July 21, 2017:
Storage and warehousing of agricultural produce has been exempted from GST, clearly with the intent to reduce the tax burden on the farming sector. This is a continuation of the earlier exemption of service tax for these services.
However, while issuing the related notifications, several anomalies have crept in, making the creation of storage and cold chain infrastructure as well as the provision of warehousing services liable for tax. Therefore, while corporates in most sectors appear to be adapting to the new regime with a few glitches, the agriculture infrastructure sector is struggling to come to terms with the changed regime.
The additional GST burden has mainly arisen because while output services have remained outside the tax net, input services are liable to GST without any corresponding opportunity to claim input tax credits. Most agri warehousing companies rent warehouses from small owners of the property. Such owners are likely to remain unregistered suppliers. However, such renting of warehouses by agencies engaged in providing storage and warehousing services is liable to GST under a reverse charge at the rate of 18 per cent.
The GST paid thus is not eligible for input tax credit (ITC), as the corresponding outward supply of warehousing service is exempted from GST.
Since the majority of warehouses managed by private companies are leased ones, the above situation implies an 18 per cent increase in the cost of warehousing, and defeats the very purpose of GST exemption for storage of agricultural produce. The tax burden will inevitably be passed on to farmers in the form of higher price for storing goods in the absence of any viable alternative for warehouse agencies. This will directly feed into the cost of agricultural produce.
The second issue is the rise in cost of warehousing or cold storage construction with GST. Earlier, most services pertaining to the construction of agri-storage infrastructure and foodgrain handling systems were exempt from service tax. With GST, the exemption list has been minimised.
The construction of warehouses as well as cold storages for agricultural produce are now liable to 18 per cent GST.
No ITC can be taken on this, with outward supply of warehousing service being out of the GST ambit.
Another roadblock lies ahead for companies engaged in the creation of modern agriculture storage infrastructure like silos and cold storages. Earlier, imports of project equipment used to create facilities to store agriculture commodities — like mechanised handling systems and pallet racking systems — attracted only a basic customs duty of 5 per cent and were specifically exempted from countervailing duty and special additional duty. The same exemption has not been extended under GST. These imports now attract 18 per cent IGST coupled with the existing 5 per cent basic custom duty. The companies in question will yet again not be able to avail of any ITC, as the corresponding outward supply of warehousing service is exempt from GST.
This will result in a spike in the cost of imported machinery, deterring the creation of modern agri infrastructure. This again defeats the purpose of extending exemption to storage of agricultural produce.
Unless correctives are immediately applied farmers will see a rise in storage costs, and investment in this sector will eventually increase the burden on the supply chain, contrary to the government’s objectives.
There is a need to extend GST exemption under reverse charge when the services are used to store agricultural produce. Secondly, the renting of immovable property for storage and warehousing of agricultural produce needs to be exempted from GST.
Finally, exemption under the earlier service tax regime for construction of warehouses including cold stores, and exemption provided for import of project equipment used for agri-storage infrastructure, need to be carried forward in the GST regime.
These amendments are of utmost importance to ensure the viability of private agencies engaged in providing storage and warehousing services for agricultural produce, a service which is the backbone of India’s agriculture sector.
(The author is MD & CEO, NCML. The views expressed here are personal)
(This article was published on July 21, 2017)
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