2021 (4) TMI 88 - AAR - GST

Classification of services - pure agent services or not - supervisory charges under clause 28(b) of the Office order on charges of KSWC charged to Food Corporation of India (FCI) by the Corporation towards supervision of loading, transportation and unloading of agricultural produce like Rice, wheat etc - whether taxable at the rate of 8% on the amount billed by 'Handling and Transportation' Contractors? - HSN code - HELD THAT - A contract is an agreement between two or more parties and can be either written or oral. An oral contract is an agreement made with spoken words and either no writing or only partially written and is just as valid as a written agreement. The existence of a contract requires the factual elements of (i) an offer, (ii) an acceptance of that offer which results in a meeting of the minds, (iii) a promise to perform, (iv) a valuable consideration, (v) a time or event when performance must be made (meet commitments), (vi) terms and conditions for performance including fulfilling promises and (vii) performance. In the instant case the letter of FCI quoted supra contains all the ingredients required for a contract and hence the said letter is nothing but contractual agreement between the applicant and FCI for the applicant to be acting as pure agent of FCI, for the purpose of supervision of handling and transportation of agriculture produce. Further the applicant procures the services of H T contractors for and on behalf of the FCI and charges actuals separately in the invoice along with their supervisory charges, separately. Thus the applicant squarely qualifies to be a pure agent of FCI in the instant case. The applicant indubitably is pure agent of the recipient FCI. The applicant is involved in provision of services to supervise handling and transportation of agriculture produce, belonging to the FCI, from railhead to warehousing station and hence procures the services from H T contractors for the said purpose. Now we proceed to examine the classification of the supply of the said services of the applicant - the Explanatory Notes to the Scheme of Classification of Services stipulates that SAC 999799 includes Other services n.e.c . In the instant case, the services provided by the applicant i.e. supervision services are squarely covered under other services n.e.c. and the said supervisory services are exigible to GST at the rate of 9% CGST and 9% KGST or at 18% IGST respectively.

Summary

Issues Involved:
1. Classification of 'supervisory charges' under the CGST/KGST Acts, 2017.
2. Determination of the applicable rate of tax and HSN/SAC code for 'supervisory charges'.

Issue-wise Detailed Analysis:

1. Classification of 'Supervisory Charges' under the CGST/KGST Acts, 2017:
The applicant, a State Government Undertaking, provides services related to the facilitation of handling and transportation of agricultural produce through Handling & Transport (H&T) contractors. They charge supervisory fees at 8% on the actual amounts billed by H&T contractors to the depositors, including entities like the Food Corporation of India (FCI).

The applicant contends that these supervisory charges should fall under the heading 998619 "Other support services to agriculture, hunting, forestry, and fishing" or under SAC 996799 "Other supporting transport services n.e.c" or SAC 999799 "Other services n.e.c" and should be liable to tax at 9% CGST and 9% KGST or 18% IGST respectively.

The Authority for Advance Rulings (AAR) examined the nature of the services provided and determined that the applicant is involved in the provision of services to supervise the handling and transportation of agricultural produce. These services are procured from H&T contractors and provided to FCI, with an additional 8% mark-up for supervision. The AAR concluded that the supervisory charges are classified under SAC 999799 "Other services n.e.c." and are subject to GST.

2. Determination of the Applicable Rate of Tax and HSN/SAC Code for 'Supervisory Charges':
The AAR observed that the services provided by the applicant, including supervision of handling and transportation of agricultural produce, are covered under SAC 999799 "Other services n.e.c." This classification is based on the Explanatory Notes to the Scheme of Classification of Services, which includes services that are not elsewhere classified.

The AAR ruled that the supervisory charges are exigible to GST at the rate of 9% CGST and 9% KGST or 18% IGST. This rate is applicable to the value equivalent to 8% of the actual amounts paid to H&T contractors, in accordance with Section 15 of the CGST Act, 2017.

Ruling:
The services provided by the applicant to supervise the handling and transportation of agricultural produce belonging to FCI from railhead to the warehousing station, provided by H&T contractors, are classified under SAC 999799 "Other services n.e.c." These services are subject to GST at 18% in terms of Sl.No.35 of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, on the value equivalent to 8% of the actual amounts paid to H&T contractors.