In Re Nitin Bapusaheb Patil: The Maharashtra Bench Of The GST Authority For Advance Ruling Determine Whether Turmeric Is A Spice Or An Agricultural Produce

Date of judgement:
27 December 2021

Bench:
Rajiv Maggo
T. R. Ramnani

Parties:
Applicant – Nitin Bapusaheb Patil

Subject

Agricultural Produce are those materials which are obtained from plants or rearing of any animal, except horses, for food, fibre, fuel, raw material or any other similar product. There should not be any processing done on these products so as to change their essential character, but only up to an extend so as to increase its marketability in the primary market. These Agricultural products are exempted from GST and all the services related to the buying and selling of these agricultural products are exempted from GST.

Legal Provisions

• Section2(5), Goods and Services Tax (GST) Act,2017 – Any person who is involved in the business of supply or receipt of goods and services on behalf of the trader or farmer is a “Commission Agent”.
• Section 23 (1) (a), GST Act, 2017 – Any agent related only in the buying and selling of agricultural produce are not required to obtain registration under the GST Act, 2017.
• Section 24 (vii), GST Act, 2017 – Peoplewho supply goods or services on behalf of other taxable people are required to register under GST Act even if his / her turnover is less than Rs. 20 / 10 lakhs. Registration is only required by agents who stock and sell goods on behalf of the farmer.
• Section 22(1), GST Act, 2017 – Under this section, all the traders have to be registered in the State or Union Territory where they sell or buy goods, if their turnover is more than Rs. 20 Lakhs.

Overview

• The applicant, Mr. Nitin Bapusaheb Patil is a commission agent under State’s Agriculture Produce Market (APMC), Sangli under the GST Act, 2017.
• He was involved in the supply of turmeric (whole, not powdered) under the supervision of an APMC Officer.
• His functions were as follows:

1. o He obtained the polished turmeric from the farmers and conducted an auction for their sale in the market.
2. o If the farmer was happy with the prices, the applicant would confirm that with the trader. If not, there would be another auction held or the farmer was free to take his produce back.
3. o Once the rate was accepted, the trader would go to the applicant’s godown where weighing of the turmeric would be done in front of the farmer, the trader, the applicant and the APMC Officer supervising. Now the ownership of the turmeric is transferred from the farmer to the trader.
4. o At the time of the delivery, the applicant would give the bill to the trader, according to the APMC rules.
5. o The trader wouldthen make the payment to the applicant, who, after deducing his percentage of share would give the balance to the farmer.

• The applicant got a commission of 3% for these services that he provided according to the APMC rules.
• The polished turmeric mentioned here goes through certain processes after being plucked from the fields.
• These processes include washing them with clean water, then boiling them in a boiler then finally polishing them with the help of machines.
• All these above-mentioned steps were done by the farmer.
• The applicant said that in M/s Vivek Trading and M/s Naresh Warehouse, it was contended that turmeric is an agricultural product and hence the services related to it should be exempted from taxation.
• Citing the case of Commissioner of Sales Tax, Lucknow v. D. S. Bist & Ors., the applicant said that the Supreme Court had observed in the above-mentioned case that some processing was allowed in the agricultural products to increase its marketability, but one had to keep in mind whether that process was as such that anybody in the market or otherwise would consider it an agricultural product or not.
• The applicant also mentioned M/s Crane Betel Nut Powder Works v. Commissioner of Customs and Central Excise, Tirupathi & Anr., where the court had allowed the betel nuts to go through some processing and still kept it in the category of agricultural product, because it was not possible to consume betel nuts without that processing being done.
• In, In Re: Erode Manjal Vanigarkal Matrum Kidangu Urimaiyalargal Sangam, the Chennai AAR held that the services of a commission agent related to the purchase and sell of turmeric is taken as “support service to agriculture” and is thus exempted from paying GST, the applicant noted.
• In In Re: M/s Bhaktawar Mai Kamra & Sons, it was held under Section 24(vii) of the GST Act, 2017 that only people who are to sell the produce in place of the famer are required to register under this section.
• Apart from this,the applicant made it clear that the invoice for the sale of turmeric was not raised in his name neither did he make any sale of goods and thus, he pleaded that there was no requirement for him to get registered.
• He also referred to a notice issued by the CBIC (Central Board of Indirect Taxes & Custom Sales) that agents who are involved in the buying and selling of agricultural produce are exempted from taxand are not required to get registered.
• On the other hand, the concerned officer said that turmeric comes under taxable produce and thus the applicant has to obtain registration.

Issues

• Whether or not turmeric is an agricultural produce?
• Whether or not the commission earned by the applicant be exempted from taxation?
• Whether or not the applicant should get a registration under the provisions of the GST Act, 2017?

Judgement Analysis

• The bench noted that drying and polishing of turmeric was a specialised process and there was no proof given by the applicant as to whether or not these processes were carried out in the land of the farmer.
• The bench also noted that these processes done on the turmeric makes it directly marketable to the customers, therefore, turmeric cannot be said to be an agricultural produce.
• Turmeric comes under chapter 9 of the GST tariff which includes spices taxable @5%, which means turmeric is a spice and again, not an agricultural produce.
• As per, circular no. 16/16/2017-GST dated 15/11/2017, any processed spice, in this case turmeric, does not come under agricultural produce.
• The bench took the example of the Rajasthan Appellate Authority, who had held in In Re: Sardar Mai Cold Storage & Ice Factory, that turmeric which has been dried and polished does not come under agricultural produce.
• The bench also observed that since turmeric is not an agricultural produce, the services of the commission agent also cannot be exempted from taxation under provisions of the GST Act, 2017.
• Therefore, the bench held that the product, that the commission agent (applicant) is rendering services to, is taxable, thus making the commission earned by the commission agent also taxable and accordingly, he will also have to obtain registration as per the provisions of the GST Act, 2017.

Conclusion

The definitions of an agricultural product mentioned in the GST Act is vague and thus, it is up to the interpretations of the tribunal and court, where the matter is put up. In a similar case, the judgement by the Gujrat High Court is contrary to the judgement of the above-mentioned bench. In the case of egg too, the Karnataka High Court called it to be an agricultural produce as long as it is raw. These different interpretations allow us to look into the matter deeply and analyse it. For example, in the Karnataka High Court case, we can agree that, once an egg is laid by the mother hen, it does not undergo any processing before it is supplied to the market, where it is cooked or sold raw, thus rendering it to be an agricultural produce. Thus, different products require different insights.