RCM applicability on Cotton Freight

[Balakrishnan Ramalingam]

My clients Spinning Mills are paying Lorry Freight payment for purchase of Cotton - Inter State. Please clarify whether RCM is applicable under GTA for the above Lorry Freight Payment?

[Rajagopalan Ranganathan]

Sir,

You have to pay GST on freight under reverse charge if you procure cotton from agriculturist vide Sl. No. 4A of Notification No. 4/2017-Central tax (Rate) dated 28..6.2017 as amended.

[Balakrishnan Ramalingam]

Sir,

I am refering about Freight on Cotton purchase (GTA) and not cotton per se. The amendment notification as below applies only for Cotton purchase from Agriculturist. But in my case, Cotton is purchased from Ginners/Traders.

“4A. 5201 Raw cotton Agriculturist Any registered person”.

Thanks for the reply

[Rajagopalan Ranganathan]

Sir,

If a consignment note issued by your transporter then you have to pay GST under reverse charge. If no consignment note is issued no GST is payable on freight charges vide Sl. No. 18 of Notification No. 12/2017-Central Tax (Rate) date 28.6.2017 as amencded.

[KASTURI SETHI]

Here we are discussing GTA service for transportation of Cotton and NOT raw cotton. (Raw cotton is under RCM as goods and cotton).

(1) No doubt issuance of consignment note is legal requirement as GTA but at the same time non-issuance of consignment note cannot be adopted as modus operandi.

(2) If any agricultural produce is subjected to process (by cultivator or producer) which alters the basic character of the same, that would fall out of definition of agriculture produce. For example : jaggery, Sugar etc.In this scenario and GST is applicable.

(3) if we treat cotton as agricultural produce, no GST is applicable under RCM. It is exempted vide serial No.21 of Notification No.12/17-CT(Rate) dated 28.6.17 as amended.

(4). In my view, raw cotton is agricultural produce and cotton is not agricultural produce inasmuch as Raw cotton is subjected to various processes before being converted into cotton through machines.

(5) There is a lot of difference between both. Raw cotton contains seeds, impurities etc. whereas cotton gains fine shape after ginning. Raw cotton is linked with the farmer/cultivator and cotton is with the trader.

(6) The purpose exemption notification is to provide benefit to the farmer/cultivator.

It is pertinent to gh through the definition of 'Agriculture Produce' as per clause 2(d) of the Notification No. 12/2017-C.T. (Rate), dated 28-6-2017 which is as under -

“agricultural produce” means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market;

So in view of above, cotton does not fall under RCM as goods and GST on the amount of freight paid for transportation of cotton purchased is applicable and is to be paid by the recipient under RCM as GTA service received.

Lawfully and practically, a registered person who bears the freight pay GST. Such was the situation in pre-GST era.

These are my views.

[RAMPRADEEP HARIHARASHARAMA]

VERY USEFUL INFORMATION

AI Summary

Reverse charge on freight: recipient liable for GST where cotton is supplied by traders/ginners or transporter issues consignment note. RCM on interstate lorry freight for cotton depends on seller status and transport documentation: freight attracts reverse charge where the consignment involves cotton supplied by non-agriculturists (ginners/traders) or where a consignment note is issued by the transporter. Raw cotton that retains agricultural-produce character and only customary processing by the cultivator may be exempt, but cotton processed by ginners is not agricultural produce and the registered recipient bearing freight is liable to pay GST under RCM.