GST TERMINOLOGY (PART -2)

[Dr. Sanjiv Agarwal]

The provisions of model GST law prescribes various types of persons for different purposes and taxation. Some of these are  being used for first time. Let's discuss these terms in relation to person or taxable persons in section 2 model GST law, viz,

1. Agent (Clause 5)
2. Agriculturist (Clause 8)
3. Casual taxable person (Clause 21)
4. Manufacturer (Clause 66)

Agent [Section 2(5)]

'Agent' means a person who carries on the business of supply or receipt of goods and/or services on behalf of another, whether disclosed or not and includes a factor, broker, commission agent, arhatia, del credere agent, intermediary or an auctioneer or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not.

Accordingly, following attributes are essential for anyone to be called an 'agent'  -

1. An agent is a person (defined in Clause 74)
2. Caries on business of supply of goods or services on behalf of another, or
3. Carries on business of receipt of goods or services on behalf of another
4. An agent would include anyone of –

• factor
• broker
• commission agent
• arhatia
• del credere agent
• intermediary
• auctioneer
• mercantile agent
• or any such other person by whatever name called

In terms of the aforementioned definition, a person shall be considered as an agent irrespective of whether agency is disclosed or not and by whatever name called and whether of the same description as specified or not. However, input service distributor will not be considered as an agent.

The word, ‘any agency’ is used to include the persons who work as an agency which means that a relationship between two persons should exist which makes one person the agent of other i.e., principal-agency relationship exists. When an individual acts in his individual capacity, he becomes an agent. When a concern (commercial concern, firm etc.) becomes an agent, it is called an agency. Thus, all non-individual agents could be termed as agency. For being called as agency, that agency must represent some other concern or person and by virtue of that representation, is called its agency or agency. The agency acts and works on behalf of his or its principal and there must be some other person on where behalf it is acting.

Literally, agency means a relationship between two persons, by agreement or otherwise, where one may act on behalf of the other (the principal). [Black’s Law Dictionary]

A business or establishment of an agent; function of an agent; active operation, action,

intervening action. [Oxford Dictionary].

According to the Law of Agency & Partnership by Harold Gill Reuschtein and William A. Gregory (2nd edition 1990), the basic theory of the agency device is to enable a person, through the services of another, to broaden the scope of his activities and receive the product of another’s efforts, paying such other for what he does but retaining for himself any net benefit resulting from the work performed.

It is an fiduciary relationship created by express or implied contract or by law in which one party (agent) may act on behalf of another party (principal) and bind that other party by his words or actions.

'Intermediary' means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.

Casual taxable person includes an agent. Person will also include an agent having any states. Non-resident taxable person can be a principal or agent.

Supplies to and from agent (not job work) shall be considered as supply, whether with or without consideration, However, the expenditures or costs incurred by the service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service subject to some conditions an specified in valuation rules. GST shall be levied for transactions between a principal and an agent as a deemed supply. Any amount of consideration (e.g. commission, brokerage etc.)  will be subject to GST.

Agriculturist [Section 2(8)]

'Agriculturist' means a person who cultivates land personally, for the purpose of agriculture.

For this purpose, 'agriculture' is defined in clause (7). Accordingly,  'agriculture' with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and also grazing, but does not include dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants. Forest is a forest under Indian Forest Act, 1927.

According to the aforesaid definition, following tests should be satisfied by an 'agriculturist' –

1. should be a person (defined in Clause 74)
2. should cultivate land personally
3. such cultivation should be for the purpose of agriculture.

The proposed definition read with section 9 implies that that if a person is agriculturist, then he is not required to register for GST and pay taxes. Being a non-taxable person, GST would not apply to him irrespective of his turnover from non-agricultural sources.

One who is engaged in agriculture is called agriculturist, i.e. in the field of growing or cultivation of activities enlisted in the definition of agriculture. The proposed definition uses the word 'personally' which implies that one who cultivates the land personally for agriculture will be considered as agriculturist.  ‘To cultivate personally’ is defined in section 2 (103) of the Act.

To cultivate personally is defined in section 2(103) of model GST law. Accordingly, 'To cultivate personally' has been defined to mean to carry on any agricultural operation on one’s own account-

(a)       by one’s own labour, or

(b)       by the labour of one’s family, or

(c)       by servants on wages payable in cash or kind (but not in crop share) or by hired labour under one’s personal supervision or the personal supervision of any member of one’s family;

For this purpose, a widow or a minor or a person who is subject to any physical or mental disability or is a serving member of the armed forces of the Union, shall be deemed to cultivate land personally if it is cultivated by her or his servants or by hired labour. Further, in the case of a Hindu Undivided Family, land shall be deemed to be cultivated personally, if it is cultivated by any member of such family.

