2018 (12) TMI 651 - AAAR - GST

Agricultural Produce or not? - Nature of warehoused goods - tea produce - Circular No. 16/16/2017-GST dated 15.11.2017 - whether the tea leaves of the various qualities, which is precisely black tea, procured in bulk either from public tea auctions or directly from manufacturers of tea in 50 Kg bags, after undergoing various stages of the processing as detailed above, by the appellant s client i.e. Unilever, for storage in the warehouse owned by the appellant are agricultural produce or otherwise? Held that - The product being stored in the warehouse has got different name, character and uses from the green tea leaves which are cultivated in the tea gardens. Thus, the tea procured by Unilever is the manufactured product obtained from the different manufacturers - Thus, there is absolutely no doubt that the processes or treatments which are performed upon the green tea leaves amounts to manufacture as per the definition provided in the clause 72 of Section 2 of the CGST Act, 2017. Whether this manufactured product i.e. the black tea can be construed as agricultural produce or not? - Held that - Though the product is a produce out of cultivation of the plants, the same is obtained as a result of the specific manufacturing processes, carried out by the manufacturers on the original agricultural produce i.e. green tea leaves for making them suitable for consumption by imparting the desired flavor and colour - All these processes, which change the characteristics of the green tea leaves, are carried out by the manufacturers and not the cultivators or the producers of the green tea leaves as envisaged under the definition of the agricultural produce. Thus, the manufactured products do not fulfill the prescribed criteria of the agricultural produce, and thus cannot be considered as agricultural produce. The said processes carried out on the green tea leaves do have bearing on the taste and colour of the tea, the appellant s contention that the above discussed processes carried out on the green tea leaves does not alter the characteristics of the tea is devoid of any merit and thus is not sustainable. In the said warehouses rented out by the appellant, the appellant s client Unilever have also been blending the tea of the various qualities and packing the same in the packets of specified quantity as per the order received from their overseas buyers of the tea product. The blending of tea of various qualities into different proportion depending upon the requirements of their overseas customers may be construed as manufacturing process as the said process imparts different flavour, colour to suit the need for their customers. Thus, the appellant s client Unilever is undertaking the said manufacturing process, thus changing the essential characteristics of agricultural produce further, in the warehouse rented out by the appellant. Further, these processes of the blending and packaging are being performed by the appellant s client, which is certainly not the cultivator or producers of the tea. Thus, the blended and packaged product, which are to sold to the overseas markets, which are definitely not the primary markets as envisaged in the definition of the agricultural markets. Thus, the stored products are not the agricultural produce as being projected by the appellant. Ruling - The products stored in the warehouse of the appellant are not the agricultural produce - the supply of warehouse services used for packing & storage of tea, under above mentioned facts & circumstances was/is not exempted vide Serial No 54(e) of Notification No. 12/2017- Central tax (rate) - the said exemption granted vide the above notification is provided to the storage and warehousing services when provided in relation to the agricultural produce.

Issues Involved:
1. Whether the supply of warehouse services used for packing and storage of tea is exempted under Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate).
2. Whether tea qualifies as an "agricultural produce" as per the definition provided in the relevant GST notifications.

Detailed Analysis:

Issue 1: Exemption of Warehouse Services for Tea Storage
Appellant's Argument:
The appellant, Nutan Warehousing Company Pvt Ltd, argued that their warehouse services for storing tea should be exempted under Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate), which exempts services related to the storage or warehousing of "agricultural produce." They contended that tea qualifies as an agricultural produce because the processes it undergoes do not alter its essential characteristics.

Authority's Findings:
The authority examined whether the tea stored in the appellant's warehouse qualifies as "agricultural produce." They noted that the processes tea undergoes—such as drying, rolling, fermenting, and roasting—change its essential characteristics, making it fit for human consumption and giving it a new name, character, and use. These processes are carried out by manufacturers, not cultivators, which disqualifies the tea from being considered an "agricultural produce" under the GST definition.

Issue 2: Definition of Agricultural Produce
Appellant's Argument:
The appellant argued that tea should be considered an agricultural produce as defined in clause 2(d) of Notification No. 12/2017-CT (Rate) dated 28.6.2017. They cited several Supreme Court and High Court decisions to support their claim that tea retains its essential characteristics even after minimal processing.

Authority's Findings:
The authority referred to the definition of "agricultural produce," which requires that any processing done should not alter the essential characteristics of the produce and should be done by the cultivator or producer. They found that the processes tea undergoes—such as drying, fermenting, and roasting—are substantial and alter its essential characteristics, making it a manufactured product rather than an agricultural produce. They also noted that these processes are performed by manufacturers, not cultivators.

Legal Precedents:
The authority distinguished the appellant's cited cases, noting that they involved different contexts, such as income tax and sales tax, and did not directly address whether tea is an agricultural produce under GST laws. They also referenced the Supreme Court decision in Union of India Vs Belgachit Tea Co, which classified the activity of manufacturing tea as a business activity, not an agricultural one.

Circular No. 16/16/2017-GST:
The authority upheld the validity of Circular No. 16/16/2017-GST dated 15.11.2017, which clarified that tea is not an agricultural produce for GST purposes. They emphasized that circulars issued by the CBEC are binding for uniform implementation of the GST Act.

Conclusion:
The authority concluded that the tea stored in the appellant's warehouse does not qualify as "agricultural produce" because the processing it undergoes alters its essential characteristics and is performed by manufacturers, not cultivators. Consequently, the warehouse services for storing such tea are not exempted under Serial No. 54(e) of Notification No. 12/2017-Central Tax (Rate). The appeal was rejected, affirming the advance ruling authority's decision.

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