Applicability of GST on Cold Storage

Warehousing and storage of agricultural produce come under Service Account Code 9986 and are exempted under Insert No. 54(e) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. However, the provision of cold storage services to non-agricultural products would remain subject to GST at 18%. Let us discuss the applicability of GST on cold storage.

GST on Leased Premises for Cold Storage

The Ruling Authority has imposed a GST rate of 18% on rental charges for premises leased for cold storage of agricultural products. The plaintiff, a business providing storage and warehousing services for agricultural products, requested a preliminary ruling to understand the tax implications of rental fees for leased premises for the cold storage of agricultural products.

The applicant further wanted to clarify what are the tax implications of cold storage facilities leased for storage with or without preservation and maintenance to a private enterprise and finally what are the tax implications of seed/agricultural products for storage or storage on behalf of farmers and traders.

The Annual Activity Report decided that the GST rate of 18% applies to leased premises for cold storage of agricultural products for leasing fees. It has also been decided that 18% GST applies to cold storage facilities let on rent for storage with or without preservation and maintenance to a private enterprise.

Facts of the case

The applicant, M/s. Gubba Cold Storage Private Limited is engaged in services like storage and warehousing of agricultural produce, food grains including pulses and rice, etc. It is the rental or leasing of agricultural machinery or vacant land with or without a structure related to its use in agricultural production. They use the leased premises to store agricultural produce which is exempt from GST and the landlord insists on paying GST on the rental charges the tenant is denied GST on the rental charges if the tenant only uses the premises to store agricultural produce.

Ruling in the case

The plaintiff sought a ruling on the issues of what are the tax implications under the GST regime of the use of leased premises for cold storage of agricultural produce on leasing charges; what the tax implications under GST on cold storage facilities left on rent for storage with or without preservation and maintenance to private businesses and what are the tax implications under GST on seeds/agricultural products for storage or storage on behalf of farmers and traders.

Observation in the case

The body comprising Additional Commissioner of State Taxes J. Laxminarayan and Joint Commissioner of Central Taxes B. Raghukiran ruled that 18% GST is applicable on leased premises for cold storage of agricultural products on leasing charges. The authority further ruled that 18% GST is applicable on cold storage facilities let out on rent for storage with or without preservation and maintenance to private businesses.

The authority noted that GST is exempt if the supply of service is for the storage or storage of “agricultural produce” as defined in clause 2(d) Not. No. 12/2017-CT (R).

ITC of GST on Construction of Warehouse Blocked 

“Immovable property” is not defined in the Act. The term “goods” is defined in Section 2(52) of the GST Act as all kinds of movable property except money and securities, but includes actionable claims, growing crops, grass, and things attached to or forming part of the land which are agreed, that they will be separated before delivery or under the supply contract.

Therefore, property other than goods, money, and securities should be treated as ‘immovable property under the GST Act’. However, in the absence of a definitive explanation under the GST Act, reference is made to other related laws dealing with ‘property’ to determine the definition of ‘immovable property’. 

It will be seen that Section 3(26) of the General Clauses Act 1897 defines “immovable property” as land, benefits arising from land, and things attached to the land or permanently attached to anything attached to land; Section 3 of the Transfer of Property Act 1882 simply states that unless there is something repugnant in the subject or context, “immovable property shall not include standing timber, growing crops or grass. However, this section defines “attached to the ground” to mean (a) rooted in the ground, as in the case of trees and shrubs, (b) embedded in the ground, as in the case of walls or buildings, and (c) attached to, which is thus enshrined, for the perpetual beneficial enjoyment of that to which it is attached. 

The essential nature of “immovable property” is that it is attached to the earth or permanently attached to anything attached to the earth or forming part of the land, and is not agreed to be separated before delivery or according to a delivery contract. 

The warehouse under construction is immovable property. Crediting of input tax is therefore not admissible for incoming deliveries for the construction of the mentioned warehouse because the crediting of this tax is blocked according to Section 17(5)(d) of the GST Act. 

In this context, reference can be made to clause 4(v) of Circular No. 58/1/2002-CX dated 15.1.2002, where it is concluded that “if items assembled or erected on site and fixed by the foundation cannot be dismantled on the ground, without substantial damage to its components and therefore cannot be reassembled, then the items would not be considered movable and therefore not excisable goods.” A warehouse cannot be relocated simply by dismantling prefabricated structures. Dismantling the floor, which is the most important part of the warehouse, cannot be done without substantial damage to the foundations.

ITC of GST on cold storage equipment 

Applicability of clauses (c) and d) of section 17(5) on plant and machinery: The term “plant and machinery” has been exhaustively defined in the Explanation of section 17(5) and it is contended that:

The term “plant and machinery” means apparatus, equipment, and machinery attached to the ground by a foundation or structural support which are used for the external supply of goods or services or both, and includes such foundations and structural supports, but does not include 

• The land, building, or any other civil constructions; 
• Telecommunication towers and 
• Pipes were laid outside the plant area.

Final words

It is clear that cold storage services for agriculture produced for farmers or traders, which are not processed to be salable before storage in cold storage, are exempted, but in this case, no ITC on GST paid on Plant and Machinery will be available. All things being equal, cold storage services for processed agricultural products or non-agricultural products will be taxable at 18% in the hands of the service provider.

If cold storage is provided on hire or lease, it will be taxable at 18% in the hands of the service provider, and in the same state, ITC will be available on GST paid on plant and machinery.