Storage of Paddy is 'Agricultural Produce,' Rent Not Taxable under GST: AAR Confirms ‘Nil’ GST Rate [Read Order]

The Authority for Advance Ruling (AAR), Tamil Nadu, has ruled that the rent received for a godown used exclusively for the storage of paddy is exempt from Goods and Services Tax (GST). The ruling classified paddy as 'agricultural produce' under the relevant GST exemption notifications.

The applicant, M/s. Lena Modern Rice Mill, a rice mill proprietor in Tamil Nadu, had leased the premises, including a godown and machinery area, to a tenant. The godown portion was specifically intended to be used by the tenant for the storage of paddy.

The applicant approached the AAR after the tenant refused to pay GST on the rent for the godown, prompting a dispute over the taxability of the lease income. The applicant sought an advance ruling under Section 97 of the CGST/TNGST Act, 2017, to determine whether GST was payable on the rent for the godown used for storing paddy.

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The Authority, comprising C. Thiyagarajan (Member, CGST) and B. Suseel Kumar (Member, SGST), referred to Sl. No. 54(e) of Notification No. 12/2017-CT (Rate), dated 28.06.2017, which provides for a 'Nil' rate of GST on:

“Services relating to cultivation of plants and rearing of all life forms of animals... or agricultural produce by way of (e) loading, unloading, packing, storage or warehousing of agricultural produce”

The core issue before the AAR was to determine if Paddy falls within the definition of “agricultural produce” as defined in the notification. The AAR observed that 'agricultural produce' means any produce from cultivation upon which either no further processing is done, or such processing is done that:

1. Usually carried out by a cultivator or producer
2. Does not alter its essential characteristics
3. Makes it marketable for the primary market

The AAR clearly distinguished between Paddy and Rice. Paddy is the raw, harvested grain still in its husk, a direct product of cultivation. While it may undergo minimal processing (like dehusking) before being sold, this process does not fundamentally change its nature but merely makes it marketable. The Authority concluded that paddy satisfies all the conditions to be classified as 'agricultural produce.'

In contrast, the Authority implicitly noted that rice (the processed, milled grain) is often considered outside this definition, but the storage in question was solely for paddy.

Based on the analysis, the Tamil Nadu AAR ruled that since paddy qualifies as 'agricultural produce,' the service of storage or warehousing of paddy attracts a Nil rate of GST under the exemption entry.

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