As rice in quantities exceeding 25 kg is not categorised as an ‘agricultural produce’, it may have to be priced at a higher rate. This may be possible as per the latest notification issued by the Central Board of Indirect Taxes and Customs (CBIC) on the recommendations of the GST Council.
Meanwhile, a senior CBIC official said: Business Line“This interpretation appears to be correct. However, we have not received any input from the industry at this time. If we do receive any, we will investigate any concerns.”
The notification, dated July 15, seeks to clarify the scope of the expression “packaged and labelled” for levy of GST on supplies of agricultural produce, following an amendment to the Legal Metrology (Packaged Goods) Rules, 2011. The GST Council had recommended amendments to the notification, based on which the notification states: “In case of supply of agricultural produce in packages measuring more than 25 kg or 25 litres, the levy of GST at five per cent shall not be applicable.”
FAQs issued by CBIC in November 2017 define agricultural produce as “any product resulting from the cultivation of plants and the rearing of any animals, other than horse rearing, for food, fibre, fuel, raw material or other similar products, which has not been further processed or has been processed in such a way as is customarily done by the grower or producer and which does not change its essential characteristics but renders it saleable in the primary market.”
This definition appears to originate from Section 65B(5) of the Finance Act, 1994, which provides that agricultural produce means any agricultural produce which has not been further processed or has been processed in such a way as is customarily done by the grower or producer and which does not change its essential characteristics but which makes it salable in the primary market.
Processing Shift
Rice is the final product obtained after milling of paddy by rice millers. In addition to processing by the cultivator, milling is also done by rice millers, which is not done by the producer or cultivator. The essential nature of paddy has also been changed to “rice” and made ready for consumption, whereas paddy is raw and requires certain milling processes like threshing, steaming, debrowning, polishing, shortening etc. Considering these processes, various judgements have held that rice is not an “agricultural produce”.
The whole ‘pre-packaged and labelled’ issue came to light when, based on the GST Council recommendations and subsequent notifications, the CBIC announced that items such as pulses, rice, wheat, flour (atta) and other cereals will be subject to GST if they are ‘pre-packaged and labelled’ from July 18, 2022 onwards, if sold in a single package containing more than 25 kg. Now, there are concerns that flour and pulses, if sold loose from bags containing more than 25 kg, may be treated the same as rice for the application of GST.
