Ginned Cotton - Agricultural Produce or not., Goods and Services Tax - GST

[VAISHACH RAJASEKAR]

Hello Experts

As per S.No 21 of Notification No. 12/2017- Central Tax (Rate), dated 28.06.2017,

Services provided by a goods transport agency, by way of transport in a goods carriage of -

(a) agricultural produce;........ is Nil Rated .

Also having read the clarification of Circular No. 177/09/2022-TRU dated 03.08.2022,

The following is observed which is related to Storage or warehousing of cotton in baled or ginned form.

5.2 Prior to 18.07.2022, entry 24 B of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 exempted services by way of storage and warehousing of, inter alia, raw vegetable fibers such as cotton, flax, jute etc.

Cotton Fiber glossary by barnhardtcotton.net defines ‘cotton staple, virgin cotton or raw cotton’ as cotton fibers that are removed from the cotton seed by the gin.

Further, CESTAT Chandigarh in the case of R.K.& Sons vs CCE, Rohtak - 2016 (7) TMI 1712 - CESTAT CHANDIGARH has observed as under:

“Cotton (with seeds) as plucked from cotton plants can hardly be called cotton fibre in which case cotton fibre would come into existence only after the seeds are ginned away from cotton plucked from cotton plants. Cotton fibre obtained by ginning cotton plucked cotton plants is nothing but raw cotton fibre because there cannot be rawer form of cotton fibre obtained from cotton-with-seeds plucked from cotton plants.”

5.3 Accordingly, it is clarified that service by way of storage or warehousing of cotton in ginned and or baled form was covered under entry 24B of notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 in the category of raw vegetable fibres such as cotton.

It may however be noted that this exemption has been withdrawn w.e.f 18.07.2022

Now Coming to the question.

Based on the above explanation, can we consider that Cotton in Ginned or Bale Form can be considered as an agricultural produce and hence the Goods Transport Agency of Ginned or Baled Cotton is considered exempted?

The Client is owning a Spinning Factory and uses the cotton to be manufacture cotton yarn. He also purchases the Cotton from Traders after Ginning. No further process is undertaken.

Thank you for your responses in advance.

Posts / Replies

[Sadanand Bulbule]

Even in layman's terms, ginned or baled cotton cannot be accepted or marketed as " Agricultural produce". Only the unmanufactured cotton is called as 'Agricultural produce". Hence it is not exempt from tax in the hands of GTA. You can double check with experts.

[YAGAY andSUN]

To address your question, it is important to break down the relevant legal provisions and clarifications:

1. Goods Transport Agency (GTA) Exemption: According to S.No. 21 of Notification No. 12/2017- Central Tax (Rate), services provided by a goods transport agency (GTA) for transport of agricultural produce are exempt from GST. The key term here is "agricultural produce", which includes certain raw agricultural products but does not extend to all agricultural products post-processing (like ginning or baling).
2. Clarification on Cotton Storage and Warehousing: The clarification under Circular No. 177/09/2022-TRU dated 03.08.2022 makes a distinction between cotton in its raw form (before ginning) and cotton after ginning or baling:
   • Prior to 18.07.2022, raw cotton (cotton before ginning) was exempted under Entry 24B of Notification No. 12/2017-Central Tax (Rate).
   • However, post-18.07.2022, storage or warehousing of cotton in ginned or baled form no longer falls under the exemption and is taxable.

The cotton in ginned or baled form (which is processed) is specifically considered raw cotton fiber after ginning, as per the definition from Barnhardtcotton.net and the CESTAT Chandigarh judgment. The CESTAT judgment makes it clear that cotton fiber is only considered raw cotton fiber after the ginning process, and not before. This ginned or baled cotton is no longer agricultural produce as it has been processed.

3. Application to the Goods Transport Agency:
   • For transport services provided by a Goods Transport Agency, the exemption under S.No. 21 of Notification No. 12/2017- Central Tax (Rate) applies to agricultural produce.
   • Since ginned or baled cotton is not agricultural produce post-ginning, the transportation of ginned or baled cotton would not be covered under the exemption for agricultural produce.
   • Therefore, the transport of ginned or baled cotton would not be exempted under the GTA exemption, and GST would be applicable on such transport services.
4. Clarification on the Client’s Situation:
   • Since your client, who owns a spinning factory, purchases cotton from traders after the ginning process, they are buying processed cotton (ginned and baled) rather than raw cotton directly from the fields.
   • As per the current law and clarification, the transportation of ginned or baled cotton would not fall under the exemption of agricultural produce, and thus, would not be exempt from GST.

Conclusion:

Based on the above, ginned or baled cotton cannot be considered agricultural produce for the purpose of the Goods Transport Agency (GTA) exemption. Therefore, the transportation of such cotton is subject to GST, and the exemption available for agricultural produce under Notification No. 12/2017- Central Tax (Rate) would not apply.

 

[VAISHACH Vaishach]

One more clarification as Shri Yagay and Sun's reply

1. Circular No. 177/09/2022-TRU dated 03.08.2022's final decision was that Cotton in Ginned or Labelled form was indeed covered under exemption in S.No 24B which was removed w.e.f 18.07.2022. 

2. An excerpt of the final judgement is as below which i missed earlier in the case of R.K.& Sons vs CCE, Rohtak - 2016 (7) TMI 1712 - CESTAT CHANDIGARH 

We also take note of the exclusionary part of the definition of agricultural produce which states that it does not include manufactured products such as sugar, edible oils, processed food and processed tobacco as also of the no further processing requirement contained in the said definition and are of the view that holistic, harmonious and fair construction of the definition of agricultural produce leads to the inescapable conclusion that while ginned cotton would be covered within the scope of raw vegetable fibres such as cotton and hence qualify to be called agricultural produce, ginned cotton if subjected to any further processes like carding etc. would get out of the purview of agricultural produce.

My query for my client is for FY 2018-19 to FY 2020-21, after the above said circular my client has paid RCM for both storage and the transportation from FY 2022-23 onwards

[KASTURI SETHI]

 Replies by both experts are full of substance.

 Ginned cotton is not agricultural produce.  Pre-GST scenario same. 

Extract of Board's Service Tax Education guide

4.4.7 Would agricultural products like cereals, pulses, copra and jaggery be covered in the ambit of ‘agricultural produce’ since on these products certain amount of processing may be done by a person other than a cultivator or producer?

‘Agricultural produce’ has been defined in clause (5) of section 65B as ‘any produce resulting from cultivation or rearing of plants, animals including all life- forms, on which either no further processing is done or such processing is done as is usually done by the cultivator or producer which does not alter essential characteristics of agricultural produce but make it marketable for primary market’. The processes contemplated in the said definition are those as are ‘usually done by the cultivator or producer’.