Registered dealer must pay GST under reverse charge when buying raw cotton through Kacha Arhtiya from agriculturist

The AAR Punjab ruled that a registered dealer purchasing raw cotton from a Kacha Arhtiya (commission agent) must pay GST under reverse charge mechanism as the actual supply is from the agriculturist, not the Kacha Arhtiya. The authority determined that Kacha Arhtiya acts merely as a facilitator without authority to transfer title of goods, which remains exclusively with the agriculturist throughout the transaction process. The registered purchaser is liable for GST under reverse charge provisions applicable to supplies from agriculturists.

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Issues Involved:

1. Eligibility of the application for advance ruling.
2. Whether the purchase of raw cotton from Kacha Arhtia constitutes a purchase from an agriculturist for the purposes of Reverse Charge Mechanism under Section 9(3) of CGST/PGST Act, 2017.

Summary:

1. Eligibility of the Application for Advance Ruling:
The application for advance ruling was deemed eligible under Section 97(2) of the Central Goods and Services Tax Act, 2017, read with Section 97(2) of the Punjab Goods and Services Tax Act, 2017. The issues on which advance ruling can be sought include classification of goods or services, applicability of a notification, determination of time and value of supply, admissibility of input tax credit, determination of liability to pay tax, requirement of registration, and whether any particular activity amounts to a supply of goods or services.

2. Whether Purchase of Raw Cotton from Kacha Arhtia Constitutes a Purchase from Agriculturist for RCM:
The applicant sought to determine if purchasing raw cotton from a Kacha Arhtia, a registered dealer, constitutes a purchase from an agriculturist, thereby attracting liability under the Reverse Charge Mechanism (RCM) as per Section 9(3) of the CGST/PGST Act, 2017.

Submissions by the Applicant:
The applicant argued that since the Kacha Arhtia is a registered dealer and not an agriculturist, the purchase does not attract RCM. They cited a CBIC circular and an advance ruling by the Haryana Authority for Advance Ruling to support their claim.

Submissions by the Jurisdictional Authority:
The jurisdictional authority contended that under Section 9(3) of the CGST/SGST Act, 2017, the tax on raw cotton supplied by an agriculturist to a registered person is payable on a reverse charge basis. They argued that the Kacha Arhtia, acting as a commission agent, does not change the nature of the transaction, which remains a purchase from an agriculturist.

Discussion and Findings:
The ruling examined the definitions and roles of "Kacha Arhtia" and "recipient" under relevant statutes and rules, including the Punjab Agricultural Produce Markets (General) Rules, 1962. It was found that the Kacha Arhtia facilitates the sale of agricultural produce but does not hold the title to the goods. The transaction remains between the agriculturist and the buyer, with the Kacha Arhtia acting merely as an intermediary.

Ruling:
The applicant, being the recipient of raw cotton from an agriculturist, is liable to pay GST under the reverse charge mechanism as per Notification No. 13/2017-Central Tax (Rate) dated 28th June 2017, as amended by Notification No. 43/2017-Central Tax (Rate) dated 14th November 2017. The cited advance ruling from Haryana was deemed not binding in this case.

Conclusion:
The applicant is required to pay GST on a reverse charge basis for raw cotton purchased from agriculturists through Kacha Arhtia, as the Kacha Arhtia does not hold the title to the goods and acts only as a commission agent.

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