Circular No. 48/10/2002-ST, Dt. 13/09/2002
Service Tax
– Food Grain Commission Agents (Adhatiyas) Are Not C&F Agents
If They Don’t Receive Commission from Farmers

Sub.: Levy of Service Tax on Food Grain Commission Agents under the category of "Clearing and Forwarding Agents’.

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 food grains he carries 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.B.43/7/97-TRU dt 11.7.1997, 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 other 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 the adhatiya is a C&F Agent of the farmer. As per Board"s letter dated 11.7.1997 a C&F Agent collects his commission from his principal and in 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 Govts 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 dt. 11.7.97, they would be considered as Clearing and Forwarding agents and be liable to service tax on their commission.

7. Suitable trade notice may be issued for the benefit of the trade.

8. The receipt, of this Circular may kindly be acknowledged indicating the date of its receipt in your office.

Sd/-
(Suraksha Katiyar)
Under Secretary(CX.4)

F.No./159 / 5 /2002 -CX 4

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