2022 (11) TMI 82 - AAAR - GST

Taxability - agricultural produce or not - seeds produced/ procured and processed, packed and sold by the Applicant as seeds for sowing - storage of the seeds in the leased storage facility/godowns, loading, unloading and packing of the seeds (heading No.9986) by the job worker on job work basis - processes, namely, cleaning, drying, grading and treatment with chemicals (heading No.9986) carried out by the job worker on job work basis - transport of seeds from the farm lands to storage facility/godown of the applicant - transport of seeds from one storage facility/godown of the applicant to the other storage facility/godown of the applicant - transport of packed seeds from storage facility/godown of the applicant to the distributor and transport of sales-returns - processes undertaken by the applicant, namely, cleaning, drying, grading, treatment with chemicals and packing (heading No.9986), for himself - supply or not - applicability of exemption under N/N. 12/2017- Central Tax (Rate) dated 28-06-2017 and 11/2017- Central Tax (Rate) dated 28-06-2017. HELD THAT - The appellants are in the business of production and sale of agricultural seeds. In the process of production, the applicant outsources certain services such as cleaning, drying, grading and packing to the job workers and stores the seeds in various facilities after processing them. In the process they also transport the seeds by engaging a GTA. The applicant filed an application before the lower authority for a ruling on their activities with reference to exemption / taxability under Goods and Services Tax Act. Since, the ruling of the lower authority was pronounced against the interests of the applicant, they filed the present appeal before this authority. It becomes imperative to analyse the definition of 'agriculture produce'. The primary factory which needs to be understood is that to get into the bracket of agriculture produce for claiming exemption, the main condition is that either no processing is done on the produce or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market. In the present case, as per the written submissions, the applicant takes land on lease and produces agriculture seeds, food grains / vegetables / green vegetables and fruits out of cultivation and out of the produce through harvesting, it segregates part of the agriculture produce based on its quality and germination strength and undertakes preservation process such as clearing, drying, grading and chemical processing to make the seed fit for sowing purpose and to have better shelf life - If the activities of the applicant are only cleaning, drying, grading without involving any chemical processing on the subject produce, then the services would be on agriculture produce and exemption would be available. However, since in this case it is not proved beyond doubt by the applicant that their activities get exempted under the said two notifications, we are not inclined to accept the plea of the applicant. The order passed by the lower authority is upheld - Appeal disposed off.

Issues Involved:
1. Definition and taxability of seeds as agricultural produce.
2. Exemption applicability for storage, loading, unloading, and packing services.
3. Exemption applicability for cleaning, drying, grading, and chemical treatment services.
4. Exemption applicability for transportation of seeds.
5. Taxability of self-processing activities.

Issue-wise Detailed Analysis:

1. Definition and Taxability of Seeds as Agricultural Produce:
The lower authority ruled that seeds produced, procured, processed, packed, and sold by the applicant do not qualify as agricultural produce under Notification No. 12/2017-Central Tax (Rate) and 11/2017-Central Tax (Rate). The authority highlighted that seeds are distinct from grains and do not fulfill the criteria of agricultural produce since they are not meant for food, fiber, fuel, or raw material for further processing.

2. Exemption Applicability for Storage, Loading, Unloading, and Packing Services:
The lower authority determined that services related to the storage of seeds in leased facilities, and the loading, unloading, and packing of seeds by job workers are not exempt from GST. This conclusion is based on the interpretation that the exemptions under Sl.No.54(e) of Notification No. 12/2017 and Sl.No.24(1)(e) of Notification No. 11/2017 apply to services engaged by a cultivator or agriculturist, not by a seed company.

3. Exemption Applicability for Cleaning, Drying, Grading, and Chemical Treatment Services:
The lower authority ruled that services such as cleaning, drying, grading, and chemical treatment carried out by job workers are not exempt from GST. The exemptions under Sl.No.54(c), (h) of Notification No. 12/2017 and Sl.No.24(1)(c), (h) of Notification No. 11/2017 pertain to support services to agriculture engaged by a cultivator, not by a seed company.

4. Exemption Applicability for Transportation of Seeds:
The lower authority concluded that the transportation of seeds from farm to storage facilities, between storage facilities, and from storage facilities to distributors is not exempt under Sl.No. 21(a) of Notification No. 12/2017. This entry provides exemption on transportation services to agricultural produce, which does not include seeds processed by the applicant.

5. Taxability of Self-Processing Activities:
The lower authority ruled that if the applicant undertakes processing activities such as cleaning, drying, grading, and chemical treatment for in-house seed production, there is no supply involved, and hence, it is exempt from GST.

Appellant's Grounds of Appeal:
The appellant argued that all produce resulting from cultivation, including seeds, should be considered agricultural produce. They cited the Hon'ble Apex Court's decision in The State Of Rajasthan Etc vs Rajasthan Agriculture Input Dealers Association, which stated that chemically treated seeds, though distinct from food grains, do not lose their character as agricultural produce. The appellant contended that the exemption should apply to their activities, as the language of the exemption notifications refers to the cultivation of plants and not exclusively to individual farmers. They also argued that the lower authority's interpretation discriminates against seed companies.

Appellate Authority's Findings:
The appellate authority upheld the lower authority's decision, emphasizing that to qualify as agricultural produce for exemption, the produce must either undergo no processing or only such processing as is usually done by a cultivator or producer without altering its essential characteristics. The authority found that the appellant's activities involve chemical processing, which disqualifies them from the exemption. The case law cited by the appellant was deemed inapplicable as it pertained to milk supply, not seed services.

Order:
The appellate authority upheld the lower authority's order, dismissing the appeal.

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