Kacha Arhtiya providing services to agriculturists not liable for GST under reverse charge mechanism

The AAAR Punjab dismissed an appeal regarding GST liability under reverse charge mechanism for a Kacha Arhtiya. The appellate authority held that a Kacha Arhtiya, acting as an agent for agriculturists in cotton transactions, provides services rather than supplies goods since they lack title to the cotton. The transaction between agriculturist and Kacha Arhtiya constitutes supply of services, not goods, therefore falling outside the scope of RCM Notification No. 4/2017-CT which applies only to goods supply. The authority concluded that Kacha Arhtiya cannot be held liable for GST under the reverse charge mechanism, as the notification specifically covers goods transactions, not services.

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Issues Involved:
1. Interpretation and applicability of Notification No. 43/2017-Central Tax (Rate) dated 14th November, 2017.
2. Determination of the person liable to pay tax under the Reverse Charge Mechanism (RCM) for the supply of raw cotton.

Summary:

1. Interpretation and Applicability of Notification No. 43/2017-Central Tax (Rate) dated 14th November, 2017:
The primary issue revolves around the interpretation and applicability of Notification No. 43/2017-Central Tax (Rate) dated 14th November, 2017, concerning the procurement of raw cotton by the appellant from Kacha Arhtiya. The question is who shall be liable to pay tax through RCM when raw cotton is supplied by the farmer through the Kacha Arhtiya to the appellant.

The AAR referenced Notification No. 13/2017-Central Tax (Rate) dated 28th June, 2017, which was incorrect for the issue under consideration. The correct notification is Notification No. 4/2017-Central Tax (Rate) dated 28th June, 2017, as amended by Notification No. 43/2017-Central Tax (Rate) dated 14th November, 2017.

2. Determination of the Person Liable to Pay Tax under RCM:
The appellant contended that the Kacha Arhtiya is an agent of the agriculturist and thus not liable to pay GST under RCM. The appellant argued that the Kacha Arhtiya does not purchase goods but acts as an agent, performing activities like cleaning, packaging, and selling the goods by auction.

The definitions of "supplier," "agriculturist," "recipient," and "registered person" under the CGST Act were examined. The Kacha Arhtiya, acting as an agent of the agriculturist, falls within the definition of "supplier" and "agent." The crucial factor is whether the agent has the authority to pass or receive the title of goods on behalf of the principal. The Kacha Arhtiya issues invoices in his name, indicating that he acts on behalf of the agriculturist.

The Notification No. 4/2017-CT dated 28th June, 2017, specifies that the liability to pay GST under RCM arises when the supplier of goods is an agriculturist and the recipient is a registered person. Since the Kacha Arhtiya acts as an agent of the agriculturist, he steps into the shoes of the supplier of goods, and the registered person receiving such goods is liable for the tax under RCM.

The appellant's reliance on Circular No. 57/31/2018-GST dated 04th September, 2018, was misplaced as the circular clarifies registration requirements and not RCM liability. The transaction between the agriculturist and Kacha Arhtiya involves the supply of services, not goods, and thus does not fall under RCM Notification No. 4/2017-CT dated 28th June, 2017.

The order of the Appellate Authority for Advance Ruling, Haryana, cited by the appellant, was not applicable as rulings are "in personam" and not "in rem."

Order:
The order AAR/GST/PB/30 dated 10th of November, 2022, issued by the Authority for Advance Ruling, Punjab, is upheld. The appeal filed by the appellant stands dismissed on all counts.

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