SERVICE TAX ON COLD STORAGE F Y 16.17 AND 17.18, Service Tax

[NILESH PITALE]

Dear Sir

We are in the business of cold storage warehouse and we store food items (Agricultural & Non-Agricultural). During 2016-17 & 2017-18 storage of agricultural food items included

Fruits and Vegetables Pulses (Rajma, Green peas, Chawali, etc) Wet Dates and Dried Dates Groundnuts (Singdana) Inshell Walnut

Whereas from the above items Service tax officer accepted only fruits and vegetables as agricultural and rest all treated as non-exempted/ non-agricultural, and have raised a demand for the same. Are They Correct

Please Guide

Posts / Replies

[Shilpi Jain]

The definition of agricultural produce under service tax is similar to the definition given under gst 

It includes a plant produce which may have undergone processes that are usually undertaken by the producer which do not alter its essential characteristics.

In my view, if your daal and pulses are not polished, then all of them should be agricultural produce.

[KASTURI SETHI]

Dear Querist, 

You need to know the difference between processed and unprocessed goods. Here is an extract of the decision of 2022 (2) TMI 777 - AUTHORITY FOR ADVANCE RULING, TELANGANA. It will be useful to arrive at the correct decision.

"7. Discussion & findings :

The applicant M/s. M. Narasimha Reddy & Sons averred that they produce seeds namely maize, paddy, sunflower, bajra, wheat, cotton, jute, sorghum, mustard etc. That the production of seeds involves cleaning, grading, treatment with pesticide/insecticide, packing and storing the same.

In this connection, it is observed that the Seed Act, 1966 defines seed at Section 2(11) as :

“Seed” means any of the following classes of seeds used for sowing or planting -

(i)      Seeds of food crops including edible oil seeds and seeds of fruits and vegetables;

(ii)    Cotton seeds;

(iii)   Seeds of cattle fodder;

and includes seedlings, and tubers, bulbs, rhizomes, roots, cuttings, all types of grafts and other vegetatively propagated material, of food crops or cattle fodder;”

Thus all grain do not qualify to be seed. Further the sale and purchase of ‘seed’ is subject to the provisions of Seed Control Order, 1983 and any deviations from the control rules contained in the said order are punishable under the law.

Even in the context of GST law, ‘Seed’ is treated separately from ‘grain’. Therefore seed is included at Serial No. 79 of Notification No. 2/2017, dated 28-6-2017 wherein exemption is accorded to ‘all goods of seed quality’. Clearly GST law also makes a distinction between grain and seed, therefore even if grain is taxable it will be exempt if it is of seed quality.

For example : Serial No. 65 of Notification No. 1/2017 clearly states that tax can be levied @ 5% on groundnuts, not roasted or otherwise cooked, whether or not shelled or broken other than of seed quality. Thus groundnut is taxable in grain form and not in seed form.

Hence seed and grain are not one and the same. The law applicable to grain and seed will be different and therefore concessions applicable to grain produced by a cultivator will not be applicable to seed.

Now coming to the definition of agricultural produce at Item 2(d) of Notification No. 12/2017 “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;

As seen from the above, not all produce of cultivation will qualify to be agricultural produce. The litmus test for any produce of cultivation to qualify as agricultural produce is 5 fold :

(1)     It should be a produce out of cultivation of plants or animals.

(2)     It should be meant for food, fibre, fuel, raw materials or other similar products.

(3)     It should be subjected to no further processing.

(4)     Even if processing is done, it should be similar to processing done by a cultivator or a producer.

(5)     Such processing should not alter essential characteristics and only make it marketable for primary market i.e., mandis or agriculture market committees.

The applicant is supplying goods which are produce of cultivation of plants. However they are of seed quality and not grain, therefore further they are not meant for food, fibre, fuel or raw material for further processing. In the definition of agricultural produce, the word ‘raw material’ is used which is a general word and is in the company of specific words i.e., food, fibre and fuel. These specific words indicate direct consumption by human or in industry but not in cultivation.

The Hon’ble Supreme Court of India in the case of Godfrey Phillips India v. State of U.P. - 2005 (139) STC 537, held that when 2 or more words susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from and are qualified by each other, the meaning of the general word being restricted to a sense analogous to that of the less general. In this case, it was held that even in case of inclusive definition, principle of noscitur a sociis can be applicable.

Applying this rule to the present facts, supply of seed does not fall under the definition of agricultural produce as the seed does not fulfil the utilities prescribed therein.

Similarly the said definition restricts the ‘agricultural produce’ to unprocessed goods. Further even if ‘processing’ is done it should be ‘such processing’ as done by a ‘cultivator’ for ‘primary market’. Essentially processed agricultural products do not fall under this definition. If any processing is done it should be on an equal footing to that done by a “cultivator for primary market” i.e., processing made by a farmer for agricultural mandi. Even if the farmer does any different processing such produce will not fall under this definition.

The facts presented by the applicant clearly indicate that the processing done by them to turn grain into seed quality goods is different from the processing done by a cultivator or producer of grain for primary market i.e., agricultural mandi or agricultural market yard. Therefore even on this count, the seed quality goods produced by them cannot be treated as agricultural produce.

Therefore, the seeds produced by them do not qualify as agricultural produce and hence :"

The analogy can be applied to other goods, pulses etc.

[Ganeshan Kalyani]

I fully agree with the view of the experts.

The main test is to prove the item to be an agricultural produce. If there is any kind of processing then it is not considered as agricultural produce.

The definition of agricultural produce at Item 2(d) of Notification No. 12/2017 “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;

You have to satisfy the officer that other items have not undergone any kind of processing. But only those process which an cultivator normally does to make them marketable in primary market.