2019 (10) TMI 615 - AAR - GST

Commission Agents - Dry Chilly - agriculture produce or not - service of supplying dry chillies on behalf of farmers to the traders - issue sale patties to the agriculturist principals. - section under which registration required - Rate of GST - Benefit of exemption - HSN Code for Dry Chilly. HELD THAT - It is an admitted fact that the Applicant is a commission agent involved in the business of receipt of dry chillies from the farmers (principals) and supply of the same to the buyers/traders, on behalf of farmers in the Byadgi A.P.M.C. Market, Karnataka. They are registered under the APMC Act also under the GST Acts. They sell goods (dry chillies) on behalf of principals to the traders, issue invoices to the traders/buyers as prescribed under the APMC Act and also issue sale patties to the principals. They collect commission, on the services provided to the principals, from the purchasers / buyers and the same is also shown in the invoice issued to the purchasers. Whether the applicant qualifies to be an agent in terms of para 3 of Schedule I to CGST Act and also whether the applicant is involved in taxable supply or not? - HELD THAT - In the instant case the applicant sells the goods i.e. dry chillies on behalf of the principal, issues invoice to the buyer/trader in his own name, receives commission as per APMC Act of the State of Karnataka. Therefore the applicant has the authority to pass the title of the goods on behalf of the principal to the buyer, as the invoice is raised in their own name and hence qualifies to be an 'agent' in terms of para 3 of Schedule I to the CGST Act and also in terms of definition under Section 2(5) of CGST Act 2017. Whether the applicant is involved in making taxable supply or not? - HELD THAT - In the instant case the principal i.e. farmer is not a taxable person and hence the applicant is not involved in supply of goods of another taxable person (farmer). Therefore the applicant does not fall under the category of persons to be compulsorily registered under Section 24(vii) of the CGST Act 2017. However the applicant is liable to get registered under Section 22(i) of the CGST Act 2017. Whether dry chilli qualifies to be 'agricultural produce' or not? - HELD THAT - In the instant case the dry chillies are produced out of plants and are used for food or as raw materials and is a product obtained by drying the chillies to make it marketable for the primary market and this process does not alter its essential characteristics. Hence dry chillies are covered under the term agricultural produce . Even the APMC Act considers them as agricultural produce - the Applicant is involved in provision of exempted supply of services to the farmers for sale of dry chillies, an agricultural produce, in terms of entry no. 54(g) of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Requirement of GST registration for the applicant.
2. Section under which the Commission Agents are to be registered if required.
3. Applicability of Notification No. 12/2017 - Central Tax (Rate) and Notification No. 9/2017 - Integrated Tax (Rate) to Commission Agents of APMC.
4. Applicability of the aforementioned notifications to other entities if not applicable to Commission Agents.
5. Classification of Dry Chilly as agricultural produce.
6. HSN Code and GST rate for Dry Chilly if not classified as agricultural produce.

Issue-wise Detailed Analysis:

1. Requirement of GST Registration for the Applicant:
The applicant, a commission agent supplying dry chillies on behalf of farmers, sought clarification on whether they need to register under the GST Act. Section 22 of the CGST Act mandates registration for persons making taxable supplies if their turnover exceeds the threshold limit. Section 24(vii) requires registration for those making taxable supplies on behalf of others. The applicant qualifies as an agent under Section 2(5) and para 3 of Schedule I of the CGST Act, as they have the authority to pass the title of goods on behalf of the principal. Therefore, the applicant is required to register under Section 22(1) of the CGST Act.

2. Section under which the Commission Agents are to be Registered:
The applicant must be registered under Section 22(1) of the CGST Act. This section stipulates that every person making taxable supplies must register if their turnover exceeds the threshold limit. The applicant’s activities qualify as taxable supplies, necessitating registration under this section.

3. Applicability of Notification No. 12/2017 - Central Tax (Rate) and Notification No. 9/2017 - Integrated Tax (Rate) to Commission Agents of APMC:
The applicant argued that their services are exempt under Section 11 and Notification No. 12/2017 - Central Tax (Rate), which exempts services by APMC or commission agents for the sale or purchase of agricultural produce. The Authority concluded that the services provided by the applicant to the principal (farmers) are indeed exempt under entry no. 54(g) of the Notification No. 12/2017 - Central Tax (Rate). However, the supply of dry chillies to traders under the applicant’s invoice is taxable.

4. Applicability of the Notifications to Other Entities:
Given that the notifications are applicable to commission agents of APMC, the question on applicability to other entities becomes moot. The notifications specifically exempt services provided by commission agents for the sale or purchase of agricultural produce.

5. Classification of Dry Chilly as Agricultural Produce:
The definition of agricultural produce under Notification No. 12/2017 - Central Tax (Rate) includes produce out of cultivation of plants with minimal processing that does not alter its essential characteristics. Dry chillies, being produced from plants and only dried to make them marketable, qualify as agricultural produce. Therefore, dry chillies fall under this definition.

6. HSN Code and GST Rate for Dry Chilly:
Since dry chillies are classified as agricultural produce, they are covered under Tariff heading 0904 and are taxable at 5% GST as per SI.No.38 of Schedule I to Notification 01/2017-Central Tax (Rate).

Ruling:
1. The applicant, as a commission agent, is required to register under Section 22(1) of the CGST Act, 2017.
2. The services provided by the applicant to the principal are exempt under entry no. 54(g) of Notification No. 12/2017 - Central Tax (Rate), but the supply of dry chillies to traders is taxable.
3. Dry chillies are classified as agricultural produce under the definition provided in Notification No. 12/2017 - Central Tax (Rate).