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BLACK TEA AN AGICULTURAL PRODUCE?

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BLACK TEA AN AGICULTURAL PRODUCE?
By: Mr.M. GOVINDARAJAN
February 1, 2019
  All Articles by: Mr.M. GOVINDARAJAN       View Profile
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The green tea leaves plucked from the plants are not fit for the human consumption. It cannot be sold in the open market for human consumption.  The raw tea leaves are withered by exposure in the shadow of the sun or by heating in trays until pliable.  The tea leaves normally undergo the following standard procedures prior to procurement-

  • Tea leaves are plucked from the tea plant.
  • Thereafter the leaves are rolled by hand or machine in order to break the leaf cells and liberate the juices and enzymes.
  • Finally the leaves are completely dried either by further exposure to the sun, over fires, or in a current of hot air.
  • Then the leaves are fermented in baskets, glasses and in clothes.
  • Thereafter the leaves are subjected to grading with sieves of various sizes.
  • The leaves are finally roasted with charcoal for obtaining suitable flavor and color.
  • Then the said tea is packed in the bulk packs.

All the above processes are necessary for the purpose of saving the tea leaves from perishing.   In case the above process is not carried out immediately the entire tea leaves would be perished.  The process, as indicated above, at no point of time, crossed that limit and robbed the tea leaves of their character of being and continuing as such substantially.

Whether the black as processed above would amount to ‘agricultural produce’?  The expression ‘agricultural produce’ is defined under clause 2(d) of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 as any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, 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.

In re Nutan Warehousing Company Private Limited’ – 2018 (12) TMI 651 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA, the appellant company had been granted licence for carrying out business of warehousing under the Bombay Warehousing Act, 1959. The appellant constructed warehouses at various places including at Fursungi, Pune. M/s Unilever India Exports Limited produces tea of various qualities in bulk either from public tea auctions or directly from the manufacturers of tea in 50 Kg bags and stores them in the said warehouse.  The said procurement was undertaken during season.  Unilever undertook blending and packing of tea at the warehouse and exported to various overseas countries.

The appellant was of the view that the tea, procured in bulk, either from public tea auctions or directly from manufacturers of tea is an agricultural produce as defined in Notification No. 12/2017-Central Tax (Rate), since the tea is not losing the essential characteristics of tea. Therefore the tea is exempted from GST. However the appellant intended to get advance ruling in this case.

The exemption benefit claimed by the appellant was rejected by the Authority for Advance Ruling. Therefore the appellant filed the present appeal before the Appellate Authority.  The Appellate Authority considered the moot issue in this appeal is whether the tea leaves of the various qualities which is precisely black tea, procured in bulk either from public tea auctions or directly from manufacturers of tea in 50 kg bags after undergoing various stages of the processes by the appellant’s client Unilever for storage in the warehouse owned by the appellant are agricultural produce or otherwise.

The Appellate Authority observed that the process meant for black tea are mostly carried out by the manufacturers after procuring the green tea leaves from the producers of the green leaves. Thus as a result of the above enumerated processes, the tea leaves acquire the new flavor and color and are now suitable for the human consumption.  The nomenclature of the tea has undergone change from the green tea leaves to the black tea. The client of the appellant stated that their main and the sole ingredients are black tea of various qualities, which are blended in the specific proportion as per the specific orders received from their respective customers before packing the same.

The Appellate Authority inferred that the product being stored in the warehouse has got different name, character and uses from the green tea leaves which are cultivated in the tea gardens.  The Appellate Authority inferred that there is no doubt that the processes or treatments in which are performed upon the green tea leaves amounts to manufacture as per definition under section 2(72) of Central Goods and Services Tax Act, 2017.  The said fact is acknowledged by the appellant.

The Appellate Authority also analyzed the definition of ‘agricultural produce’ under clause 2(d) of the Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.  The Appellate Authority listed out the following two parameters which will determine any goods to be the agricultural produce or otherwise-

  • It should be a produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products;
  • It should be subjected to either no further processing or such processing by the cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

The Appellate Authority observed that as a result of the specific manufacturing processes, carried out by the manufacturers on the original agricultural produce, i.e., green tea leaves for making them suitable for consumption by imparting the desired flavor and color by the above discussed methods. All these processes, which change the characteristics of the green tea leaves, are carried out by the manufacturers and not the cultivators or the producers of the green tea leaves as envisaged under the definition of the agricultural produce. Thus the manufactured products do not fulfill the above prescribed criteria of the agricultural produce. The Appellate Authority held that the black tea cannot be considered as agricultural produce.

The Appellate Authority rejected the contention of the appellant that the said processes carried out on the green tea leaves do have bearing on the taste and color of the tea does not alter the characteristics of the tea.  If tea stored in appellant’s warehouse is agricultural produce, the same should be covered under the Notification No. 12/2017-Central Tax- Rate.  But the processes carried out by the client of the appellant, as submitted by the appellant, leaves no doubt in one’s mind that they have lost the nature and characteristics of an agricultural produce in terms of definition of ‘agricultural produce’ and are ready for secondary or tertiary market.  The intention of the legislature has never been to exempt agricultural produce at every stage. Had it been the case, then all agricultural produce processed or manufactured by the person other than the cultivator or producers, would have been exempted from GST. The Appellate Authority held that there is no reason to interfere with the order passed by the Authority for Advance Ruling and rejected the appeal.

 

By: Mr.M. GOVINDARAJAN - February 1, 2019

 

 

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