RCM on Cotton purchase, Goods and Services Tax - GST

[SHARAD ANADA]

Mr. A is a servent of land owner Mr. B. Land owner Mr. B gives land to servant Mr. A for cultivation of land. Mr. A grows Cotton and gets wages in kind i.e. cetail portion of total Cotton crop.

Registered Taxable person purchase raw cotton from a servant Mr. A. Can the servent Mr. A be considered as agriculturist and GST RCM payable under section 9(3) of CGST Act on such raw cotton purchase.?

Posts / Replies

[KASTURI SETHI]

Dear Sh.Sharad Anada Ji,

' A' works for and on behalf of 'B' 'B' is an agriculturist and NOT 'A'. Analogy of relationship between Principal (Agriculturist) and Job worker i.e. A is applicable.

Section 2 (7) of CGST Act “agriculturist” means an individual or a Hindu Undivided Family who undertakes cultivation of land —

(a) by own labour, or

(b) by the labour of family, or

(c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family;

Emphasis is laid on personal supervision.

A cannot be treated as an agriculturist by any stretch of imagination.

[Padmanathan Kollengode]

Ld. Kasturi Ji,

Can we say both Land owner B and servant A are "Agriculturists" within the definition?

The definion does not speak about owndership of land

A is cultivating land with his own labour

B is cultivating land with hired labour

For cultivating land with his own labour, personal supervision is not required to be seen.

Just a loud thinking. Thats all

[KASTURI SETHI]

Dear Sh.Padmanathan Kollengode Ji,

Can we ignore the status and legal meaning of 'servant' ? The querist has used the word, 'servant' in his query. What does this word signify ? We will have to penetrate into all the terms in the definition of 'agriculturist' .

[KASTURI SETHI]

Agriculturist can get cultivation done from (a), (b) (c) under his supervision. Servant requires supervision. The factors 'a', 'b', 'c' and 'supervision' signify ownership of land to be cultivated.

[KASTURI SETHI]

In this scenario Vs. definition of an agriculturalist, who can supervise :-

(i) Owner

(ii) Employer

(iii) Head of the family

(iv) Member of the family

All these terms indicate towards ownership (as per definition of agriculturalist) of the land to be cultivated land.

[Amit Agrawal]

A (the servant) is not 'agriculturist' in the given situation!

Clause (c) of Section 2 (7) can not be read, in my view, to make both employer and his servant as 'agriculturist' (i.e. cultivator) for the same land. Further, clause (a) of said definition (i.e. by own labour) means 'by own-physical efforts' (i.e. not by hired labour etc. which is covered in clause (c)).

However, I also hold a view that ownership of land is not a necessary condition while determining who is 'agriculturist'.

W.r.t. liability to pay GST under RCM against 'cotton' purchased by the registered person (i.e. Serial No. 4A of Notification No.4/2017-Central Tax (Rate) as amended), supplier needs to be 'Agriculturist'. And as A (the servant) is not 'agriculturist' in given situation, the registered recipient need not pay any GST under RCM against cotton so purchased.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Alkesh Jani]

Shri

On going through the views expressed by our experts and definition of “Agriculturist” given at 2(7) of CGST Act, 2017. The issue is who is the agriculturist in the given situation?

In this regard, I am of the view that Mr. B is the agriculturist, as the plain reading of definition, “agriculturist” means an individual or a Hindu Undivided Family who undertakes cultivation of land —". To qualify as agriculturist one should be individual or HUF, here Mr. B is individual and has undertaken to cultivate cotton on the land. It is pertinent to note that on who's land is not the condition, as in some cases small farmers cultivates on the river bank, on the land of government or on the reserved land.

The clause (a),(b) and (c) is applicable to the person who is cultivating the land, in the given case, no such facts are available, even otherwise, when such labours are hired will be hired by Mr. B.

Here, Mr. B is servant of Mr. A, may be considered as servant for social purpose and not for the purpose of definition given at 2(7) of CGST Act.

The farming Income can be ascertained based on sales bill of APMC market, which is not issue on hand.

This is debatable issue and if doubt persist Advance Ruling can be opted and outcome may be shared.

Thanks

[Alkesh Jani]

Dear All,

Please ignore my last post and amended version is given below:-

Shri

On going through the views expressed by our experts and definition of “Agriculturist” given at 2(7) of CGST Act, 2017. The issue which can be decided is who is the agriculturist in the given situation?

In this regard, I am of the view that Mr. A is the agriculturist, as the plain reading of definition, “agriculturist” means an individual or a Hindu Undivided Family who undertakes cultivation of land —". To qualify as agriculturist one should be individual or HUF, here Mr. A is individual and has undertaken to cultivate cotton on the land. It is pertinent to note that on whose land is not the condition, as in some cases small farmers cultivates on the river bank, on the land of government or on the reserved land.

The clause (a),(b) and (c) is applicable to the person who is cultivating the land, in the given case, no such facts are available, even otherwise, when such labours are hired will be hired by Mr. A.

