GST on Warehousing of Agricultural Produce: Exemptions and Limits

A warehouse in Pune bills the same depositor for two chambers in one month. Wheat sits in one, jaggery in the other, and both arrived on challans that say "agricultural produce". The billing clerk raises one bill of supply at nil tax for both. Six months later an audit finds ₹36,000 of uncollected GST on the jaggery and an input tax credit reversal that was calculated on the wrong exempt turnover.

The exemption for storing farm produce is real, but it follows the goods in each lot, not the warehouse, the depositor or the word on the challan. A warehouse that tags every inward lot with the exemption entry it relies on, and the evidence for it, can bill exempt and taxable storage correctly on the same day and calculate its credit reversal from facts rather than estimates.

• Entries covered: serial numbers 24, 24A, 24B and 54(e) of Notification 12/2017-Central Tax (Rate), the paragraph 2(d) definition, and the 2022 and November 2026 amendments.
• Operations covered: cold storage, the lot master fields that drive billing, bill of supply versus tax invoice, and the Rule 42 common credit reversal.
• Worked material: a month of storage billing in rupees with a US contrast column, a misclassification trace and a setup checklist.

Four exemption entries that cover storing farm produce in India

Storage of farm produce is exempt through four separate entries, and each one names different goods. Notification 12/2017-Central Tax (Rate) exempts intra-State services listed in its table, with matching notifications under the IGST and State GST Acts. A warehouse should cite the exact serial number on its bill of supply, because the goods each entry covers have changed more than once since 2017.

• Serial number 24: loading, unloading, packing, storage or warehousing of rice, under Heading 9967 or 9985.
• Serial number 24A: warehousing of minor forest produce, inserted from 27 July 2018.
• Serial number 24B: storage or warehousing of cereals, pulses, fruits and vegetables, and from 1 November 2026 also seeds meant for sowing.
• Serial number 54(e): loading, unloading, packing, storage or warehousing of agricultural produce, under Heading 9986 support services to agriculture.

Rice has its own entry, which matters because milling takes rice beyond the farm-level processing that the agricultural produce definition allows. Entry 24B, inserted from 1 October 2019, names its goods directly, so wheat or chana stored by a trader is covered without testing whether a farmer did the processing. Entry 54(e) is the broadest but depends entirely on that definition, which is why most disputes arise there.

Warehouse billing for farm produce in India relies on Notification 12/2017-Central Tax (Rate) serial numbers 24, 24A, 24B and 54(e); a lot outside all four entries is taxed at 18 percent under serial number 11(ii) of Notification 11/2017-Central Tax (Rate), split 9 percent central and 9 percent state tax.

What paragraph 2(d) treats as agricultural produce

Agricultural produce means unprocessed farm output, or output processed only as a cultivator usually does to make it marketable for the primary market. Paragraph 2(d) of the notification defines it as produce from cultivating plants and rearing all life forms of animals except horses, for food, fibre, fuel, raw material or similar products, where any processing does not alter its essential characteristics.

The CBIC applied that test in Circular No. 16/16/2017-GST of 15 November 2017. It held that black, green and white tea are factory products, so green tea leaf rather than tea is the agricultural produce; that processed coffee is outside the definition; that turning sugarcane into jaggery changes its essential character; and that de-husked or split pulses are milled, not farmed. Whole pulse grains such as whole gram and rajma remain inside the definition.

• Inside the definition: raw cotton bolls as picked, green tea leaf, whole gram, fresh fruit and vegetables, paddy, whole spices dried at the farm.
• Outside the definition: made tea, processed coffee beans or powder, dal, jaggery, polished or ground spices, processed dry fruits and processed cashew kernels, as listed in the circular.
• Question to ask per lot: who did the last process, a cultivator at farm level or a mill, factory or packer?

Goods that left entry 24B in July 2022 and where they stand now

Entry 24B used to be much wider, and many warehouse rate cards still reflect the old list. Until 17 July 2022 it covered storage or warehousing of cereals, pulses, fruits, nuts and vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres such as cotton, flax and jute, indigo, unmanufactured tobacco, betel leaves, tendu leaves, coffee and tea. Notification 4/2022-Central Tax (Rate) cut it back to cereals, pulses, fruits and vegetables from 18 July 2022.

