In Order No. 03/AAAR/2023/338 -AAAR- AAAR (Punjab) affirms GST Liability on appellant for purchase of raw cotton from Kacha Arhtiya
Members Rajesh Puri (Chief Commissioner) & Kamal Kishor Yadav (IAS Commissioner) [20-03-2023]

Read Order: In Re: Bansal Industries

Chahat Varma

New Delhi, July 3, 2023: The Punjab bench of the Appellate Authority for Advance Ruling (AAAR) has affirmed the decision of the Punjab Authority for Advance Ruling (AAR) regarding the liability of Bansal Industries (appellant) to pay GST under reverse charge basis. According to the ruling, the appellant will be responsible for the payment of GST for the purchase of raw cotton from Kacha Arhtiya, rather than the Kacha Arhtiya being liable for the payment.

The appellant, a partnership firm involved in the ginning and pressing of cotton and crushing of oil seeds, approached the authorities seeking an advance ruling on whether their purchase of raw cotton from Kacha Arhtiya, a registered taxpayer, should be considered a purchase from an agriculturist, thereby attracting liability under the Reverse Charge Mechanism as per sub-section (3) of Section 9 of the Central Goods and Services Tax Act (CGST Act) and the Punjab Goods and Services Tax Act (PGST Act).

At the outset, the two-member bench of Rajesh Puri (Chief Commissioner) & Kamal Kishor Yadav (IAS Commissioner) pointed out that the order issued by the AAR had cited an incorrect notification, which was not relevant to the matter at hand. The bench clarified that the Notification No. 4/2017-Central Tax (Rate) dated 28th June,2017 was issued for notifying the goods that would be subject to RCM under sub-section (3) of section 9 of the CGST Act. The said notification was further amended by Notification no. 43/2017-Central Tax (Rate) dated 14th November, 2017, which was germane to the issue under consideration.

The bench noted that the appellant themselves had acknowledged that the Kaccha Arhtiya acted as an agent of the agriculturist, and the appellant procured raw cotton from the Kaccha Arhtiya. It was evident from the remuneration details that the Kaccha Arhtiya charged commission for the services provided to the agriculturist. Referring to Clause (5) of Section (2) of the CGST Act, which defines an ‘agent’, the bench held that the Kaccha Arhtiya would fall within the definition of an agent if they conduct business on behalf of another, i.e., the agriculturist.

The bench further observed that the definition of a supplier of goods in Section 2(105) of the CGST Act included the agent of the supplier. Therefore, the Kaccha Arhtiya would be considered a supplier of goods. The bench remarked that taking the view that only the agriculturist was considered the supplier of goods and not the Kaccha Arhtiya would contradict the very definition of a supplier. Hence, for the purpose of the notification, the bench held that the term ‘agriculturist’ would include the agent who acts on the behalf of the said person.

The bench then examined the RCM Notification No. 4/2017-CT dated 28th June 2017 (as amended) and concluded that the notification specifically pertains to the liability of reverse charge in relation to the supply of goods, not services connected to goods. Therefore, considering the transaction between the agriculturist and the Kaccha Arhtiya, which involves the supply of services, it cannot be covered under the RCM Notification No. 4/2017-CT.