GST chargeable on cold storage of tamarind pulp as it does not qualify under definition of ‘agricultural produce’ – Tamilnadu AAR

Introduction:

An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advanced Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appellate authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR.

The question of law which is address through this AAR is as follows:

• Whether the cold storage of tamarind pulp is classified as ‘agricultural produce’ and hence it will be exempt from GST.

Facts of the application made to AAR, by taxpayer ‘Arun Cooling Home(applicant)’, dated 27-Feb-2021:

The applicant is into the business of cold storage and various agricultural produce such as potato, dates, chillies apple, tamarind etc. They are licensed under FSSAI to carry out the business of cold storage for several of their produce including pulses. The applicant required clarification regarding the cold storage related to pulp of tamarind excluding the shell and seeds in their cold storage facility. They are of the contention that the tamarind pulp which they store in their cold storage is classified under ‘agricultural produce’ as set out under Heading 9986 of Notification no. 11/2017-Central Tax (Rate), S.No. 24(e) Loading unloading packing storage or warehouse of agricultural produce and notification no. 12/2017-CT (Rate) which exempts services related to cultivation of plants and rearing of horses, for food, fiber, raw material or other similar products or agricultural produce by way of (e) loading, unloading packing storage or warehousing of agricultural produce, both date d28.Jun.2017.

The process which the applicant follows is, once the tamarind is ready for harvest, it is removed with its shell and the tamarind is separated from the shell and the seeds are separated from the pulp, which is all done manually as a cottage industrial process. The applicant quoted the definition of ‘agricultural produce’ as follows:

‘It means any produce out of cultivation of plants and rearing of all life forms of animals, except rearing of horses, for food, fiber, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.’

The applicant is of the contention that since the nature of the produce is not altered in the case of tamarind and it is kept in cold storage for future use, it is exempt from GST under Notification no. 11/2017-Central Tax (Rate) and notification no. 12/2017-CT (Rate), both dated 28.Jun.2017.

Further the applicant submitted two AAR rulings, one by Rajasthan AAR ruling no. RAJ/AAR/2018-2019 dated 11.Jun.2018 and another by Andhra Pradesh AAR ruling no. AAR/AP/02(GST) 2018 dated 23.Mar.2018, which gave conflicting verdicts where, in the former case, since machine process was involved in tamarind storage, it was taxable under GST and in the latter, tamarind pulp storage was exempt from GST. Hence the applicant required clarification in this regard if the cold storage of tamarind can be classified as ‘agricultural produce’ and exempt from tax as per the two notifications given above.

Observations and final ruling by AAR vide Order No. 07/ARA/2020 dated 24.Mar.2021:

The AAR acknowledged the facts presented by the applicant and took note of the two rulings as presented by the applicant. The AAR further elaborated on the two notifications presented and represented the definition of ‘agricultural produce’. It further explained that green tea leaves is agricultural produce but tea is not agricultural produce and jaggery which is produced from sugarcane is not agriculture produce and pulses which undergo dehusking or splitting process are also not agricultural produce. It explained that in all the aforementioned case, the essential characteristic of the agricultural produce is changed and hence cannot be exempt from GST.

The AAR contended that as per Serial no. 33A of Schedule I to Notification No. 01/2017-Ct (Rate) dated 28.Jun.2017 as amended, classified ‘Tamarind dried’ under HSN 0813 which attracts 5% GST rate while ‘fresh tamarind’ classified under Serial No. 57 of notification no. 02/2017-CT (Rate) dated 28.Jun.2017 as amended, exempts fresh tamarind from GST. As per the explanatory notes to the notification, the current description of tamarind falls under HSN 0813 as it undergoes the process of drying under the sun, removing of shell and seeds and the resultant tamarind pulp being stored in cold storage.

So the AAR concluded that tamarind inner pulp which undergoes a transformation process which is not related to farming, is not ‘agricultural produce’ as per 2(d) of notification no. 12/2017-CT (Rate) dated 28.Jun2017 and hence the cold storage of such processed tamarind cannot be exempt under Serial no. 54(e) of notification no. 12/2017-Ct (Rate) dated 28.Jun.2017, as the applicant have themselves acknowledged the process of making tamarind pulp as cottage industry.

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