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TMI Blog2023 (12) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2022 before the Advance Ruling Authority, Punjab. During proceedings on 18.02.2022,05.08.2022, Sh. Rishab Singla, Advocate appeared on behalf of the applicant and submitted his oral and written submission on the matter which are placed on file. On 16.08.2022, Sh. Rishab Singla, Advocate and Sh. Chinansha, Advocate appeared on behalf of the applicant and submitted additional submission on the matter which are placed on file. 3. QUESTION(S) ON WHICH ADVANCE RULING IS SOUGHT:- Whether Purchase of raw cotton from Kacha Arhtiya who is a registered dealer constitutes a purchase from agriculturist so as to attract liability under Reverse Charge Mechanism in view of section 9(3) of CGST/PGST Act, 2017? 4. ELIGIBILITY OF THE APPLICATION FOR ADVANCE RULING:- The 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, provides for the issues on which advance ruling can be sought. 97(2) The question on which advance ruling is sought under this Act, shall be in respect of- (a) Classification of any goods or services or both; (b) Applicability of a notification issued under the provisions of this Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been issued to the said circular wherein para 9 has been amended and it has been clarified that where a Commission Agent is liable to pay tax under Reverse Charge, such an agent will be required to get registered compulsorily under Section 24(iii) of the CGST Act. 3.1 In this regard, an Advance Ruling has already been issued by the Haryana Authority for Advance Ruling Haryana in the case of M/s Bhaktawar Mal Kamm and sons in which it has been clarified as under:- "As per the above discussions, a commission agent who is making supplies on behalf of such agriculturist, who is not a taxable person, is not liable for compulsory registration under clause (vii) of Section 24 of the CGST/HGST Act, 2017. However, if the aggregate turnover of supply of exempted as well as taxable goods by commission agents (Kachha Arhatia) exceeds the threshold limit, such commission agents shall be liable for registration as per Section 22(1) of CGST/ HGST Act, 2017. As per Notification No. 121/ST-2, dated 14-11-2017 issued under Haryana Goods & Services Tax Act, 2017 read with corresponding Notification No. 43/2017, dated 14-11-2017 issued under Central Goods & Services Tax Act, 2017, raw cotton has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4/2017-Central Tax (Rate) New Delhi, the 28th June, 2017 G.S.R. 676 (E). - In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby specifies the supply of goods, the description of which is specified in column (3) of the Table below and falling under the tariff item, subheading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Table, made by the person as specified in the corresponding entry in column (4), in respect of which the central tax shall be paid on reverse charge basis by the recipient of the intra-state supply of such goods as specified in the corresponding entry. Sr.No. Tariff Item, Sub-heading, heading or Chapter Description of supply of goods Supplier of goods Recipient of supply (1) (2) (3) (4) (5) 1 0801 Cashew Nuts not shelled or pealed Agriculturist Any registered person 2 1404 9010 Bidi wrapper leaves(tendu) Agriculturist Any registered person 3 2401 Tobacco Leaves Agriculturist Any registered person 4 5004 to 5006 Silk Yarn Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in section 2(93) of CGST Act, 2017 "recipient" of supply of goods or services or both, means- (a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; (b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) Where no consideration is payable for the supply of service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied; Now the question arises that who is liable to pay the consideration? The Punjab Agricultural Produce Markets (General) Rules, 1962- Rule 24(11) specifies that "The Kacha Arhtiya shall make payment to the seller immediately after the weighment is over." Further as per Rule 24 (12) Every Kacha Arhtiya shall, on delivery of agricultural produce to a buyer, execute a memorandum in Form I and deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment to the Table of impugned Notification reads as below:- TABLE Sr. No. Tariff item, subheading, heading or Chapter Description of supply of Goods Supplier of goods Recipient of supply 1 2 3 4 5 4A 5201 Raw Cotton Agriculturalist Any registered person The terms "agriculturist" and "registered person" are defined under clauses (7) and (94) of the Section 2 of the CGST Act, 2017 which are reproduced below: SECTION 2. Definitions:- In this Act, unless the context otherwise requires, (7) "agriculturist" means an individual or a