rice.Issue 2: GST on Service Provided (Branded and Unbranded)The applicant also sought clarity on whether they need to collect GST on services provided for branded and unbranded rice. The Authority reiterated that the services of a commission agent for rice millers and traders, whether for branded or unbranded rice, are taxable.The Authority emphasized that the services provided by the applicant do not fall under the exemption category as they are not directly linked to the cultivation process but are related to the marketing of rice, which is a processed product. Therefore, the applicant is required to register under Section 22 of the CGST Act, 2017, and discharge CGST @ 9% and KGST @ 9% on the consideration received or receivable as commission from the rice miller or traders.Ruling:1. The applicant is liable to collect CGST @ 9% and KGST @ 9% on the supply of services relating to the sale or purchase of rice.2. The applicant, by canvassing for branded and unbranded rice of millers and other traders, is liable to pay CGST @ 9% and KGST @ 9% on the consideration received or receivable as commission from the rice miller or traders.