Removal from 24B did not automatically make those goods taxable. A lot of copra, raw cotton or whole spices can still be exempt under entry 54(e) if it is agricultural produce in its farm-level form. What changed is the burden: before July 2022 the name of the commodity was enough, and now the warehouse must show that the specific lot has had no more than cultivator-level processing. Jaggery, made tea and processed coffee fail that test, so their storage is now taxable.

Seeds meant for sowing after Notification 07/2026 from 1 November 2026

From 1 November 2026, storing seed for planting is exempt whatever the crop. Notification 07/2026-Central Tax (Rate), dated 27 October 2026, substituted the entry 24B text to read "storage or warehousing of cereals, pulses, fruits, vegetables, and seeds meant for sowing", and inserted a definition of seed as clause (zzca) of paragraph 2. Bills for storage on or after 1 November 2026 can apply the exemption to qualifying lots.

The new definition is wide. It covers any plant material used or intended for propagation or sowing, including seedlings, tubers, bulbs, rhizomes, roots, cuttings, grafts and tissue culture plantlets, and it expressly lists seeds of oilseeds, fibre crops, spices, flowers and plantation crops. The words "meant for sowing" do the limiting: the same oilseed stored for crushing is not covered, so the purpose of each lot has to be on record before the bill is raised.

Seed storage billing changed on 1 November 2026, when Notification 07/2026-Central Tax (Rate) extended serial number 24B of Notification 12/2017 to seeds meant for sowing; a warehouse holding oilseed for crushing still charges 18 percent, so the lot master must record whether each seed lot is for sowing or processing.

Cold storage: when a refrigerated chamber is exempt and when it is taxed

Refrigeration does not change the answer; the goods in the chamber do. Cold storage of potatoes, apples or green peas in their fresh form is storage of vegetables or fruit under entry 24B, so it is exempt. Cold storage of frozen peas, ice cream, processed meat or paneer is storage of processed goods, which no entry covers, so it is billed at 18 percent under SAC 996721 for refrigerated storage.

A second entry often matters in fruit and vegetable cold chains. Serial number 57 exempts pre-conditioning, pre-cooling, ripening, waxing, retail packing and labelling of fruits and vegetables when those services do not change the essential characteristics of the produce. A banana ripening chamber or a pre-cooling tunnel at a pack house can therefore be exempt as well as the cold room that follows it, provided the produce is still fresh fruit or vegetables when it leaves.

• Mixed chambers: if a single chamber holds exempt potatoes and taxable frozen vegetables, bill by pallet-day or square metre per lot, not by chamber, so each line carries its own rate.
• Blast freezing: freezing fresh vegetables into a frozen product is a processing step; storage of the frozen output is taxable even though the input was exempt produce.
• Power surcharges: an electricity recovery line billed with exempt storage follows the storage line it supports, so split it by lot too.

Our cold store design guide covers chamber layout and door losses; for tax, the design question that matters is whether the warehouse management system can track which lots sit in which chamber, because that is the evidence for every split line on a mixed bill.

Bill of supply, tax invoice and the lot master that drives both

An exempt storage line goes on a bill of supply and a taxable line goes on a tax invoice, so the billing run must know each lot's status before it starts. Section 31(3)(c) of the CGST Act requires a registered person supplying exempt services to issue a bill of supply instead of a tax invoice, and Rule 49 of the CGST Rules sets its contents. Where one depositor has both kinds of lot, the warehouse issues both documents for the same period.

The simplest control is to put the tax decision on the inward lot record at the gate, not on the invoice at month-end. The JSON below shows the fields a lot master needs. The billing engine reads them and never infers a rate from the commodity name alone; a lot with a missing entry or evidence field is held back from the billing run.

{
  "lotId": "PUN-WH2-26-11-04471",
  "inwardNote": "GRN-4471",
  "depositorGstin": "27ABCDE1234F1Z5",
  "commodity": "Jaggery (gur), 30 kg bags",
  "farmLevelOnly": false,
  "purpose": "trade stock",
  "exemptionEntry": null,
  "sac": "996729",
  "gstRatePercent": 18,
  "billingDocument": "TAX_INVOICE",
  "evidence": ["depositor challan DC-8812", "inward photo set 4471-A"],
  "taxDecisionBy": "indirect.tax@warehouse.example",
  "taxDecisionDate": "2026-11-03"
}

{
  "lotId": "PUN-WH2-26-11-04472",
  "commodity": "Wheat, 50 kg bags",
  "exemptionEntry": "12/2017-CTR Sl. 24B",
  "sac": "996729",
  "gstRatePercent": 0,
  "billingDocument": "BILL_OF_SUPPLY"
}

Reversing common credit when some lots are exempt

A warehouse with exempt lots cannot keep all of its input tax credit. Section 17(2) of the CGST Act restricts credit to the share attributable to taxable supplies, and Rule 42 sets the arithmetic. Credit used only for exempt lots is not taken at all, credit used only for taxable lots is kept in full, and the common pool, called C2, is reversed in the ratio of exempt turnover to total turnover in the State.

