2018 (2) TMI 1263 - AT - Service Tax

Benefit of N/N. 25/2012 dated 20.06.2012 - transportation of timber/wooden logs, which are used by them as raw materials in their manufacture - scope of the term agriculture and agricultural produce in terms of Section 65 B - Held that - Cutting/logging of trees for timber for further industrial use can more appropriately come under Forestry Operations . Cultivation relates more to plants, various crops etc. There is a clear distinction between plant/crop and trees - Harvesting from unmanaged sources (such as ocean fishing and deforestation) is not agricultural activity. In the absence of categorical evidence recorded to the contrary, it is to be considered that timber now under considerations is wholly or partly out of spontaneously grown trees and not all are product of deliberate cultivation due to human agency or effort, that income cannot be treated as agricultural income. The exemption available to GTA service for transport of agricultural produce cannot cover the transport of cut wood of trees - appeal allowed - decided in favor of Revenue.

Summary

Issues:
1. Eligibility of the respondent to claim exemption from service tax liability for transportation of timber/wooden logs.
2. Interpretation of the term "agricultural produce" under Notification No.25/12-ST.
3. Relevance of agricultural activities in determining the classification of timber as agricultural produce.

Analysis:
1. The case involved a dispute over the eligibility of the respondent to claim exemption from service tax for transporting timber/wooden logs under Notification No.25/12-ST. The Revenue contended that timber logs are not agricultural produce as per the notification, while the respondent argued that the logs retained their essential characteristics and should be considered agricultural produce.

2. The Revenue argued that timber logs do not qualify as agricultural produce under Section 65B of the Finance Act, 1994, as they undergo processing beyond what is typically done by cultivators or producers. They also challenged the Commissioner (Appeals) decision by citing a Bombay High Court case, emphasizing that the term "agricultural produce" should not include processed timber.

3. The respondent's counsel countered by stating that the timber logs were received in various sizes from cultivators without further processing, retaining their essential characteristics. They argued that the term "agricultural produce" should be interpreted broadly to include all products grown on land with human skill and labor, regardless of subsequent processing for marketability.

4. The Tribunal analyzed the definitions of "agriculture" and "agricultural produce" under Section 65B and considered the nature of the timber logs in question. It noted the lack of specific evidence regarding the cultivation of the trees from which the timber was derived and highlighted the distinction between forestry operations and agricultural cultivation.

5. Referring to relevant case laws and accounting standards, the Tribunal concluded that the timber logs, primarily sourced from spontaneously grown trees rather than deliberate cultivation, did not qualify as agricultural produce for the purpose of the exemption. Therefore, the impugned order was set aside, and the appeal by the Revenue was allowed.

6. The judgment highlighted the importance of establishing the agricultural nature of the produce in question to determine its eligibility for tax exemptions, emphasizing the need for clear evidence regarding cultivation practices and the origin of the goods in dispute. The decision provided a nuanced interpretation of the term "agricultural produce" within the context of service tax liability on transportation services.