Here, Mr. A is servant of Mr. B, may be considered as social purpose and not for the purpose of definition given at 2(7) of CGST Act.

The farming Income can be ascertained based on sales bill of APMC market, which is altogether a different issue.

This is really a debatable issue and if doubt persist Advance Ruling can be opted and outcome may be shared.

Thanks

Please note :- Inconvenience cause is deeply regrated.

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

You have concluded that A is agriculturist. irrespective of the fact that who is principal and who is agent. Who is principal and who is job worker ? You are laying emphasis on the term, 'who cultivates' .

Does the term, 'who cultivates' include only cultivation or other activities/ancillary activities relating to agriculture produce ? Can servant/hired labour issue invoice or bill of supply ?

Your idea coincides with Sh.Padmanathan Kollengode's who has opined that why both A and B can not be agriculturists.

So this issue needs further penetration.

Looking forward to your response.

[Alkesh Jani]

Shri Kasturiji Sir,

With regard to query raised, my reply is, for agriculture produce, principal and agent is not relevant in the present case, also activity undertaken is not within the ambit of “job work” as defined.

My view is “Who cultivates” does not includes any other ancillary activity related to agriculture produce, as same is not mentioned. The definition of ‘Agriculture produce” as given in the explanation (iv) of Para 4 of Notification No. 11/2017-CT(Rates) as amended from time to time is given below:-

"Agriculture produce means 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."

Further, if any such ancillary activity in relating to agriculture produce can be included to the extend it does not alter the essential characteristics of the produce.

Regarding labour, I have already mentioned that no such facts is available in the query, however, if the aggregate turnover exceeds threshold limit, unless specifically exempted GST is payable.

Shri Padmanathan Kollengode has opined that both can be agriculturalist, while I am of the view that Mr. A is the agriculturist. Further, while raising the query the word servant is used which is the cause of this deliberation.

Thanks

With Regards

[Padmanathan Kollengode]

Dear Alkesh ji and Kasturi sir,

I am not opining. I am only being the devils advocate and stating plausible argument which the department might take.

However on further reading,

Section 2 (7) of CGST Act “agriculturist” means an individual or a Hindu Undivided Family who undertakes cultivation of land —

(a) by own labour, or

(b) by the labour of family, or

(c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family

The Servant in query falls cannot under an individual or a Hindu Undivided Family who undertakes cultivation of land by own labour, or

As he is not undertaking the cultivation and only the Employer/ landowner is undertaking such cultivation.

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

I have followed what you want to convey.

A servant has no free will. He is legally bound to obey the orders of the employer whether domestic or commercial. He works under the supervision and directions of his employer. The employer instructions a servant how to do any work assigned to him and what work is to be done. The servant will sit idle, if his employer desires. In other words, final authority is employer/owner.

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji, I agree with you to the extend that the relationship of Principal -Agent/job-worker is not present. I gave the example to make my point clearer.

[Amit Agrawal]

I have already shared by views earlier at serial no. 6 above.

From ongoing debate, following interesting questions come to my mind:

A. When a registered persons buys 'raw cotton' from an unregistered person, who is responsible to determine whether seller / unregistered person is an 'Agriculturist' or not?

B. Under which provisions of law, buyer is responsible for such determination (i.e. if seller is an agriculturist or not)? And if answer to earlier question is indeed yes, how he should fulfil such responsibilities (i.e. documents / evidence/s to be kept)?

C. If there is no such responsibility for such determination on the buyer, to levy taxes on such buyer under RCM (i.e. whenever registered person buys raw-cotton from unregistered person but does not pay gst under RCM), whether will it be responsibility of Tax-Dept. to prove that seller was indeed 'Agriculturist'? And if yes, how will it prove it, specially when buyer may not kept any proper records to determine exact name, complete address and other details of seller (& if he is not breaking any legal provisions by not keeping any such record)?

Kindly share your views please on above issues. Please treat this as pure academic discussion.

[Padmanathan Kollengode]

Dear Amit Ji,

I have consistently held the view that when alleging levy of tax, the onus is always on the department to adduce evidence that the person on whom tax is sought to be levied (whether RCM or FCM) falls within the charging section (here, in this case, section 9(3)).

Hence, in my considerate opinion, the department will have to prove that Mr.A is an agriculturist for the purpose of levying GST on RCM in the hands of the RP.

[KASTURI SETHI]

(i) Burden of proof is cast upon the assessee who claims exemption under a notification.-------Supreme Court (5-member Constitution Bench) in the case of Commissioner (Customs) Vs. Dilip Kumar & Co. reported as 2018 (7) TMI 1826 - SUPREME COURT.

(ii) Exemption - Burden of proof - Person who claims exemption or concession has to establish that he is entitled to that exemption or concession----------- Supreme Court in the case of CCE, New Delhi Vs.Hari Chand Shri Gopal reported as 2010 (11) TMI 13 - SUPREME COURT

(iii) Liability to tax has to be proved by revenue authorities but to earn the exemption, the assessee has to establish his eligibility---Supreme Court in the Income Tax case.