GST Circular - Applicability of GST and Availability of ITC

In the following GST circular No. 16/16/2017-GST dated 15th November 2017 regarding the applicability fo GST and availability of ITC, the Tax Research Unit of the Department of Revenue clarified the following matters:

Whether GST on warehousing of agricultural produce applies to the concerned individual?
Is GST leviable on inter-state transfer of aircraft engines, parts and accessories for use by their own airlines?
Is GST leviable on General Insurance policies provided by a State Government?

Circular No. 16/16/2017-GST

F. No. 354/173/2017-TRU Government of India Ministry of Finance Department of Revenue Tax research Unit ****

North Block, New Delhi 15th November 2017

To, The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioner of Central Tax (All) / The Principal Director Generals/ Director Generals (All) Madam/Sir,

Subject: Clarifications regarding applicability of GST and availability of ITC in respect of certain services I am directed to issue clarification with regard to certain issues brought to the notice of Board as under:

S.No	Issue	Comment
1.	Is GST applicable on warehousing of agricultural produce such as tea (i.e. black tea, white tea etc.), processed coffee beans or powder, pulses (de-husked or split), jaggery, processed spices, processed dry fruits, processed cashew nuts etc.?	1. As per GST notification No. 11/2017-Central Tax (Rate), S.No. 24 and notification No. 12/2017- Central Tax (Rate), S.No. 54, dated 28thJune 2017, the GST rate on loading, unloading packing, storage or warehousing of agricultural produce is Nil. 2. Agricultural produce in the notification has been defined to mean “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” 3. Tea used for making the beverage, such as black tea, green tea, white tea is a processed product made in tea factories after carrying out several processes, such as drying, rolling, shaping, refining, oxidation, packing etc. on green leaf and is the processed output of the same. 4. Thus, green tea leaves and not tea is the “agricultural produce” eligible for exemption available for loading, unloading, packing, storage or warehousing of agricultural produce. Same is the case with coffee obtained after processing of coffee beans. 5. Similarly, processing of sugarcane into jaggery changes its essential characteristics. Thus, jaggery is also not an agricultural produce. 6. Pulses commonly known as dal are obtained after dehusking or splitting or both. The process of dehusking or splitting is usually not carried out by farmers or at farm level but by the pulse millers. Therefore pulses (dehusked or split) are also not agricultural produce. However whole pulse grains such as whole gram, rajma etc. are covered in the definition of agricultural produce. 7. In view of the above, it is hereby clarified that processed products such as tea (i.e. black tea, white tea etc.), processed coffee beans or powder, pulses (dehusked or split), jaggery, processed spices, processed dry fruits, processed cashew nuts etc. fall outside the definition of agricultural produce given in notification No. 11/2017-CT(Rate) and 12/2017-CT(Rate) and corresponding notifications issued under IGST and UGST Acts and therefore the exemption from GST is not available to their loading, packing, warehousing etc. and that any clarification issued in the past to the contrary in the context of Service Tax or VAT/ Sales Tax is no more relevant.
2.	Is GST leviable on inter-state transfer of aircraft engines, parts and accessories for use by their own airlines?	1. Under Schedule I of the CGST Act, supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business, even if, without consideration, attracts GST. 2. It is hereby clarified that credit of GST paid on aircraft engines, parts & accessories will be available for discharging GST on inter–state supply of such aircraft engines, parts & accessories by way of inter-state stock transfers between distinct persons as specified in section 25 of the CGST Act, notwithstanding that credit of input tax charged on consumption of such goods is not allowed for supply of service of transport of passengers by air in economy class at GST rate of 5%.
3.	Is GST leviable on General Insurance policies provided by a State Government to employees of the State government/ Police personnel, employees of Electricity Department or students of colleges/ private schools etc. (a) where premium is paid by State Government and (b) where premium is paid by employees, students etc.?	It is hereby clarified that services provided to the Central Government, State Government, Union territory under any insurance scheme for which total premium is paidby the Central Government, State Government, Union territory are exempt from GST under Sl. No. 40 of notification No. 12/2017-Central Tax (Rate). Further, services provided by State Government by way of general insurance (managed by government) to employees of the State government/ Police personnel, employees of Electricity Department or students are exempt vide entry 6 of notification No. 12/2017- CT(R) which exempts Services by Central Government, State Government, Union territory or local authority to individuals.

