A tax payer has the infrastructure/facilities for providing the services of sortexing and grading, processing and packaging of rice. He undertook job-work and provided the services of grading, polishing, Loading , Unloading, Packing, Re- Packing, Handling Rice including Transportation and received the job-work charges at agreed rate for all the processes as a part of job-work. The company who gave the rice for processing, did not lift the by-products such as, bran and rejects (discoloured grains of rice) after processing of rice but sold the by-products to the tax payer who, in his turn, sold them to traders of these products. The tax payer paid GST on the supply of bran but did not pay GST on the supply of rejects (discoloured grains of rice) as rice supplied other than in packages/unit containers is exempted from payment of GST. The tax payer earned income by way of sale of the rejects and exhibited the income in their sales turnovers as per P & L Accounts. The tax payer paid GST on the amount received for the services of grading and polishing only and claimed exemption from GST on the services of loading, unloading, packing, re-packing and handling of rice including transportation. The tax payer agreed to secure the products (rice) supplied by the exporters for processing and final products which are held in trust by the Processor and due performance of all their obligations stipulated in the contract and also further agreed that consideration of first two bills/invoices shall be retained by the company during the entire term of the contract as an interest free Retention Money (“Interest Free Retention Money”) Qn.No. 1) Is the tax payer liable to pay GST on the job-work services of loading, unloading, packing, re-packing and handling of rice including transportation? Qn.No. 2) Is the tax payer liable to pay GST on the income earned by way of sale of rejects (which was not returned to/lifted by the exporters) under Clause 5(e) - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - of Schedule II of Section 7 of the CGST Act, 2017? Qn.No. 3) Is the tax payer liable to pay GST on the rejects (discoloured grains of rice)? Qn.No. 4) Is the Company liable to pay GST on the “Interest Free Retention Money”
ANSWER
FACTS OF THE CASE:
A tax payer has the infrastructure/facilities for providing the services of sorting and grading, processing and packaging of rice. He undertook job-work and provided the services of grading, polishing, Loading , Unloading, Packing, Re- Packing, Handling Rice including Transportation and received the job-work charges at agreed rate for all the processes as a part of job-work. The company who gave the rice for processing did not lift the by-products such as, bran and rejects (discoloured grains of rice) after processing of rice but sold the by-products to the tax payer who, in his turn, sold them to traders of these products. The tax payer paid GST on the supply of bran but did not pay GST on the supply of rejects (discoloured grains of rice) as rice supplied other than in packages/unit containers is exempted from payment of GST. The tax payer earned income by way of sale of the rejects and exhibited the income in their sales turnovers as per P & L Accounts. The tax payer paid GST on the amount received for the services of grading and polishing only and claimed exemption from GST on the services of loading, unloading, packing, re-packing and handling of rice including transportation. The tax payer agreed to secure the products (rice) supplied by the exporters for processing and final products which are held in trust by the Processor and due performance of all their obligations stipulated in the contract and also further agreed that consideration of first two bills/invoices shall be retained by the company during the entire term of the contract as an interest free Retention Money.
LAW APPLICABLE:
Notification No. 02/2017 Central tax (rate)
| 70. | 1006 |
Rice |
Notification No. 11/2017 Central tax (rate)
| 24. Heading 9986 (Support services to agriculture, hunting, forestry, fishing, mining and utilities)] | ||
|
(i) Support services
to agriculture, forestry, fishing, animal husbandry. |
Nil | - |
Notification No. 12/2017 Central tax (rate)
| 21 | Heading 9965 or Heading 9967 |
Services provided by a goods
transport agency, by way of transport in a goods carriage of - (a) agricultural produce; ---------------------------------------------------- |
Nil | Nil |
SECTION 2 OF CGST ACT
(31) 'consideration' in relation to the supply of goods or services or both includes''
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) 'the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;
INTERPRETATION:
Loading, unloading, packing, storage or warehousing of agricultural produce is exempt vide s.no. 24 of Notification No. 11/2017 CT(R). Also transportation of agricultural produce attracts NIL rate of tax vide s. no. 21 of Notification No. 12/2017 CT(R).
Rice [other than those put up in unit container and bearing a registered brand name] exempt from GST as per the notification No.2/2017 Central Tax (Rate) dated 28.06.2017. Therefore rejects (discoloured grains of rice) supplied without packages and unit containers are exempt and no tax is leviable.
As the Company has sold the by products to the tax payer (job worker) who in turn sold them to traders of these products, therefore two sale transactions are involved in this i.e. Company sold to tax payer and Company will pay GST on this sale, other is tax payer sold these by products to traders and will pay GST on this outward supply (if taxable). If this is the transaction then question of liability to pay GST under Clause 5(e) - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - of Schedule II does not arise.
The proviso to Section 2(31) of CGST Act provides that a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration of the supply.
CONCLUSION:
1. Is the tax payer liable to pay GST on the job-work services of loading, unloading, packing, re-packing and handling of rice including transportation?
No, the taxpayer is not liable to pay GST on the services of loading, unloading, packing, re-packing and handling of rice including transportation as the same is exempted.
2. Is the tax payer liable to pay GST on the income earned by way of sale of rejects (which was not returned to/lifted by the exporters) under Clause 5(e) - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - of Schedule II of Section 7 of the CGST Act, 2017?
The tax payer is not liable to pay GST on the income earned by way of sale of rejects under Clause 5(e) of Schedule II.
3. Is the tax payer liable to pay GST on the rejects (discoloured grains of rice)?
Rejects (discoloured grains of rice) supplied without packages and unit containers are exempt and no tax is leviable.
4. Is the Company liable to pay GST on the “Interest Free Retention Money”?
As per the proviso to section 2(31), GST will not be liable till the time Interest Free Retention Money is applied towards any supply. (Reply dt. 08/10/2021)