The formula is D1 = (E ÷ F) × C2, where E is the value of exempt supplies and F the total turnover in the State for the tax period. A further 5 percent of C2, called D2, is reversed only where common inputs are also used for non-business purposes. The remainder, C3, is the credit kept. Rule 42 requires a final calculation for the year before the due date of the September return that follows.

The US column is a contrast, not a counterpart. The United States levies no federal goods and services tax, so a grain warehouse has no exempt-versus-taxable split and no credit to reverse. Its regulatory paperwork is different in kind: an operator who chooses to be licensed under the United States Warehouse Act follows 7 CFR Part 869, including its warehouse receipt rules, but that licensing is voluntary and carries no consumption tax consequence.

Credit reversal for a mixed warehouse under Rule 42 of the CGST Rules multiplies common credit by exempt turnover over total State turnover; a month with ₹14,00,000 of exempt storage in ₹22,00,000 of turnover reverses 63.6 percent of a ₹50,000 common pool, or ₹31,818, in Form GSTR-3B or Form GST DRC-03.

A misclassified jaggery lot traced from gate to correction

One wrong commodity code at the gate flows into three filings before anyone notices. The trace below follows the jaggery lot from the worked example. Document numbers are illustrative; the sequence is the one auditors see most often in agricultural warehouses that handle both farm-level and processed goods.

1. 3 November 2026, 10:12: inward note GRN-4471 records 1,200 bags described on challan DC-8812 as "agri produce"; the gate clerk selects commodity group CER-GEN, which the rule table maps to entry 24B.
2. 30 November 2026, 18:40: billing run BIL-2611 issues bill of supply BOS/26-27/0912 at nil tax, including ₹2,00,000 of jaggery storage.
3. 11 December 2026: the monthly outward return reports the ₹2,00,000 as exempt, so E rises to ₹16,00,000 and the Rule 42 reversal is computed as ₹36,364 instead of ₹31,818.
4. 8 January 2027, 15:05: an internal audit sample compares lot descriptions with the commodity rule table and flags jaggery under a cereal group.
5. 12 January 2027: the warehouse issues a tax invoice for the jaggery storage, pays ₹36,000 with interest under Section 50, corrects the exempt turnover to ₹14,00,000, re-credits the ₹4,546 over-reversed, and recovers the tax from the depositor under the storage contract.

The cost was not the tax itself, which the depositor could have paid and claimed as credit if eligible. The cost was interest, two amended filings, staff time and an awkward conversation with a customer about a bill from two months earlier. Moving the commodity decision to the gate, with a tax analyst approving any new commodity group, would have stopped the error at step one.

Lot checks the ERP can enforce and calls a tax analyst must make

Most of the exemption decision is a lookup once the facts are recorded, so the ERP should enforce it. The judgement lies in recording the facts: whether a lot is farm-level, whether a seed lot is really for sowing, and whether a new product description fits an existing rule. The table assigns each task for an agricultural warehouse.

Software that reads challans or product photos can speed up receiving, but it cannot decide whether processing went beyond farm level. Keep the suggestion and the human decision as separate fields on the lot, so an auditor can see who made each call and when.

Setting up exemption-aware billing for an agricultural warehouse

Start with the commodity rule table and the gate process, then fix billing and returns. The SAC code guide explains how to choose between 996721, 996722 and 996729 on each storage line; this article adds the exemption layer on top of that coding. For transport legs linked to the same lots, see GST on GTA services and reverse charge.

Run the first month in parallel with the old billing method and compare the exempt turnover each produces. Differences usually come from two sources: lots described too loosely at the gate, and commodity groups that were set up before July 2022 and never updated. More guides on warehouse finance are on the logistics and supply chain hub.

If you want lot-level tax tagging, mixed-chamber billing and the Rule 42 calculation built into your warehouse and ERP systems, send your commodity mix and current billing setup through our request for proposal form, and we will respond with a scoped implementation plan.