Hindu Undivided Family who undertakes cultivation of land,- (a) by own labour, or (b) by the labour of family, or (c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family; (94) "registered person" means a person who is registered under section 25 but does not include a person having a Unique Identity Number; 7.5 From the above, it can be inferred that supplier of goods (in this case raw cotton) should be the agriculturalist itself, i.e. an individual or a Hindu Undivided Family who undertakes cultivation of land and the recipie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. (4) The Government may, on the recommendations of the Council, by Notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient oj such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both. The present sub-section (4) has been inserted w.e.f. 01.02. 2019. The sub-section (4) as in force prior to 01.02.2019 read as follows:- (4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an activity to be treated as supply even if made without consideration. 7.12 The Notification No. 43/2017-Central Tax (Rate), dated 14-11-2017 had inserted Entry 4A in Notification No. 4/2017-Central Tax (Rate), dated 28-6-2017 to include raw cotton on which tax became payable under reverse charge mechanism by the recipient of supply, i.e., any registered person. 7.13 In the present case, the whole process of purchase of raw cotton is done under APMC Act wherein the Kacha Arhtia facilitates the sale of raw cotton from an agriculturist/farmer to the Applicant and every act done during this sale transaction is done as per Bye-Laws of APMC Act. The Kacha Arhtia receives by way of remuneration, a commission or percentage upon the amount involved in such transaction. The Kacha Arhtia, issues FORM-I to the buyer of the goods and Form-J to the farmer being the seller of the corresponding goods. In other words, the transaction of sale of raw cotton by agriculturist to the Applicant is regulated as per statutory provisions of the APMC Act wherein the seller is the farmer/zimindar i.e., agriculturist and the buyer is the Applicant. 7.14 The provisions of the Section 7(1) clause (c) pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresented, is called the "principal". As delineated in the definition, an agent can be appointed for performing any act on behalf of the principal which may or may not have the potential for representation on behalf of the principal. So, the crucial element here is the representative character of the agent which enables him to carry out activities on behalf of the principal. 3. The term "agent" has been defined under sub-section (5) of section 2 of the CGST Act as follows: "agent" means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. 4. The following two key elements emerge from the above definition of agent:- a) the term "agent" is defined in terms of the various activities being carried out by the person concerned in the principal-agent relationship; and b) the supply or receipt of goods or services has to be undertaken by the agent on behalf of the principal. From this, it can be deduced that the crucial component for covering a person within the ambit of the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the agent to the customer in the name of the principal, such agent shall not fall within the ambit of Schedule-I of the CGST Act. Similarly, where the goods being procured by the agent on behalf of the principal are invoiced in the name of the agent then further provision of the said goods by the agent to the principal would be covered by the said entry. In other words, the crucial point is whether or not the agent has the authority to pass or receive the title of the goods on behalf of the principal. 8. Looking at the convergence point between the character of the agent under both the CGST Act and the Indian Contract Act, 1872, the following scenarios are discussed: Scenario 1 Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various suppliers who can provide the goods as desired by Mr. A, and asks the supplier (Mr. C) to send the goods and issue the invoice directly to Mr. A. In this scenario, Mr. B is only acting as the procurement agent, and has in no way involved himself in the supply or receipt of the goods. Hence, in accordance with the provisions of this Act, Mr. B is not an agent of Mr. A for supply of goods in terms of Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. However, in cases where the invoice is issued directly by Mr. A to the buyer, the commission agent (Mr. B) doesn't fall under the category of agent covered under Schedule I. 9. In scenario 1 and scenario 2, Mr. B shall not be liable to obtain registration in terms of clause (vii) of section 24 of the CGST Act. He, however, would be liable for registration if his aggregate