2019 (3) TMI 1010 - AAAR - GST

Warehousing services - Agricultural Produce or not - rate of tax - Circular No. 16/16/2017 GST dated 15-11-2017 - challenge to AAR decision - ppellant submitted that none of the products goes through any processing till they come to the cold storage which changes the essential character or marketability of these produce purchased from the farmers/cultivators by the traders. - Held that - These products are sold in primary market by Cultivator as raw and green. Various processes like cleaning, deshelling, specialized drying, sorting, grading, packing etc. are then undertaken before these goods become ready for consumption by the consumer. These are not the processes which can be undertaken at the farm. These processes substantially add to the value of the produce - the above produce do not fall under category of Agricultural Produce and Services of storage or warehousing of such produce would not remain exempt under the above said notifications No. 11/2017-Central Tax (Rate) and 12/2017-Central Tax (Rate) both dated 28.06.2017. Reference is also invited to Circular No. 16/16/2017-GST dated 15.11.2017 which squarely delineates applicability of GST on agricultural produce. It has been made very much clear vide this circular that what is an agricultural produce and what is not. This circular is an excellent guide to determine whether a particular produce can be termed as an agricultural produce or not. Vide this circular it has also been made clear that any clarification issued in the past contrary to this circular in the context of Service Tax or VAT/ Sales Tax is no more relevant. There is no reason to interfere with the Ruling given by the Authority for Advance Ruling - AAR decision upheld.

Summary

Issues Involved:
1. Definition of "agricultural produce" under Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017.
2. Applicability of NIL rate of duty on storage services for various products.

Detailed Analysis:

Issue 1: Definition of "Agricultural Produce"

The crux of the case revolves around whether the goods stored by the appellant qualify as "agricultural produce" under Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017. The relevant definition states:
> "Agricultural produce means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done 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."

Issue 2: Applicability of NIL Rate of Duty

The appellant argued that the goods stored in their cold storage facilities should attract a NIL rate of duty as per S. No. 24 of the Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017, which provides a NIL rate for services of loading, unloading, packing, storage, or warehousing of agricultural produce.

Group-wise Analysis:

Group A:
Products: Fennel, Coriander, Cumin Seeds, Carom Seeds, Fenugreek Seeds, Mustard Seeds, Brown Mustard Seeds, Nigella Seeds, Poppy Seeds.

Findings:
The cleaning process for these products, which involves removing dust and impurities, does not alter their essential characteristics. Thus, they qualify as "agricultural produce," and the storage services attract a NIL rate of duty.

Group B:
Products: Turmeric, Dried Ginger, Dates, Dry Dates.

Findings:
The processes of drying and polishing undertaken by traders add marketability and value, thus altering their essential characteristics. These products do not qualify as "agricultural produce," and the storage services do not attract a NIL rate of duty.

Group C:
Product: Tamarind.

Findings:
The shelling and removal of seeds, typically done by specialized machines, alter the essential characteristics. Therefore, tamarind does not qualify as "agricultural produce," and storage services do not attract a NIL rate of duty.

Group D:
Products: Dry Mango, Kathodi, Dry Gooseberry, Dry Water Caltrop, Dry Peas.

Findings:
The processes of washing, drying, and cutting add significant value and change the essential characteristics. These products do not qualify as "agricultural produce," and storage services do not attract a NIL rate of duty.

Group E:
Products: Cinnamon, Gum, Arjuna Chaal.

Findings:
These products undergo specific processes like hammering, scrapping, drying, and refining, which are not done at the farm level. They do not qualify as "agricultural produce," and storage services do not attract a NIL rate of duty.

Group F:
Products: Groundnuts, Coconut.

Findings:
The removal of the outer shell is a process that adds marketability and is not done at the farm level. These products do not qualify as "agricultural produce," and storage services do not attract a NIL rate of duty.

Group G:
Products: Dry fruits such as Fig, Almond, Walnuts, Pistachio, Lotus Seeds.

Findings:
Processes like cleaning, deshelling, drying, sorting, and grading add significant value and change the essential characteristics. These products do not qualify as "agricultural produce," and storage services do not attract a NIL rate of duty.

Conclusion:
The Appellate Authority upheld the ruling of the Authority for Advance Ruling (AAR), stating that only the products in Group A qualify as "agricultural produce" and attract a NIL rate of duty for storage services. The products in Groups B to G do not qualify and thus do not attract a NIL rate of duty. The appeal was disposed of accordingly.