In a significant clarification for the agricultural and warehousing sectors, the Tamil Nadu Authority for Advance Ruling (TNAAR) has ruled that Goods and Services Tax (GST) is not applicable on the rent received for godowns used exclusively for the storage of paddy. The ruling reaffirms paddy’s status as “agricultural produce,” a classification that carries vital tax exemptions under the GST regime.
Background: The Case of M/s. Lena Modern Rice Mill
The ruling came in response to an application filed by M/s. Lena Modern Rice Mill. The applicant had leased out their premises, including a godown, to a tenant for the purpose of storing paddy. A dispute arose when the tenant refused to pay GST on the rental charges for the godown, claiming that the storage of agricultural produce is exempt from tax.
The primary question before the Authority was whether the rental of a storage unit for paddy qualifies for exemption under existing GST notifications.
The Tamil Nadu Authority for Advance Ruling (AAR) recently ruled in the case of M/s. Lena Modern Rice Mill (Order No. 47/AAR/2025) that paddy qualifies as “agricultural produce,” and therefore, rent received for a godown used exclusively for its storage is exempt from GST.
Key Highlights of the Ruling:
- The Dispute: The applicant, a rice mill owner, had leased their premises (including a godown) to a tenant. The tenant refused to pay GST on the rent for the godown portion, arguing that since it was used to store paddy—an agricultural produce—the service should be exempt.
- Definition of “Agricultural Produce”: The AAR referred to the definition under Notification No. 12/2017-Central Tax (Rate). To qualify, a product must:
- Be a result of cultivation.
- Undergo no further processing, or only such processing (like drying, cleaning, or dehusking) as is normally done by a cultivator to make it marketable for the primary market without altering its essential characteristics.
- Paddy vs. Rice: The Authority clarified the distinction:
- Paddy: Classified as “agricultural produce” because it is the raw harvested grain. Dehusking it to make it marketable does not change its fundamental nature.
- Rice: Usually falls outside this definition because milling is considered a secondary process that changes the produce into a finished food grain.
- The Verdict: Since the godown in question was used exclusively for storing paddy, the service falls under Entry 54(e) of Notification No. 12/2017. This entry provides a Nil rate of GST for services relating to the “loading, unloading, packing, storage or warehousing of agricultural produce.”
The Ruling: Zero Tax on Storage
Under Entry 54(e) of the aforementioned notification, services relating to the “loading, unloading, packing, storage or warehousing of agricultural produce” are subject to a Nil rate of GST.
The Authority concluded that since the godown in question was dedicated to storing paddy, the rental service provided by the mill owner was directly linked to the storage of agricultural produce. Consequently, the rent received for that specific space is exempt from GST.
Implications:
This ruling provides significant relief to warehouse owners and rice millers in Tamil Nadu, confirming that rental income derived specifically from paddy storage is not taxable under GST. However, it is important to note that if the same godown is used to store processed rice or other non-exempt goods, the GST exemption may not apply.
- Source: Media News
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