turnover of supply of taxable services exceeds the threshold specified in sub-section (1) of section 22 of the CGST Act. In scenario 3, M/s. B shall be liable for compulsory registration in terms of the clause (vii) of section 24 of the CGST Act. In respect of commission agents in Scenario 4, Notification No. 12/2017-Central Tax (Rate) dated 24.06.2017 has exempted "services by any APMC or board or services provided by the commission agents for sale or purchase of agricultural produce" from GST. Thus, the "services" provided by the commission agent for sale or purchase of agricultural produce is exempted. Such commission agents (even when they qualify as agent under Schedule I) are not liable to be registered according to sub-clause (a) of sub-section (1) of section 23 of the CGST Act, if the supply of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant extract of which is reproduced below for reference:- "24. Sale of agricultural produce ........................... (1) All agricultural produce brought into the market for sale shall be sold by open auction in the principal or sub market yard. (2) Nothing in sub-rule (1) shall apply to a retail sale as may be specified in the bye-laws of the committee. (3) A committee may, and on being directed by the Chairman of the Board or an officer authorized by him shall fix timings for the starting and closing of the auction in respect of any agricultural produce, other than fruits and vegetables. (4) The price of agricultural produce shall not be settled by secret signs or secret bid and no deduction shall be made from the agreed price of the consignment. (5) The auction shall not be conducted by any person other than the person engaged by the committee: Provided that under special circumstances the Chairman of the Board or an officer authorized by him may allow a committee to make or permit any alternative arrangement: Provided further that nothing in this sub-rule shall apply to the auction of vegetables and fruits. (6) The highest bid offered by a buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) Delivery of agricultural produce after sale shall not be made or taken unless and until the Kacha Arhtia or, if the seller does not employ a Kacha Arhtia, the buyer has given to the seller a sale voucher in Form-J, the counterfoil who of shall be retained by the Kacha Arhtia or the buyer, as the case may be. " 7.18.3 From the above, it comes out that the sale of raw cotton is done at a defined market place and in the presence of authorized representatives of market committee, and that all these terms and procedures are defined in the provisions of APMC Act and Rules made thereunder and the bye-laws which controls the sale-purchase of agriculture produce, raw cotton/'narma' in the instant case. When a farmer/agriculturist brings his agriculture produce to a notified market area as per APMC Act and Rules for sale, they approach the Kacha Arhtia and get their crop details entered in Heap register/Form-H maintained by Kacha Arhtia. Thereafter, the bidders and Mandi Board Employee having 'Register/Form-H' execute the auction process in presence of the sellers and the prospective buyers who bid. The highest bid offered by a bidder at an auction and at which the seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage ____________ Palledari ____________ Filling Sewing ____________ Charges Other ____________ Charges ____________ Total ____________ Rs. Signature of Kacha Arhtia Acknowledgement by the buyer [FORM III] [See Rule 24 (12) and 24 (13)) Bill of Kacha Arhtia for direct payment by buyer to the seller Counterfoil Book No.____________________ Serial No.__________________ Name of Market____________________ Name of Kacha Arhtia____________ Name of Buyer ___________ Dated _____ Name and address of the seller Name of commodity Weight Rate Total amount Market charges Grand Total The name of the producer seller in whose name the payment is to be made Name of bank with full address Account numb er IFSC code Total amount to be paid Labour charges to be deducted and paid to Kach arhtia, if any Net amount to be paid 1 2 3 4 5 6 7 8 9 10 11 12 13 14 RS. RS. RS. Commission Brokerage Palledari Filling & Sewing Charges Other Charges Total RS. Rs. Rs. Rs. Signature of Kacha Arhtia Acknowledgement by the buyer. 7.18.4 The issuance of different Forms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural 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. For this, the Form-J and Form-I have been prescribed by APMC Rules. These forms are statutory records and not invoices as claimed by the Noticee. Further, We observe that 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. 7.19 From the foregoing, We find that 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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