2021 (8) TMI 191 - AAAR - GST

Classification of supply of service - service in relation to agricultural operations directly in connection with raising of agricultural produce - Drilling of Borewells for supply of water for agricultural operations like cultivation including seeding, planting and ploughing - Letting out compressors for pumping of water from the borewells to the agricultural fields - applicability of entry SI.No.54 of N/N. 12/2017-CT (Rate) dated 28.06.2017. HELD THAT - It is noted that the appellant while undertaking the borewell drilling activity for industries etc., (other than on agricultural lands), it is classified under SAC 995434 leviable to appropriate rate of GST. However, while undertaking the same activity on agricultural lands, the appellant seeks whether the same would fall under SAC 9986 so as to be eligible to fall within the ambit of sl.no.54 of notfn. No. 12/2017 and further buttresses his arguments with case laws and evidences to show that the activity is indeed done in agricultural lands and the practice in service tax era, etc. Without going into the merits of the main argument of the appellant regarding the activity undertaken is by way of agricultural operations relating to production of any agricultural produce, etc., prima facie, in the scheme of things of GST, no two classifications can be adopted for a single activity based on end use or where it is rendered, etc. The appellant himself has already classified his supply of services of borewell drilling under 9954 for the purpose of paying the tax; it defies logic as well as law that the same activity if done on agricultural land will be classifiable under a different heading 9986 - since the same equipment is used for the drilling activities, whether on agricultural lands or for industries, etc., it would not be possible for the tax administration to identify whether the driller is exclusively undertaking agricultural drilling only thereby leading to evasion of tax only. There are no reason to interfere with the order of the Advance Ruling Authority in this matter - appeal disposed off.

Summary

Issues Involved:
1. Classification of services related to drilling borewells and letting out compressors for agricultural purposes.
2. Applicability of exemption under SI.No.54 of Notification 12/2017-CT (Rate) dated 28.06.2017 to these services.

Issue-wise Detailed Analysis:

1. Classification of Services:
The appellant, engaged in drilling borewells and letting out compressors for agricultural use, sought clarity on whether these services are classified under 'Support Service for agriculture' (SAC 9986). The Advance Ruling Authority (AAR) ruled that both activities do not fall under SAC 9986, thus not qualifying for the exemption under SI.No.54 of Notification 12/2017-CT (Rate).

The appellant argued that these services should be classified under SAC 9986 as they are directly related to agricultural operations. They cited the inclusive nature of the definition of support services under SAC 9986, which encompasses services necessary for agricultural production.

2. Applicability of Exemption:
The appellant contended that their services should be exempt under SI.No.54 of Notification 12/2017-CT (Rate), which covers services related to the cultivation of plants and rearing of animals for agricultural produce. They referenced the Supreme Court's rulings in previous cases, emphasizing a broad interpretation of 'in relation to' and the inclusive nature of the exemption list.

The AAR, however, held that the appellant's services do not qualify for the exemption as they do not fit within the specific classification required. The appellant's practice of classifying similar services under different headings based on the end-use or location (agricultural lands vs. industrial use) was deemed inconsistent with GST classification principles.

Discussion and Ruling:
The appellate authority reviewed the appellant's arguments, the statutory provisions, and relevant case laws. They noted that the appellant's classification of services under different headings based on the end-use defies logic and law, as the same activity cannot have two classifications. The authority also highlighted the practical challenges in tax administration if such dual classification were allowed.

The appellate authority referred to the GST Council's discussions, which indicated no exemption was intended for borewell drilling for agricultural purposes. The Fitment Committee's deliberations and the GST Council's decision not to exempt these services further supported the AAR's ruling.

Final Decision:
The appellate authority found no reason to interfere with the AAR's decision. They upheld the ruling that drilling borewells and letting out compressors for agricultural purposes do not qualify as 'Support Service for agriculture' under SAC 9986 and are not exempt under SI.No.54 of Notification 12/2017-CT (Rate). The appeal was disposed of accordingly.