Paddy treated as agricultural produce; godown rent for storage gets Nil GST under Notification 12/2017 S. No.54

The AAR (TN) held that paddy qualifies as "agricultural produce" under GST, as it is a product of cultivation and the only processing normally undertaken by the cultivator is removal of husk, which does not alter its essential characteristics but merely renders it marketable in the primary market. Consequently, services relating to storage or warehousing of paddy fall within the exemption under S. No. 54 of Notification No. 12/2017-Central Tax (Rate), attracting a Nil rate of GST. Therefore, rent received for the godown used for storage of paddy is not taxable under GST.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether rent received for a godown used for storage of paddy is exigible to GST or is exempt by virtue of the notifications prescribing a nil rate for services relating to storage or warehousing of agricultural produce.

1.2 Whether paddy qualifies as "agricultural produce" within the meaning of the relevant GST rate and exemption notifications.

1.3 Whether the application for advance ruling on the above issue is admissible under Section 97(2)(b) of the CGST/TNGST Acts as relating to the applicability of a notification.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of the application under Section 97(2)(b)

Legal framework

2.1 The Court referred to Section 97(2)(b) of the CGST/TNGST Acts, which covers questions relating to "applicability of a notification issued under the provisions of this Act".

Interpretation and reasoning

2.2 The question raised concerns the applicability of Notification No. 11/2017-Central Tax (Rate) and Notification No. 12/2017-Central Tax (Rate) to the rent received for godown services used for storage of paddy.

2.3 On this basis, the Court held that the query squarely falls within Section 97(2)(b) as it involves determination of applicability of a notification under the Act.

Conclusions

2.4 The application for advance ruling was held to be admissible under Section 97(2)(b) of the CGST/TNGST Acts.

Issue 2: Taxability under GST of rent received for godown used for storage of paddy; applicability of nil-rated agricultural support service entry

Legal framework

2.5 The Court considered S. No. 24 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and S. No. 54 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, both under Heading 9986.

2.6 Under these entries, services relating to cultivation of plants and other agricultural activities, including "loading, unloading, packing, storage or warehousing of agricultural produce", are prescribed a nil rate of GST.

2.7 The notifications define "agricultural produce" as any produce out of cultivation of plants or rearing of animals (except horses) for specified purposes, on which either no further processing is done or such processing as is usually done by a cultivator or producer, which does not alter essential characteristics but makes it marketable for the primary market.

Interpretation and reasoning

2.8 The factual position, as accepted by the Court based on the application and submissions at hearing, is that the premises are rented out as a godown for storage of paddy.

2.9 The Court proceeded on the basis of these stated facts, notwithstanding non-production of the rental agreement and bills, and examined whether such storage constitutes "storage or warehousing of agricultural produce".

Whether paddy is "agricultural produce"

2.10 The Court analysed the nature of paddy and rice. It noted that paddy is the rice grain with its husk, an unprocessed grain harvested from the rice plant, being the raw, unmilled form produced from cultivation.

2.11 Rice, in contrast, is the edible, processed grain obtained after milling paddy and removing the husk, often with further processing depending on the variety.

2.12 Applying the definition in the notifications, the Court identified the following cumulative conditions for a product to qualify as "agricultural produce":

(a) it must come from cultivation of plants;

(b) no further processing is done, or

(c) if processing is done, it is by the cultivator or producer;

(d) such processing does not alter the essential characteristics of the product; and

(e) such processing only makes it marketable for the primary market.

2.13 The Court found that paddy is a produce of cultivation of plants and any processing (such as removal of husk to the extent done by the cultivator to make it saleable) does not alter its essential characteristics but merely renders it marketable in the primary market.

2.14 On this reasoning, the Court held that paddy satisfies all the conditions of the definition and is covered within "agricultural produce" for the purpose of the notifications.

Character of services and applicable rate

2.15 Having held paddy to be "agricultural produce", the Court treated the renting of the godown for storage of paddy as a service of "storage or warehousing of agricultural produce" under Heading 9986.

2.16 Under S. No. 54 of Notification No. 12/2017-Central Tax (Rate), such services relating to storage or warehousing of agricultural produce are assigned a nil rate of GST.

Conclusions

2.17 Paddy qualifies as "agricultural produce" as defined in the relevant GST rate and exemption notifications.

2.18 Renting of godown premises for storage of paddy constitutes a service of storage or warehousing of agricultural produce under Heading 9986.

2.19 By virtue of S. No. 54 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, the rent received by the applicant towards the godown used for storage of paddy is not taxable and attracts a nil rate of GST.

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