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2024 (8) TMI 134 - AAAR - GSTClassification of activities of the applicant - Support services to agriculture, forestry, fishing, animal husbandry - composite supply under GST law with Principal Supply or not - applicability of SL No 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017 (as amended time to time) having SAC code 9986 - applicable taxable rate - trading in carbon credits - non-speaking/non-reasoned order - violation of principles of natural justice. Whether the supply is a Composite Supply ? - HELD THAT - A combined reading of both the Recitals and the Representations and Warranties, it is clearly evident that Shell and AIF are independent entities who entered into an agreement wherein Shell would support AIF in its endeavour for which Shell is to be granted the full, legal, beneficial and unencumbered title to 100% of the VCUs generated by the Project. The agreement between the two entities is not a Joint Venture and further there is no agency relationship between both the parties. While the Appellant is trying to project the entire gamut of operations as one cohesive supply, between AIF and SHELL, however, it is evident that the appellant is making different supplies to SHELL and different supplies to the Farmers. From a business point of view which is relevant to taxation matters, the appellant is engaged with the Farmers for the sole purpose of gaining the Carbon Credits which are to be transferred to their client viz., SHELL - The end result of the supply to the Farmers is the accruing of Carbon Credits. AIF then supplies these Carbon credits to SHELL on a Principal-to-Principal basis. Thus, it cannot be disputed that there are multiple supplies to different recipients. Whether those supplies can be clubbed together and be categorised as Composite Supply ? - HELD THAT - The appellant is making some supplies to SHELL and some supplies to Farmers. The law envisages that for an act to be categorized as a Composite Supply there should be a Principal Supply with other naturally bundled supplies to a single recipient. Whereas, in the transactions narrated by the Appellant, the supply provided to the Farmers is a distinct transaction between two parties viz., the Appellant and the Farmers; and the supply provided to SHELL is another distinct transaction, between the Appellant and SHELL. These disjoint supplies to multiple recipients cannot be claimed to be a Composite Supply in terms of Section 2 (30) of the CGST / SGST Acts. As evidenced by the Agreement cited above, AIF is neither acting as an agent of SHELL nor are the two engaged in a Joint Venture. As such, the interactions of AIF stop with SHELL and SHELL has no connection with the Farmers. It is indeed AIF who separately engages with the Farmers and derives the Carbon Credits from them so as to make the same available to SHELL as its part of the agreement. As there is a distinct division of supplies and the supplies are rendered to two different entities by AIF, the said supplies cannot be covered under the definition of Composite Supply Carbon Credits Trading - HELD THAT - No discussion made on the aspect of Carbon Credits Trading, however, the fact remains that the entire focus of AIF is to obtain the Carbon Credits accruing to accruing to the Farmers so that the same could be supplied to SHELL for the consideration received. What is the Principal Supply? - HELD THAT - As the said supply itself is not a Composite Supply, the question of what is the Principal supply is irrelevant.
Issues Involved:
1. Classification of activities under the agreement as 'composite supply' under GST law. 2. Determination of the principal supply within the composite supply. 3. Applicability of the NIL rate under Notification No. 11/2017-Central Tax (Rate). 4. Allegation of trading in carbon credits. 5. Violation of principles of natural justice. Detailed Analysis: 1. Classification of Activities as 'Composite Supply' under GST Law: The appellant, Archipel India Foundation (AIF), entered into a Project Development Agreement with Shell Energy India Private Limited (SEIPL) for an afforestation project. The AIF provides various services including project design, raising nurseries, procuring saplings, and coordinating with a carbon consultant. Appellant's Argument: The appellant argued that these activities should be classified as a 'composite supply' under GST law with the principal supply being "Support services to agriculture, forestry, fishing, animal husbandry" under Serial No. 24 of Notification No. 11/2017-Central Tax (Rate). AAR's Ruling: The AAR held that the activities cannot be classified as 'composite supply' since they involve multiple independent activities like project design, carbon accounting, and community engagement, which do not fit the definition of support services to agriculture. Appellate Authority's Analysis: The authority examined the Project Development Agreement and found that AIF supplies different services to SEIPL and farmers. The supplies to farmers include raising nurseries and procuring saplings, while the supplies to SEIPL include project design and coordination with a carbon consultant. Since these supplies are made to different recipients, they cannot be classified as a 'composite supply' under Section 2(30) of the CGST Act. 2. Determination of Principal Supply: Since the supplies are not classified as 'composite supply,' the question of determining the principal supply becomes irrelevant. 3. Applicability of NIL Rate under Notification No. 11/2017-Central Tax (Rate): The appellant argued that their activities should be taxed at a NIL rate under Serial No. 24 of Notification No. 11/2017-Central Tax (Rate), which covers "Support services to agriculture, forestry, fishing, animal husbandry." Appellate Authority's Analysis: The authority noted that the appellant's activities, including project design and carbon accounting, do not qualify as support services to agriculture. Therefore, the NIL rate is not applicable. 4. Allegation of Trading in Carbon Credits: The AAR observed that the appellant's activities involve trading in carbon credits, which is a commercial operation and not purely related to agriculture. Appellant's Rebuttal: The appellant clarified that they are not involved in trading carbon credits. The carbon credits are issued in the name of SEIPL by the farmers directly, and AIF acts merely as a facilitator. Appellate Authority's Analysis: The authority upheld the AAR's observation, noting that the primary objective of the appellant is to obtain carbon credits from farmers and supply them to SEIPL, which constitutes a commercial activity. 5. Violation of Principles of Natural Justice: The appellant argued that the AAR's order was non-speaking and lacked material particulars, violating principles of natural justice. Appellate Authority's Analysis: The authority found that the AAR had provided sufficient reasoning in its order. The AAR had correctly interpreted the activities and their classification under GST law. Decision: The Appellate Authority upheld the AAR's ruling that the activities performed by the appellant do not qualify as 'composite supply' under GST law and are not eligible for the NIL rate under Serial No. 24 of Notification No. 11/2017-Central Tax (Rate). The authority also upheld the observation that the appellant is involved in trading carbon credits, which is a commercial activity. The appeal was dismissed.
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