One may be need to pay more for rice sold in loose quantities greater than 25 kg as it is not classified as an ‘agricultural farm produce.’ This may be possible because of the latest circular issued by the Central Board of Indirect Taxes & Customs (CBIC) based on recommendations of the GST Council.

Meanwhile., a senior CBIC official told businessline: “This interpretation seems correct. However, we have not received any representation from industry as of now. Once we get, we will look into the concerns.”

The circular, dated July 15, seeks to clarify the scope of expression ‘pre-packaged and labelled’ for levying GST on the supply of agricultural farm produce following an amendment made in Legal Metrology (Packaged Commodities) Rules, 2011. The GST Council recommended amending the notification. Based on that, the circular states: “Supply of agricultural farm produce in package(s) containing a quantity of more than 25 kilograms or 25 litres will not attract GST levy of 5 per cent.”

A FAQ issued by CBIC, dated November 2017, defines agricultural 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 the primary market.”

This definition appears to have been derived from Section 65B (5) of the Finance Act 1994 which says agricultural produce means any produce of agriculture 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 the primary market.

Processing shift

Rice is the final product obtained by milling the paddy by a rice miller. In addition to the processing by the cultivator, milling is done by the miller which is neither done by the producer nor the cultivator. The essential character of the paddy has also been changed to ‘Rice’ which is readily consumable but paddy is raw and requires certain milling processes including husking, steaming, de-browning, polishing and shorting. Considering these processes, various rulings have held that rice cannot be ‘Agricultural Produce’.

The whole issue of ‘pre-packaged and labelled’ came into light, when based on the recommendation by GST Council and subsequent notification, CBIC said that with effect from July 18, 2022, items such as pulses, cereals like rice, wheat, and flour (atta), etc., would attract GST when ‘pre-packaged and labelled’ provided they are sold in a single package containing a quantity of more than 25 kg, Now the apprehension is that flour and pulses may be treated the same as rice for applying GST if sold in loose from a more than 25 kg bag.