OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE

CHENNAI III COMMISSIONERATE

121 N.H. ROAD, CHENNAI 600 034

SERVICE TAX CELL

Sub.: Service Tax - Levy of Service Tax on Food Grain

Commission Agents under the category of

"Clearing and Forwarding Agents" - Reg.

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Board's Service Tax Circular No.48/10/2002 ST dated 13.09.2002, on the above subject is communicated herewith for information and guidance.


/sd/-

(V.V. HARIHARAN)

ADDITIONAL COMMISSIONER
CHENNAI III

To

As per mailing list (Both Dept. and Trade)

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Service Tax Circular No.48/10/2002 ST Dated 13.09.2002 in F.No.159/5/2002 - CX 4

I am directed to say that doubts have been raised as to whether foodgrain commission agents would be liable to pay service tax or not under the category of Clearing and Forwarding agents (C&F Agents). In some states such agents are also referred to as Adhat Vyaparies or as Adhatiyas.

2. In some cases it has been reported that a foodgrain agent purchase the grains outright from farmers in auctions. After purchasing the foodgrains he carried out certain physical processing such as sieving, winding (cleaning) and blending etc. The grains are then graded according to the quality and sold to retailers against orders.

3. The matter has been examined in the Board. As per the definition of Clearing and Forwarding agents under Section 65 of the Finance Act, 1994 and as brought out in Board's letter F.No.B43/7/97 TRU dated 11.7.97, there must exist a relationship of a principal and an agent. In this case since the grain agents actually purchases the goods from the farmer he does not function as an agent of the farmer. He is therefore not a C&F Agent.

4. In another types of cases, particularly relating to Rajasthan, it has been reported that the Grain Agents collect grain from the farmers and sell it to a buyer on terms and conditions dictated by the farmer. The agent collects a commission (presently 2 %) from the buyer of the foodgrain and not from the farmer. As per Section 75 of the Rajasthan Agricultural Marketing Products Act, 1954 the agents or adhatiyas are barred from charging any commission from the farmers.

5. Since in such cases no commission is payable by the farmer to the adhatiyas it cannot be said that adhatiya is a C&F Agent of the farmer. As per Board's letter dated 11.7.97 a C&F Agent collects his commission from his principal and the absence of such a feature he cannot be called a C & F Agent of the principal (In some cases it has been reported that the adhatiyas illegally take a cut from the amount payable to the farmer though they are barred from doing so. This cannot be a basis for considering them to be C&F Agents of the farmers. In fact such cases should be reported to the State Governments for appropriate action).


6. However, in respect of cases where the grain agents legally receive commission from the farmers and satisfy the other conditions mentioned in Board's letter dated 11.7.97, they would be considered as Clearing and Forwarding agents and be liable to pay service tax on their commission.