5% GST payable on GTA services available for cottonseed transportation: Punjab AAR

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The Punjab Advance Ruling Authority (AAR) ruled that 5% GST is payable on freight forwarding agency (GTA) services used by plaintiff to transport cottonseed (Banaula) provided that the input tax credit charged on the goods and services used to provide the service has not been charged, otherwise 12% GST is applicable.

The bench of two members of Varindra Kaur and Viraj Shyamkarn Tidke observed that Cotton Seed (Banaula) is not eligible for exemption from paying GST on GTA services.

The applicant is in the business of receiving ‘Banaula’ cottonseed after it has been transported by GTA which falls under Chapter heading 9965/9967 of the GST Tariff Act 2017 and GST in respect of the service is payable by the recipient under reverse charge. mechanism.

The question was whether “Banaula” cottonseed was on the list of agricultural products eligible for GTA service exemption under Notification No. 12/2017 dated June 28, 2017.

The plaintiff argued that, as defined in paragraph 2(d) of Notification No. 12/2017-Central Tax (Rates) dated 28.06.2017, “Agricultural Product” means any product resulting from the cultivation of plants and raising all forms of animal life. The term “agricultural products” excludes the breeding of horses for food, fibre, fuel, raw materials or other similar products, on which either no further processing is carried out or such processing is carried out as is usually the case by a grower or producer, which does not change its essential characteristics but makes it marketable on primary markets.

The applicant stated that GTA services related to agricultural products are exempt under the GST Act in Notification No. 12/2017-Central Tax (Rates) dated 28.06.2017.

The department argued that the definition of agriculture produced under the GST Act is very restrictive in nature. It provides an exemption only for products that are harvested directly from farms or on which such processing is carried out by the grower to make them marketable, which does not change its basic characteristics. In the case of cottonseed, it is derived from the cotton plant, which consists of lint and seed, which together are known as “seed cotton”. Seed cotton is ginned to extract the cotton fibers and seeds. Thus, during the ginning process, the cotton is first dried to remove moisture and then cleaned to remove any foreign particles. The seed cotton is then treated to remove seed lint. Thus, cottonseed is obtained from seed cotton through an industrial transformation called ginning, which excludes it from the definition of agricultural products according to Notification No. 12/2017-Central Tax (Rate) from 28.06.2017.

The AAR argued that cottonseed from the intermediate process does not fall within the definition of “agricultural product” under the GST. It is apparent from the definition of “agricultural products” that the government intends to grant the exemption only to products occurring at the first stage of cultivation or breeding and not to those which are processed in factories. after being sold by the grower or producer.

Applicant Name: Ahuja Industries

Dated: 20.09.2022

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