28-May-2024 AAR - GST Applicability in case of Commission or Brokerage for Agricultural Produce

GST leviable @ 18% for brokerage of processed pulses

The AAR, Andhra Pradesh in the case of M/s. Gayatri Enterprises (AAR No.01/AP/GST/2024 dated 04.01.2024) ruled that processed pulses are not agricultural produce and brokerage of processed pulses will attract GST at 18 percent.

Facts of the case:

M/s Gayatri Enterprises (The applicant) is registered under GST. 

The applicant deals in brokerage of agricultural produce. They facilitate transactions between wholesalers and millers/ farmers. As of now they deal only in agricultural products like Urad, UradDhall, UragGhota, Urad Husk, Toor, Jawar and Karamani and most of these products require processing/milling/dehusking to bring them into marketable form.

For the said service they charge a fixed price per bag of brokerage from the parties. Their name is not mentioned anywhere in the sale or purchase invoice of the transactions. They raise monthly/quarterly/half yearly/annual invoice to the parties only for brokerage.

Issue Involved:

1. Dealing in brokerage of agriculture produce which is exempt, is the applicant liable for GST registration?

2. If liable for registration, whether GST is leviable?

3. If GST is leviable, what is the rate of GST?

Ruling Authority held:

1. As per Section 24(vii) of CGST Act, 2017 GST registration applies to all brokers or commission agents irrespective of the turnover limits as per Section 22.

2. As per Entry No. 54 of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 the exemption is applicable only for agricultural produce. In the present case, the applicant deals in agricultural products such as pulses (de-husked or split). Pulses commonly known as dal are obtained after de-husking or splitting or both. The process of de-husking or splitting is usually not carried out by farmers or at farm level but by the pulse millers. Therefore pulses (de-husked or split) are not agricultural produce. However, whole pulse grains such as whole gram, rajma etc. are covered in the definition of agricultural produce. Therefore, commission or brokerage for processed pulses is taxable under GST as a service.

3. Therefore, the applicant does not deal in agriculture produce but agricultural products (that are not covered under the definition of agricultural produce) and facilitates the transactions between buyer and seller and collects brokerage charges. As per Entry No. 5 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The applicant is required to pay GST at the rate of 18%.

APMH Comments:

As per Section 24 of the CGST Act a person is liable for mandatory registration if he makes taxable supply of goods or services or both on behalf of other taxable persons. Accordingly, the requirement of compulsory registration for commission agent, under the said clause shall arise when both the following conditions are satisfied, namely: -

(a) the principal should be a taxable person; and

(b) the supplies made by the commission agent should be taxable.

However, the taxpayer would be liable for registration if his aggregate turnover of supply of taxable services exceeds the threshold of 20 lakhs as specified in Section 22(1) of the CGST Act.

The same has been clarified under Para 9 of Circular No. 57/31/2018-GST, dated 4-9-2018 [as corrected by Circular No. CBEC/20/16/04/2018-GST, dated 5-11-2018].

The ruling authority is silent on the scenario where the applicant is involved in commission or brokerage for agricultural produce.

If the applicant is wholly involved in commission or brokerage for agricultural produce then the said supply will be covered under Entry No. 54 of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 and the applicant will not be required to charge GST on such supplies. Consequently, the applicant will not be required to apply for registration under GST as per Section 23(1)(a) of CGST Act, 2017.

If the applicant is partly involved in commission or brokerage for agricultural produce and partly for processed pulses (not an agricultural produce). The supply involving agricultural produce will be covered under Entry No. 54 of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 and the supply not involving agricultural produce will have GST levied at 18%. Consequently, the applicant will not enjoy the benefit of Section 23 of CGST Act, 2017 and will be mandatorily required to apply for registration as per Section 24 of CGST Act, 2017 If both the conditions for section 24 as mentioned above is satisfied.

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