2025 (7) TMI 191 - AAR - GST

Levy of GST - commission earned by the applicant for conducting cardamom auction - HELD THAT - Going by the nature of activities performed by the applicant they do not merely cause the sale of goods on behalf of their clients the cardamom growers and traders. They provide necessary storage and auction facilities including electronic weighing machine and moisture meters for pooling the cardamom in places convenient to the farmers. They pool cardamom from different origins grade them and convert them to lots for auction. They draw samples from these lots for the purpose of inspection of Spice Board licenced dealers to inspect at the auction house of the Spices Board - As per rule 10(1)(j) of the Cardamom (Licensing and Marketing) Rules 1987 the auctioneer shall not charge more than one per cent of the sale price as commission for the services rendered by him. The taxability of this commission is the issue raised in this application. As regards the eligibility to the exemption under S1.No 54(g) of Notification No 12/2017 Central Tax (R) dated 28.06.2017 it is seen that the exemption is available to the services provided by a commission agent for sale or purchase of agricultural produce. The respondent company has in effect argued that the words auctioneer and commission agent are interchangeable and the reference to commission agent in Entry SI. No 54(g) of Notification No 12/2017 Central Tax (R) can include even an auctioneer. This Authority are not impressed by this argument. It is trite law that exemption notifications are to be strictly interpreted. A notification has to be interpreted in the light of the words employed by it and not on any other basis. In the case of Entry SI. No 54(g) of Notification No 12/2017 Central Tax (R) the exemption given is to the APMC or Board or Commission Agent. As mentioned a commission agent and an auctioneer are no doubt mercantile agents but the functions performed by them are vastly different. Hence by the nature of the services mentioned under SAC 9986(relating to entry 54 of exemption Notification No. 12/2017) sales commission and auction commission will not get classified under this SAC code. Sales commission and auction commissions rightly falls under SAC codes 996111- Services provided for a fee/ commission or contract basis on wholesale trade or 996211-Services provided for a fee/ commission or contract basis on retail trade (relating to Entry 5 of Notification Number 11/2017 (CGST Rate). The applicant s services fall squarely under Entry No.5 of the Notification Number 11/2017/CT (Rate) Therefore where a specific entry is available under Entry Number 5 of it supersedes the general entry of the Notification 12/2017 (CGST Rate) and the commission earned by the applicant is liable to GST at the applicable rate.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) are:

• Whether the commission earned by the applicant, a licensed auctioneer conducting cardamom auctions, is exempt from GST under Entry 54(g) of Notification No. 12/2017-Central Tax (Rate), which exempts services by commission agents for sale or purchase of agricultural produce.
• Whether the applicant's role as an auctioneer can be equated with that of a commission agent for the purpose of GST exemption.
• If GST is applicable on the commission earned, what is the applicable GST rate.
• Whether any other specific exemptions or provisions under GST laws apply to the applicant's services as an intermediary in the sale of agricultural produce.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of GST on commission earned by the auctioneer for cardamom sales

Legal framework and precedents: The relevant provisions include Section 97 of the CGST Act, 2017 (advance ruling), Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 (exemption notification), and Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 (taxable services notification). Entry 54(g) of Notification No. 12/2017 exempts services by any Agricultural Produce Marketing Committee or Board or services by a commission agent for sale or purchase of agricultural produce. Entry 5 of Notification No. 11/2017 includes services of commission agents, commodity brokers, auctioneers, and wholesale auction houses as taxable.

Court's interpretation and reasoning: The AAR examined the nature of the applicant's functions as a licensed auctioneer under the Cardamom (Licensing and Marketing) Rules, 1987. The applicant's role involves procurement, quality sorting and grading, conducting physical and e-auctions, price discovery, facilitation of legal and transactional formalities, charging regulated commission, and managing infrastructure. The applicant receives sale proceeds and disburses payments to growers after deducting commission.

The AAR distinguished between a "commission agent" and an "auctioneer." While both are mercantile agents under Section 2(5) of the CGST Act, they perform different functions. The exemption under Entry 54(g) applies only to commission agents operating in primary agricultural markets, where farmers sell produce directly through commission agents to wholesalers, typically in as-is condition. The auctioneer's role, as licensed by the Spices Board, is more comprehensive and involves additional services for better price discovery and market facilitation beyond mere agency.

The AAR noted that auctioneers are expressly included under Entry 5 of Notification No. 11/2017 as taxable, which supersedes the more general exemption under Notification No. 12/2017. The exemption notification must be strictly construed and cannot be extended to include auctioneers when the language excludes them.

Key evidence and findings: The applicant's detailed description of auction activities, licensing under the Spices Board, regulated commission rate, and the process of pooling, grading, and auctioning cardamom were considered. The jurisdictional officer's submission that the applicant functions as an auctioneer rather than a commission agent was accepted.

Application of law to facts: The applicant's services fall within the definition of auctioneer services taxable under Entry 5 of Notification No. 11/2017 and not under the exemption for commission agents in Entry 54(g) of Notification No. 12/2017.

Treatment of competing arguments: The applicant argued that the commission agent exemption should apply since cardamom is agricultural produce and post-harvest processing does not alter its essential characteristics. The AAR rejected the argument that "auctioneer" and "commission agent" are interchangeable for exemption purposes, emphasizing strict interpretation of exemption notifications.

Conclusion: The commission earned by the applicant for conducting cardamom auctions is subject to GST and not exempt under Entry 54(g) of Notification No. 12/2017.

Issue 2: Applicable GST rate on commission earned

Legal framework: Entry 5 of Notification No. 11/2017-CGST Rate categorizes services by auctioneers as taxable. The applicable GST rate for such services is 18% (9% CGST + 9% SGST).

Court's reasoning: Since the commission is taxable under Entry 5, the standard GST rate prescribed therein applies.

Conclusion: The GST rate applicable on the commission is 9% CGST and 9% SGST.

Issue 3: Applicability of any other exemptions or provisions under GST laws

Legal framework: The applicant sought clarity on any other exemptions applicable to their intermediary services in agricultural produce sales.

Court's reasoning: No other specific exemptions under GST laws were found to be applicable to the applicant's services beyond the discussed provisions.

Conclusion: No other exemptions or provisions apply to the applicant's commission services.

3. SIGNIFICANT HOLDINGS

The AAR held:

"The exemption given is to the APMC or Board or Commission Agent. As mentioned by us earlier, a commission agent and an auctioneer are no doubt mercantile agents but the functions performed by them are vastly different."

"Exemption notifications are to be strictly interpreted. A notification has to be interpreted in the light of the words employed by it and not on any other basis."

"The applicant's services fall squarely under Entry No.5 of the Notification Number 11/2017/CT (Rate). Therefore, where a specific entry is available under Entry Number 5 of it supersedes the general entry of the Notification 12/2017 (CGST Rate) and the commission earned by the applicant is liable to GST at the applicable rate."

Core principles established include the strict interpretation of exemption notifications, the distinction between commission agents and auctioneers under GST law, and the precedence of specific taxable entries over general exemption entries.

Final determinations:

• The commission earned by the applicant as a licensed auctioneer conducting cardamom auctions is taxable under GST.
• The applicable GST rate on such commission is 18% (9% CGST + 9% SGST).
• No other exemptions under GST laws apply to the applicant's intermediary services.