2020 (3) TMI 189 - AAR - GST

Classification of goods - rate of GST - wood scrap - Security forfeited by Uttarakhand Forest Corporation - refund of GST on supply turned into bad debts and supply lost/destroyed in transit - GST on mandi fees on local purchase of wood - Reverse charge mechanism - GST on penalty. Applicability of GST rate and HSN/classification of wood scrap - HELD THAT - Chapter 44 of the GST Tariff deals with wood and articles of wood; wood charcoal . Chapter Heading 4401 further deals with fuel woods, in logs, in billets, in twigs, in faggots or in similar form; wood in chips or particles; sawdust and wood waste and scrap, whether or not agglomerated in logs, briquettes, pellets or similar forms - the wood left after peeling process is not usable as timber rather the same is to be treated as manufacturing waste which used in paper manufacturing, particle board and fibre board manufacturing well as for fuel. Therefore the same may be classified under Chapter Heading 4401 31 00 or 4401 39 00 (supra) and will attract GST @5%. Applicability of GST rate on security forfeited by Uttarakhand Forest Corporation - HELD THAT - Section 7(1)(a) of the Act is relevant to the issue in hand which provides that it covers all forms of supply of goods or services made for a consideration by a person in the course or furtherance of business. In this context we observe that supply of goods viz. wood, in consideration of payment is one set of mutual transactions and forfeiture of an amount for not depositing the balance amount for the wood purchased is another set of mutual transactions. Thus indeed there is supply of goods as well as supply of services also. Therefore it satisfies the conditions of Section 7(1)(a) of the Act. Now comes the test in terms of Schedule II appended to the Act in respect of forfeited amount - the agreement for tolerating an act or situation which is unable to deposit balance amount for the wood purchased is a provision of service in terms of Entry No. 5(e) of Schedule II appended to the Act which provides that agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - thus the forfeited amount is covered under Service Code (Tariff) 9997 94 as agreeing to tolerate an act and leviable to GST @ 18%. Refund of GST on supply turned into bad debts and supply lost/destroyed in transit - HELD THAT - The said issue does not cover under sub-section (2) of Section 97 of the CGST/SGST Act, 2017 and thus no ruling can be given on this issue. Applicability of GST on mandi fees on local purchase of wood - Reverse Charge Mechanism - Whether exemption can be claimed if amount of mandi fee is below ₹ 5,000/- in individual consignment? - HELD THAT - As per the provisions of Section 15(2)(a) of the CGST/SGST Act, 2017, value of supply also includes any fee levied under any law other than CGST/SGST/UTGST Act. Therefore, fee levied under Agricultural Produce Marketing (Development and Regulation) Act, 2011 (Uttarakhand Act No. 9 of 2011) will become the part of the value of supply and will attract GST rate specified for a particular goods under the relevant chapter/ Heading/ sub-heading irrespective of the fact that whether GST is paid on forward charge basis or reverse charge basis. It is relevant to mention that under Section 9(3) of CGST/SGST Act, 2017, wood has not been notified as such goods supplied by unregistered person/farmer/Agriculturist, in respect of which GST shall be paid on reverse charge basis by the recipient - prior to 1st February, 2019, in pursuance of the provision to tax the supply of taxable goods or services or both by an unregistered supplier to a registered person on reverse charge basis, an exemption to the extent of the aggregate value of such supplies of goods or services or both up to five thousand rupees in a day was made effective from the 1st of July, 2017. The said restriction of five thousand rupees was withdrawn on 13 th October, 2017 and a blanket exemption was provided till the 31st March, 2018 which was further extended to 30th September, 2019. However in between from 1st of February, 2019 an amended Section 9(4) of CGST/SGST Act, 2017, came into effect which have been discussed at length above and by virtue of coming into force of the amended Section 9(4) of CGST/SGST Act, 2017, the said exemption notification was rescinded with effect from 1st of February, 2019 - thus, the applicant is not liable to pay GST on the mandi fee paid on the purchase of wood from the unregistered person/farmer. Applicability of GST on penalty - HELD THAT - The penalty recovered is covered under Service Code (Tariff) 9997 94 as agreeing to tolerate an act and leviable to GST @ 18%.

Summary

Issues involved:
- Applicability of GST rate and HSN/classification of wood scrap
- Applicability of GST rate on security forfeited by Uttarakhand Forest Corporation
- Refund of GST on supply turned into bad debts and supply lost/destroyed in transit
- Applicability of GST on mandi fees on local purchase of wood and whether it is under Reverse Charge Mechanism
- Applicability of GST on penalty

Detailed analysis:
- Applicability of GST rate and HSN/classification of wood scrap: The wood scrap left after the peeling process is classified as manufacturing waste and falls under Chapter Heading 4401 31 00 or 4401 39 00, attracting GST at 5%.

- Applicability of GST rate on security forfeited by Uttarakhand Forest Corporation: The forfeited amount is considered a service under Service Code 9997 94, "agreeing to tolerate an act," and is subject to GST at 18%.

- Refund of GST on supply turned into bad debts and supply lost/destroyed in transit: This issue does not fall under the purview of Section 97 of the CGST/SGST Act, and hence no ruling can be provided on this matter.

- Applicability of GST on mandi fees on local purchase of wood: Mandi fees paid on wood purchases from unregistered persons do not attract GST under Section 9(3) and Section 9(4) of the CGST/SGST Act.

- Applicability of GST on penalty: The penalty amount, considered as "agreeing to tolerate an act," is subject to GST at 18%.

The judgment clarifies the classification of wood scrap, the treatment of forfeited security amounts, and the non-applicability of GST on certain transactions. It also highlights the specific provisions of the CGST/SGST Act related to mandi fees and penalties, providing a comprehensive analysis and ruling on each issue presented before the Authority for Advance Ruling in Uttarakhand.