2. Any difficulty in the implementation of this circular, the board shall immediately deal with the nature of the request.

These sums up the Applicability of GST and availability of GST

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Frequently Asked Questions

Common questions about GST Circular: GST Applicability and ITC Clarifications.

The applicability of GST on warehousing of agricultural produce depends on whether the produce has undergone further processing or not. If the produce has not undergone any processing or the processing does not alter its essential characteristics, then warehousing of such agricultural produce is exempt from GST. However, if the produce has been processed in a way that changes its essential characteristics, such as tea, coffee beans, pulses (dehusked or split), jaggery, processed spices, processed dry fruits, and processed cashew nuts, then the exemption is not available, and GST will be applicable on warehousing of such processed products.

Yes, GST is leviable on inter-state transfer of aircraft engines, parts, and accessories for use by their own airlines. Under the CGST Act, supply of goods or services between related persons or distinct persons, even without consideration, is considered a supply and attracts GST. However, the input tax credit paid on such aircraft engines, parts, and accessories can be utilized for discharging GST on their inter-state supply through stock transfers between distinct persons.

General insurance policies provided by a state government to its employees, police personnel, electricity department employees, or students are exempt from GST under certain conditions. If the total premium is paid by the state government, then the services are exempt under Sl. No. 40 of Notification No. 12/2017-Central Tax (Rate). Additionally, services provided by the state government by way of general insurance (managed by the government) to these individuals are exempt under Entry 6 of the same notification.

The purpose of the circular issued by the Tax Research Unit of the Department of Revenue is to clarify the applicability of GST and the availability of input tax credit (ITC) in respect of certain services. The circular addresses specific issues brought to the notice of the Board and provides clarifications on the same.

The definition of "agricultural produce" as provided in the GST notifications is crucial in determining the applicability of GST on warehousing and other related activities. If the product falls under the definition of "agricultural produce," then the exemption from GST is available for its loading, unloading, packing, storage, or warehousing. However, if the product does not meet the definition due to further processing or alteration of essential characteristics, then the exemption is not applicable, and GST will be charged on such activities.

Yes, the circular clarifies that the credit of GST paid on aircraft engines, parts, and accessories can be availed for discharging GST on inter-state supply of such items by way of inter-state stock transfers between distinct persons, as specified in Section 25 of the CGST Act. This is applicable even though the credit of input tax charged on the consumption of such goods is not allowed for the supply of the service of transporting passengers by air in economy class at a GST rate of 5%.

The term "distinct persons" is crucial in determining the applicability of GST on inter-state transfer of aircraft engines, parts, and accessories. Under the CGST Act, supply of goods or services between distinct persons, even without consideration, is considered a supply and attracts GST. Therefore, the clarification provided in the circular regarding input tax credit availability is specific to inter-state stock transfers between distinct persons as defined in Section 25 of the CGST Act.

Yes, the exemption from GST on general insurance policies provided by state governments has certain exceptions. The exemption is applicable only when the total premium is paid by the state government or when the services are provided by the state government by way of general insurance (managed by the government) to individuals such as employees, police personnel, electricity department employees, or students.

The circular specifically mentions that any clarifications issued in the past concerning Service Tax, VAT, or Sales Tax in the context of the applicability of GST and availability of ITC on the products or services mentioned are no longer relevant. This implies that the clarifications provided in the circular have prospective application and should be considered while determining the GST treatment of such products or services going forward.

The circular plays a crucial role in the implementation of GST by providing clarity and resolving ambiguities regarding the applicability of GST and the availability of input tax credit in respect of certain services. Such clarifications help ensure uniform application of GST provisions across the country and reduce instances of disputes or litigation arising from differing interpretations of the law.