Services relating to agriculture - Service Tax Practice Manual / Ready Reckoner - Service Tax

Chapter 4 Services relating to agriculture Effective date: 1.7.2012 Scope of Negative Service Section 66D (d) Services relating to agriculture or agricultural produce by way of (i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; (ii) supply of farm labour; (iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but make it only marketable for the primary market; (iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; (v) loading, unloading, packing, storage or warehousing of agricultural produce; (vi) agricultural extension services; (vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce. ***************** The word seed from testing in agricultural operations was deleted so as to broaden the scope of coverage of the negative list entry and to cover any testing in agricultural operations in negative list, which are directly linked to production of agriculture produce and not to limit its scope only to seeds. [w.e.f. 10.5.2013] Services by way of loading, unloading, packing, storage or warehousing of rice, cotton, ginned or baled is specifically exempt by exemption notification. Refer notification no.25/2012-ST, dated 20-6-2012 amended by Notification no. 6/2014-ST, dated 11-7-2014. Meanings and Definitions: Section 65B(3 ) - agriculture means the 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; Section 65B (4) - agricultural extension means application of scientific research and knowledge to agricultural practices through farmer education or training; Section 65B (5) - agricultural produce means any produce of agriculture 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; Reference can be made in the case of M/s D.S. Bist Sons, Nainital, 1979 (9) TMI 168 - SUPREME COURT OF INDIA. to understand the nature of processes which can be carried on agriculture produce. Section 65B (6) - Agricultural Produce Marketing Committee or Board means any committee or board constituted under a State law for the time being in force for the purpose of regulating the marketing of agricultural produce; Clarification by the Board (Taxation Guide Guidance Note 4 Exemptions dated 20.06.2012) 4.4.2 Are activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry included in the definition of agriculture? Yes. These activities are included in the definition of agriculture. 4.4.3 What is the meaning of agricultural produce? Agricultural produce has also been defined in section 65B of the Act which means any produce of agriculture on which either no 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. It also includes specified processes in the definition like tending, pruning, grading, sorting etc. which may be carried out at the farm or elsewhere as long as they do not alter the essential characteristics. 4.4.4 Would plantation crops like rubber, tea or coffee be also covered under agricultural produce? Yes. Such plantation crops are also covered under agricultural produce. 4.4.5 Would potato chips or tomato ketchup qualify as agricultural produce? No. In terms of the definition of agricultural produce, only such processing should be carried out as is usually done by cultivator producers which does not alter its essential characteristics but makes it marketable for primary market. Potato chips of tomato ketchup are manufactured through processes which alter the essential characteristic of farm produce (potatoes and tomatoes in this case). 4.4.6 Would operations like shelling of paddy or cleaning of wheat carried out outside the farm be covered in the negative list entry relating to agriculture as sub-clause (iii) of clause (d) of section 66D relating to services by way of processes carried out at an agricultural farm? The said sub-clause (iii) also includes 'such like operations which do not alter the essential characteristic of agricultural produce'. Therefore, activities like the processes carried out in agricultural farm would also be covered if the same are performed outside the agricultural farm provided such processes do not alter the essential characteristics of agricultural produce but only make it marketable in the primary market. Therefore, cleaning of wheat would be covered in the negative list entry even if the same is done outside the farm. Shelling of paddy would not be covered in the negative list entry relating to agriculture as this process is never done on a farm but in a rice sheller normally located away from the farm. However, if shelling is done by way of a service i.e. on job work then the same would be covered under the exemption relating to 'carrying out of intermediate production process as job work in relation to agriculture'. 4.4.7 Would agricultural products like cereals, pulses, copra and jaggery be covered in the ambit of 'agricultural produce' since on these products certain amount of processing is done by a person other than a cultivator or producer? 'Agricultural produce' has been defined in clause (5) of section 65B as 'any produce resulting from cultivation or rearing of plants, animals including all life- forms, on which either no further processing is done or such processing is done as is usually done by the cultivator or producer which does not alter essential characteristics of agricultural produce but make it marketable for primary market'. The processes contemplated in the said definition are those as are 'usually done by the cultivator or producer'. 4.4.8 Would the processes of grinding, sterilizing, extraction packaging in retail packs of agricultural products, which make the agricultural products marketable in retail market, be covered in the negative list? No. Only such processes are covered in the negative list which makes agricultural produce marketable in the primary market. 4.4.9 Would leasing of vacant land with a green house or a storage shed meant for agricultural produce be covered in the negative list? Yes. In terms of the specified services relating to agriculture 'leasing' of vacant land with or without structure incidental to its use' is covered in the negative list. Therefore, if vacant land has a structure like storage shed or a green house built on it which is incidental to its use for agriculture then its lease would be covered under the negative list entry. 4.4.11 What are the services referred to in the negative list entry pertaining to Agricultural Produce Marketing Committee or Board? Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce. Such marketing committees or boards have been set up in most of the States and provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like, sheds, water, light, electricity, grading facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price. APMCs collect market fees, license fees, rents etc. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list. However any service provided by such bodies which is not directly related to agriculture or agricultural produce will be liable to tax e.g. renting of shops or other property.