Processed pulses to attract GST, says AAR in case involving agri broker

Andhra Pradesh-based Gayatri Enterprises' GST policy was challenged by parties all over the country

Processed pulses obtained after dehusking and splitting the grains are unlike whole pulse grains and not agricultural produce, making them liable to goods and services tax (GST), ordered the Andhra Pradesh authority for advance rulings (AAR).

Besides, brokerage of agricultural produce charged to facilitate transactions between wholesalers and millers or farmers will draw 18 per cent GST, ruled the AAR.

Sandeep Sehgal, tax partner at AKM Global, said the case relates to Andhra Pradesh-based Gayatri Enterprises, a broker in agricultural produce such as urad dal and its varieties, moong dal and variants, toor, jowar and karamani. The company charges a fixed price per bag from the parties.

Its name is not mentioned anywhere in sale or purchase invoices of transactions. It raises invoices to the parties only for the brokerage amount.

The company obtained GST registration and charges 18 per cent tax, but was resisted by parties all over the country who said that GST is not applicable to agricultural produce and brokerage.

As such, the company sought directions from the AAR whether its activities as a broking agent of agricultural produce will draw GST or not.

The AAR observed that the process of de-husking or splitting of pulses is usually not carried out by farmers or at farms but by pulse millers.

As such, pulses -- dehusked or split -- are also not agricultural produce. However, whole pulse grains such as whole gram, rajma are covered in the definition of agricultural produce, the AAR clarified.  

Therefore, processed pulses fall outside the definition of agricultural produce and the exemption from GST is not available to them, said the AAR. However, AAR did not mention the rate of GST applicable to de-husked or split pulses. Experts say five per cent GST will be applicable.

AAR also held that the company's work as a broker in pulses comes under the category of commission agent.  
 

The applicant is required to pay 18 per cent GST, the rate applicable to the commission agent, irrespective of the fact whether the goods involved in the transaction are exempt or taxable under the GST regime, the AAR ruled.

Sehgal said the AAR has taken the view that due to certain activities like dehusking or splitting of pulses, commonly performed by pulse millers, the resultant product does not qualify as agricultural produce. In effect, the brokerage will be subject to GST, he said. “…the AAR has chosen to take a restricted view which underscores the complexities of taxation within the agricultural domain,” he said.

Decoding the stance
 

The AAR observed that the process of dehusking or splitting of pulses is carried out by millers
 

Pulses are not agricultural produce, and GST exemption is not available for them
 

However, whole pulses grains such as whole gram, rajma are covered in the definition of agricultural produce
 

Brokerage of agricultural produce charged to facilitate transactions between wholesalers and millers or farmers will also attract 18% GST