2023 (12) TMI 939 - AAR - GST

Liability of GST - Whether Purchase of raw cotton from Kacha Arhtiya who is a registered dealer constitutes a purchase from agriculturist - Reverse Charge Mechanism in view of section 9(3) of CGST/PGST Act, 2017 - HELD THAT - To understand whether the Kacha Arhtia is liable to pay GST under reverse charge basis, it is pertinent to go through the Circular No. 57/31/2018-GST issued vide CBEC-20/16/4/2018-GST dated 4th September, 2018(to be read with the corrigendum dated 05th November, 2018) which has explained the Scope of Principal-Agent relationship in the context of Schedule-I of the CGST Act - As clarified vide above circular, the crucial component for covering a person within the ambit of the term 'agent', as contained in sub-Section (5) of Section 2 of the CGST Act and PGST Act, 2017, is corresponding to the representative character identified in the definition of agent under the Indian Contract Act, 1872. The said circular further clarifies that a key ingredient for determining whether the agent is wearing the representative hat and is supplying or receiving goods on behalf of the principal would be whether invoice for further supply or goods on behalf of the principal is being issued by the agent or not. Since the scope of supply under the GST Act also covers the activities specified in schedule-I by or undertaken through an agent, the key ingredient for determining relationship would be whether the invoice for the further supply of goods on behalf of the principal is being issued by agent or not. In other words, the crucial point is whether or not the agent has the authority to pass on the title of the goods on behalf of the principal. As soon as the auction for a lot is over, the auctioneer (Market officer) shall fill in the particulars in a book to be maintained in Form-H and shall secure the signatures of both the buyer and the seller or their respective representatives, whoever may be present at the spot. H register will have all details of date, Kacha Arhtia, name and address of seller, description of produce, quantity, rate, name of buyer. The responsibility of paying the market fee as prescribed under APMC Act and Rules shall be of the buyer in terms of provision of APMC Act and Rules and M/s Bansal Industries being a buyer in instant case, is liable to pay such fee and not the Kacha Arhtia or Agriculturist. Delivery of agricultural produce is made only after the Kacha Arhtia or the buyer gives to the seller a sale voucher in Form J clearly mentioning the details of the buyer and other details of the produce. On delivery of agricultural produce to a buyer, the Kacha Arhtia executes a memorandum in Form-I and delivers the same to the buyer on the same day or the following day clearly mentioning the name of the buyer corresponding to the Form-J issued to the seller. Kacha Arhtia does not fall under the Scenario 4 given in the CBIC Circular No. 57/31/2018-GST dated 04.09.2018 cited by M/s Bansal Industries in their supports as at no time during the process of sale-purchase of agricultural goods in the grain markets does the Kacha Arhtia have the authority to pass or receive the title of the goods on behalf of the agriculturist. At all times during the purchase of raw cotton at the Mandi, the title of the agricultural produce and the authority to pass on the title of the agricultural produce is vested exclusively with the agriculturist himself. During the auction, it is the agriculturist who has to agree to the price offered by the bidders and thereafter when the delivery of goods is to be made to the successful bidder, i.e. buyer, at that point also the consent of the agriculturist is required before the goods can be transported to the buyer's premises - the provisions of APMC Rules also provide an opportunity to the buyer to remit money to the seller either directly or via the Kacha Arhtia. It is in fact only as an option of convenience wherein the money is transmitted via Kacha Arhtia after deduction of their commission etc which is the regular market practice. M/s Bansal Industries i.e. the applicant is the recipient of supply of goods(raw cotton) by an agriculturist and not the Kacha Arhtia. As such, the applicant is liable to pay GST under reverse charge basis being a registered person in terms of Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 as amended vide Notification No. 43/2017-Central Tax (Rate) dated 14th November 2017 read with corresponding Notifications issued under Punjab State GST Act 2017.

Summary

Issues Involved:

1. Eligibility of the application for advance ruling.
2. Whether the purchase of raw cotton from Kacha Arhtia constitutes a purchase from an agriculturist for the purposes of Reverse Charge Mechanism under Section 9(3) of CGST/PGST Act, 2017.

Summary:

1. Eligibility of the Application for Advance Ruling:
The application for advance ruling was deemed eligible under Section 97(2) of the Central Goods and Services Tax Act, 2017, read with Section 97(2) of the Punjab Goods and Services Tax Act, 2017. The issues on which advance ruling can be sought include classification of goods or services, applicability of a notification, determination of time and value of supply, admissibility of input tax credit, determination of liability to pay tax, requirement of registration, and whether any particular activity amounts to a supply of goods or services.

2. Whether Purchase of Raw Cotton from Kacha Arhtia Constitutes a Purchase from Agriculturist for RCM:
The applicant sought to determine if purchasing raw cotton from a Kacha Arhtia, a registered dealer, constitutes a purchase from an agriculturist, thereby attracting liability under the Reverse Charge Mechanism (RCM) as per Section 9(3) of the CGST/PGST Act, 2017.

Submissions by the Applicant:
The applicant argued that since the Kacha Arhtia is a registered dealer and not an agriculturist, the purchase does not attract RCM. They cited a CBIC circular and an advance ruling by the Haryana Authority for Advance Ruling to support their claim.

Submissions by the Jurisdictional Authority:
The jurisdictional authority contended that under Section 9(3) of the CGST/SGST Act, 2017, the tax on raw cotton supplied by an agriculturist to a registered person is payable on a reverse charge basis. They argued that the Kacha Arhtia, acting as a commission agent, does not change the nature of the transaction, which remains a purchase from an agriculturist.

Discussion and Findings:
The ruling examined the definitions and roles of "Kacha Arhtia" and "recipient" under relevant statutes and rules, including the Punjab Agricultural Produce Markets (General) Rules, 1962. It was found that the Kacha Arhtia facilitates the sale of agricultural produce but does not hold the title to the goods. The transaction remains between the agriculturist and the buyer, with the Kacha Arhtia acting merely as an intermediary.

Ruling:
The applicant, being the recipient of raw cotton from an agriculturist, is liable to pay GST under the reverse charge mechanism as per Notification No. 13/2017-Central Tax (Rate) dated 28th June 2017, as amended by Notification No. 43/2017-Central Tax (Rate) dated 14th November 2017. The cited advance ruling from Haryana was deemed not binding in this case.

Conclusion:
The applicant is required to pay GST on a reverse charge basis for raw cotton purchased from agriculturists through Kacha Arhtia, as the Kacha Arhtia does not hold the title to the goods and acts only as a commission agent.