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2020 (10) TMI 766 - AAR - GSTClassification of supply - inspection and testing services on fresh table grapes - classifiable under entry 9986 of Notification no. 11/2017-Central Tax Rate) dated June 28 2017- Support services to agriculture, forestry, fishing, animal husbandry chargeable to NIL rate of tax or otherwise? - Entry 54 (a) of exemption notification no.12/2017-Central Tax (rate) dated June 28,2017. HELD THAT - The applicant has stated to be primarily engaged in the business of providing various support services including sampling, inspection, verification, testing and certification services on fresh table grapes and other agricultural produce - The applicant has stated that the scope of service in relation to agricultural produce has been widened under the CGST Act and is unsure to continue the above tax position and has classified its services under the Heading 9983 - Other professional, technical and business services and discharged GST at the rate of 18%. As a result of such change in tax position, the exporter-customers of the Applicant have expressed protest that the services provided by the Applicant continue to remain exempt in view of its coverage under Entry 54(a) of Exemption Notification No. 12/2017- Central Tax (Rate) dated June 28, 2017. When NRL has authorized certain laboratories to undertake testing of soil, water, from the plot/farm along with the grown grapes in such plot, DMI has authorized laboratories for the Grading and marking of fruits. APEDA ensures registration of all the stake holders and traces the events in the Grape Net . In the case at hand, the applicant Laboratory is an approved laboratory by the Directorate of Marketing Inspection (DMI) and undertakes testing for Agmark Grading and Final Inspection . The applicant is not authorized to undertake testing of soil, water, farm/plot where the cultivation is undertaken but is authorized to sample and grade the cultivated grapes based on physical attributes for issuance of Certificate of Agmark grading . It is seen from the test reports submitted by the applicant, they conduct test to detect residue of various chemicals, pesticides etc. The recommended chemicals for which testing is to be done is specified in Annexure -9 of APEDA trade Notice. Thus the testing undertaken by the applicant is to detect residue of various chemicals in the cultivated grapes and can also be to grade the cultivated grapes as per the Criteria for Grade designation given in Schedule-II of Fruits and Vegetables Grading and Marking Rules, 2004 . It is clear that, grading of fresh table grapes undertaken by the applicant is in accordance with the guidelines/provisions stipulated in the mentioned Trade notice of APEDA and the Fruits and Vegetables Grading and Marketing Rules and testing for residue of various chemicals/pesticides is as per Procedures for Export of Fresh Table Grapes to the European Union of APEDA. 998611 covers support services to crop production which includes grading of seeds to be marketed, Post-harvest crop services limited to preparation for primary markets, other support services like tilling of fields preparatory to planting, planting, cultivation and fertilization of crops, spraying, including from the air, pest control for agriculture, etc. In short, 99861 i covers support services necessary for Crop Production and includes activities of Post-harvest services of crop for preparation for Primary markets. Preparation of crops for primary market in, jives activities which are essential for selling the produce. Without these activities by the farmers, the produce would not be sold in primary market - this SAC covers only services necessary for agricultural production. i.e. without these services the production of the crop would not be complete - SAC 998619 includes other support services related to agriculture, not elsewhere classified. To be classified under this sub-group, the activity is to be a support service related to agriculture and not classified elsewhere. The activity undertaken by the applicant is testing for chemical residue/grading/ certification of the Fresh Table grapes for Marketing/ Export as per the procedure of APEDA, the Export Development Authority for Agricultural and Processed food products and the applicant lab is an authorized lab of Directorate of Marketing 86 Inspection which establishes that the activity of the applicant is a support service to the exporter-client of the applicant for marketing/export and is not a support service related to agriculture but is related ensure the agriculture produce has access to certain markets to earn a higher price. Even without these activities of the applicant, the crop is produced. Hence, the supply by the applicant is not classifiable under SAC 998619 also. The testing for chemical residue, grading based on physical attributes of table grapes is classifiable under SAC 998346 - it is seen that supply of services classifiable under SAC 9986 and which are agricultural operations directly related to production of any agricultural produce are eligible for this exemption. For the case in hand, the activities of testing for chemical residue, grading based on physical attributes of table grapes are not classifiable under SAC 9986 as they are not meant for preparation of crops for primary market and not necessary for production of the grapes. Hence, they are not directly related to the production of the table grapes - the activities of the applicant are not eligible for the exemption under therefore the applicant is not eligible for exemption at Entry No. 54 (a) of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017 as amended and Notification No.II(2)/CTR/532(d-15)/2017 vide G.O. (Ms) 73 dated 28.06.2017.
Issues Involved:
1. Classification of "inspection and testing services" on fresh table grapes. 2. Eligibility for exemption under Entry 54(a) of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017. Detailed Analysis: Issue 1: Classification of "inspection and testing services" on fresh table grapes The applicant, engaged in providing inspection, verification, testing, and certification services for fresh table grapes, sought to classify their services under entry 9986 of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, which pertains to "Support services to agriculture, forestry, fishing, animal husbandry" chargeable to NIL rate of tax. The applicant argued that their services, which include sampling, testing, and issuing certificates for fresh table grapes, are governed by APEDA guidelines. They claimed that their activities qualify as "agricultural operations" or "testing activity" related to agricultural produce, thus meriting classification under entry 9986. The Authority for Advance Ruling (AAR) examined the scope of services under SAC 998611 and 998619, which cover support services to crop production and other support services related to agriculture, respectively. The AAR noted that SAC 998611 includes services necessary for crop production, such as tilling, planting, pest control, and preparation of crops for primary markets. However, the AAR found that the applicant's testing and grading services are not necessary for the production of grapes but are conducted post-production for export market compliance, thus not fitting under SAC 998611. The AAR concluded that the applicant's services are more appropriately classified under SAC 998346, which covers "Technical testing and analysis services," including testing and analysis of the chemical and biological properties of materials such as food. Issue 2: Eligibility for exemption under Entry 54(a) of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 The applicant sought exemption under Entry 54(a) of Notification No. 12/2017-Central Tax (Rate), which exempts services related to agricultural operations directly related to the production of agricultural produce, including cultivation, harvesting, threshing, plant protection, or testing. The AAR analyzed whether the applicant's services qualify as "agricultural operations directly related to production." The AAR noted that the definition of "agricultural produce" under the notification includes produce on which no further processing is done or processing that does not alter its essential characteristics but makes it marketable for the primary market. The AAR found that the applicant's testing services are not directly related to the production of fresh table grapes but are post-production activities aimed at ensuring compliance with export market standards. The AAR emphasized that the services are not necessary for the production of grapes and do not make them marketable for the primary market. Therefore, the services do not qualify for exemption under Entry 54(a). Ruling: The AAR ruled that the services provided by the applicant related to testing chemicals in fresh table grapes are not classifiable under SAC 9986 and are not exempt under Entry No. 54(a) of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, for CGST and the corresponding SGST notification.
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