GST - A Boon to agriculturist

[CA Akash Phophalia]

Editorial Note

The concept of indirect taxation is in the process of revolutionary change. Concept of manufacturing, sale and provision of service are going to be merged in the new concept of supply. This article aims at enlightening readers about the current provision of Model GST law in relation to agriculturist.

Introduction

India is the land of villages. The saying is clear about the core activities of majority residents of our country. Agriculture is the key activity and needs to be kept out of the purview of taxation law. Currently, it is out of the purview of excise and core agriculturally and related activities are kept out of service tax law also. Further, VAT law has also kept agricultural products out of taxation regime. This intent of law is seemed to be carried as legacy under the upcoming new GST regime also.

Meaning of Agriculture

Clause 2(7) of Model GST Act provides the meaning of the term agriculture as – “agriculture” with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and also grazing, but does not include dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants.

Explanation – For the purpose of this clause, the expression ‘forest’ means the forest to which the Indian Forest Act, 1927 applies.

Meaning of agriculturist

Clause 2(8) of Model GST Act provides the meaning of the term agriculturist as – “agriculturist” means a person who cultivates land personally, for the purpose of agriculture. Thus a person who cultivates land for the purpose of agriculture is agriculturist. Thus any person could be an agriculturist. It is not necessary that the person be an individual. Besides the clause use the words “who cultivates personally”. The meaning of this term is explained hereunder.

Meaning of “to cultivate personally”

It means to carry on any agricultural operation on one’s own account –

(a) by one’s own labour, or

(b) by the labour of one’s family, or

(c) by servants on wages payable in cash or kind (but not in crop share) or by hired labour under one’s personal supervision or the personal supervision of any member of one’s family.

As per explanations given in the said clause, a widow or minor or a person who is subject to any physical or mental disability or is a serving member of the armed forces of the Union, shall be deemed to cultivate land personally if it is cultivated by her or his servants or by hired labour. In case of Hindu undivided family, land shall be deemed to be cultivated personally, if it is cultivated by any member of such family.

Who can be an agriculturist?

Form the plain reading of the meaning of agriculturist it gives an impression that any person whether it may be an individual, or firm or HUF or association of persons or body of individuals or llp or company etc could be an agriculturist. However, the definition cannot be read in isolation. It needs to be read with the term “to cultivate personally”. From the clauses (a) and (c) when read together, we find that the term “one’s” is of key importance. When both the clauses are read together, it can be inferred that the intent of law is that here the term “one’s” should mean “in person”. In other words, it reflects that here the intention of law is “one’s” means an individual.

Another noticeable facts are the explanations added in the definition. Reading both the explanations convey that the intent of law is that the agricultural operations needed to be carried out by the individual. However, it had included HUF also as the agriculturist. Another interpretation and argument is also possible in favour of other categories of persons as agriculturist.

Meaning of land

The term land is not defined anywhere in the Model GST law. So, it had to be understood in the common parlance. Although agricultural operations are normally carried on the land which is called as an agricultural land in common parlance. But it is not statutorily required that the land has to be an agricultural land. Further, it is noticeable point that agricultural operations could be carried out at any place and not essentially on ground land.

Benefit to agriculturist

Tax under GST law is payable by the taxable person and it is the taxable person who needs to comply with all the formalities under GST law. Taxable person is defined under clause 9 of the Model GST law. The said clause provides that an agriculturist shall not be considered as a taxable person. It implies that once a person is an agriculturist then it is not required to comply with any of the compliances under this law being not a taxable person.

Boon to agriculturist

From the reading of the existing Model GST law it conveys that once a person is an agriculturist it is out of the definition of the term taxable person. An important question which arises here is whether any person carrying out agricultural operations and also carrying on other taxable activities then will such person be called as taxable person and liable to comply with the provisions of law or not. Here, it is noticeable point that the term taxable person excludes “agriculturist” form the purview of taxable person. The meaning conveyed from this definition is that once a person is an agriculturist then it is not a taxable person and thus out of the compliances under model GST law. To put it differently, once a person is an agriculturist, he is not taxable person. Thus, it implies that he is not required to pay tax on any of its other operations.

Justifiability of the provision and Conclusion

 Law has to be read in the manner it is drafted. The meaning conveyed above is the meaning conveyed by the law. Although the meaning expressed above seems not correlating with the law intended by the draftsman. It is possible that by the time final GST law would be at its place, this anamoly which does not seem to be intent of law would be overcome and only agricultural operations carried out by agriculturist would be kept outside the purview of model GST law.

This is just for your reference. It does not constitute our professional advice or recommendation.

Discussions to this article

[SWAMINATHAN RAMANATHAN]

Sir,

Does it mean the Fertilizer and Pesticides also exempted from GST.

Kindly clarify the position of Fertiliser and Pesticides products in GST.

[CA Akash Phophalia]

Fertilizers and pesticides are not covered in the definition of agriculuture.

Therefore as per current model law in force, these are taxable.

However, as the law is going to change when it is in its final phase and rules, exemptions and related laws are yet to come, it may be possible that fertilizers and pesticides are exempted or may be charged to tax at a lower rat of tax.