This expression has been used in the definition of 'agriculturist' and a person will be considered as an 'agriculturist' only when a person cultivates land personally. To cultivate personally would imply carrying on agricultural operations on his own account by employing own labour, family's labour or hired labour under own supervision or of his family. In case of HUF, it could be done by any member of HUF.

The explanation clarifies that cultivation can be treated as being cultivated personally if it is done by servants or by hired labour in case of widow, minor, physically or mentally disabled persons or serving members of armed forces of Union.

Under the present law, ‘Agriculture’ has been defined in Section 65B(3) of the Act as cultivation of plants and rearing or breeding of animals and other species of life forms for foods, fibre, fuel, raw materials or other similar products but does not include rearing of horses.

Also, activities like breeding of fish (pisciculture), rearing of silk worms (sericulture),  cultivation of ornamental flowers (floriculture) and horticulture, forestry etc. are included in the definition of agriculture.

According to Oxford Dictionary, agriculture is the science or practice of farming, including cultivation of the soil for the growing of crops and the rearing of animals to provide food, wool, and other products.

According to Wikipedia, agriculture (also called farming or husbandry) is the cultivation of animals, plants, fungi, and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the development of civilization. The study of agriculture is known as agricultural science. Agriculture generally speaking refers to human activities, although it is also observed in certain species of ant and termite.

Section 65D (c) stipulates that specified services in relation to both, agriculture and agricultural produce are in negative list.

Section 9 of model GST law provides that agriculturist shall not be considered as a taxable person and as such is not required to be registered for GST. This may mean that since agriculturist is a non-taxable person, his non agricultural income may also be out of GST ambit.  Ideally, non agricultural income of agriculturist should be subjected to tax.

Casual Taxable Person [Section 2(21)]

'Casual taxable person' means a person who occasionally undertakes transactions involving supply of goods and/or services in the course or furtherance of business whether as principal, agent or in any other capacity, in a taxable territory where he has no fixed place of business.

For a casual taxable person, following tests are must-

1. he must be a person.
2. he may occasionally undertake transactions of supply of goods or services.
3. such transactions should be in the course of or for furtherance of business.
4. he may undertake such transactions as a principal or agent or in any other capacity.
5. such transaction should be in a taxable territory where he has no fixed place of business.

For this purpose, agent has been defined in section 2(5), supply is defined in section 2(92) read with section (3), place of business in section 2(75) and taxable territory in section 2(98) of model law.

Casual taxable person are required to be registered u/s 19 read with Schedule-III. The exemption from registration based on threshold of aggregate turnover would not apply to casual taxable persons. Thus, even where their turnover is below the minimum threshold, registration would be required.

Manufacturer [Section 2(66)]

'Manufacturer'  shall have the meaning assigned to it by the Central Excise Act, 1944.

Under Central Excise Act, 1944, ‘manufacture’ has been defined differently u/s 2(f) of

the said Act. According to Section 2(f) of the Central Excise Act, 1944, 'Manufacture' includes any process-

1. incidental or ancillary to the completion of a manufactured product;
2. which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; or
3. which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.

and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.

Though central excise is going to be subsumed in GST and in view of section 140 on 'repeal and savings', there is no need to borrow definition of 'manufacturer' from Central Excise Act, 1944. In fact, manufacturer may be independently defined to avoid litigation.

The word 'manufacturer' is used in sections 150, 151 and 152 of the model GST law dealing with transitional provisions for inputs, semi finished goods  or finished goods removed for job work processes and returned on or after appointed day.

(To be continued …..)

Discussions to this article

[Ganeshan Kalyani]

Nice article Sir. Detailed analysis of the provision and reproduced in a lucid language. Thanks for the time, effort.

[Ganeshan Kalyani]

The point of taxation shall shift to supply in GST, then where there is need for definition of term manufacture.

[Dr. Sanjiv Agarwal]

Dear Ganeshan ji,

Thank you for the comments. Central excise is going to be subsumed in GST hence, there is no need to borrow definition of 'manufacturer' from Central Excise Act, 1944. There is a reference in transitional provisions. (Section 150,151,152)

Thanks & Regards,

CA Neha Somani