Tax applicability on sale of agricultural produce

[Rajat Gupta]

Hello, one of my clients is registered under GST as a trader. He also has an agricultural land to his name. He produces mustard seeds (falls under 5% slab) and takes them to the grain market for auction through kaccha arhatia. The agent issues a Form J to him showing the particulars of the buyer, seller and underlying goods.

My query is, can he be said to be an agriculturist in terms of GST law to the extent of his produce and consequently avail exemption from paying tax on such sale?

Note: Form J is normally issued by an arhatia to the farmer who brings his produce in the grain market.

[YAGAY and SUN]

Under the Central Goods and Services Tax Act, 2017, the status of an "agriculturist" is specifically defined under Section 2(7) as a person who undertakes cultivation of land by own labour, family labour, or by hired labour under personal supervision or the personal supervision of any member of the family. The definition is activity-specific and not person-specific across all transactions.

In the present case, the client, though otherwise registered as a trader, is independently engaged in cultivation of mustard on his own agricultural land. To the extent such produce is grown by him through the modes prescribed in Section 2(7), he qualifies as an "agriculturist" qua such agricultural activity.

Further, in terms of Section 23(1)(b) of the CGST Act, an agriculturist is not liable to registration to the extent of supply of produce out of cultivation of land. Read with Entry No. 12 of Notification No. 12/2017-Central Tax (Rate), supply of "agricultural produce" by an agriculturist is exempt from GST, subject to the produce either being unprocessed or subjected only to such processing as is ordinarily done by the cultivator to make it marketable.

Mustard seeds, when sold in primary market without further processing beyond customary practices, qualify as "agricultural produce". Accordingly, sale thereof by the client, in his capacity as cultivator, would not attract GST.

The involvement of a kaccha arhatia issuing Form J does not alter the character of the supply. The arhatia merely facilitates the sale in the grain market and records particulars of buyer and seller; he does not become the principal supplier. The Form J serves as documentary evidence of sale of self-produced agricultural produce through the mandi mechanism.

Accordingly, the client can validly claim the status of an agriculturist for the limited purpose of sale of his own cultivated mustard seeds, and such supplies would remain outside the levy of GST. However, this treatment is confined strictly to self-produced agricultural output; any trading activity in mustard or other goods would continue to be taxable in the ordinary course.

[Rajat Gupta]

Thank you for the clarification and helping understand the issue in a precise way

[milan bamal]

YAGAY andSUN

Should trader show this supply as exempt supply in their GSTR-1 return or not?

[Rajat Gupta]

He should report this income in GST returns as an exempt supply. There is no provision which provides relaxation in this regard. Even a person involved exclusively in the trading of exempt products is required to report the transactions if he takes GST registration.

AI Summary

Agriculturist exemption under GST applies to self-produced agricultural mustard sold through mandi, despite Form J documentation.
The status of an agriculturist under GST is activity-specific and applies only to cultivation of land by own, family, or supervised hired labour. A registered trader who cultivates mustard on his own land may claim agriculturist status only for that self-produced crop, and sale of such agricultural produce in primary market form remains exempt from GST. The involvement of a kaccha arhatia and issuance of Form J do not change the nature of the supply, but the exemption is confined to self-produced agricultural output; other trading activity remains taxable in the ordinary course.