GST impact on sale of dried red Chilli procured directly from farmers and sold to wholesalers

[Raam Srinivasan Swaminathan Kalpathi]

A person buys dried red chilli (HSN 09042110) directly from farmers and sells it to wholesalers charging GST of 5%. Is this rate correct?

Secondly, if suppose this person without any branding (not falling under the metrology act) sells the produce (procured from farmers) to wholesalers in gunny bags - would this attract the 5% GST?

Thanks

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Dry red chillies are considered agricultural produce, if sold directly by the Farmer to a wholesaler after loading, unloading, packing, storage or warehousing, but not "pre-packaged and labelled", do not attract GST. The exemption applies only to raw, sun-dried chilli. If the chilli is processed, powdered, branded, or packed in retail unit containers will attract GST @ 5% as per amended Notification No. 6/2022 dated 13th July, 2022.

If a person who buys chillies from farmers and sells to a wholesaler in bags would be treated as a commission agent or acting as a pure agent, and does not take ownership of the commodity, either the principal that is the farmer or the wholesaler is responsible for GST @5%.

[Ryan Vaz]

Question 1:
If the person is selling dried red chilli (HSN 09042110) in a manner that is taxable, charging GST @ 5% is correct. HSN 09042110 falls under the 5% GST schedule.

Question 2:

Merely being unbranded is not sufficient to decide taxability after 18 July 2022. The relevant test is whether the goods are "pre-packaged and labelled" under the Legal Metrology law.

If the dried chillies are sold:

• Loose, or
• In gunny bags that are not required to bear Legal Metrology declarations,

then GST is generally not payable merely because they are in bags.

[Sadanand Bulbule]

Even if a person/trader buys dried red chillies (HSN 09042110) directly from farmers and sells them in unbranded gunny bags to wholesalers, the transaction remains taxable at 5% tax. While loose, open sales in a local retail market can be exempt subject to threshold limit, bulk trading of whole dried chillies in gunny bags or sacks does not qualify for tax exemption, regardless of the brand status or Legal Metrology rules. The person/trader must charge 5% GST on all invoices to the wholesalers.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

More clarity from Sri Sadanand Bulbule Sir.

[KASTURI SETHI]

Dea Sir,

Also go through the following AAR :-

2019 (10) TMI 615 - AUTHORITY FOR ADVANCE RULING, KARNATAKA - IN RE : MORIGERI TRADERS COMMISSION AGENTS

 

[Raam Srinivasan Swaminathan Kalpathi]

Heartfelt thanks to all the experts who have spent their most valuable time in clarifying the issue raised. Most obliged.

AI Summary

GST on dried red chilli turns on agricultural produce status and whether supplies are pre-packaged and labelled.
Dry red chilli procured from farmers and supplied to wholesalers is discussed with reference to GST classification, the agricultural produce exemption, and the 5% rate applicable to dried chillies under the GST rate schedule. Dried chillies are treated as agricultural produce where drying only makes the crop marketable without altering its essential character, while processed, powdered, branded, or pre-packaged and labelled supplies are treated differently. Selling in gunny bags alone does not determine taxability; the relevant test is whether the goods are pre-packaged and labelled under the legal metrology framework.