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TMI BlogIs milk an agriculture produce ?X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether commission received on account of collection and supply of milk to Dairies taxable under BAS. If milk considered as agriculture produce, it is exempted being includes in negative list. However, nowhere in the definition of Agriculture produce, it is clearly mentioned that milk is an agriculture produce. - Reply By Rajagopalan Ranganathan - The Reply = Sir, Milk is dairy product and not agricultural produce. Hence it is not included in the Negative list. Regarding payment of service tax on commission for collection and supply of milk to dairy, if the commission is paid by dairy then it is taxable under BAS or BSS (Business Support Service). - Reply By Mahir S - The Reply = Sir, Dairy farming is altogether a different identity and therefore Milk does not fall under the agricultural product and hence does not fall under the the purview of negative list under service tax. - Reply By Kunal Pawar - The Reply = Sir, Thanks for guidance. As per Section 65B(3) 65B(5), definitions of agriculture and agriculture produce are as under :- Section 65B(3 ) - agriculture means the cultivation of plants and rearing of all life-forms of animals, except t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rearing of horses, for food, fibre, fuel, raw material or other similar products 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. In the definition of agriculture, rearing of all life forms of animals is considered as agriculture and my question is whether milk is included in rearing of all life forms of animals . Further, in the definition of agriculture produce also, any produce of agriculture is included and again my query is whether milk may get included in any produce of agriculture produce . Please assist. - Reply By Ganeshan Kalyani - The Reply = The term milk is not mentioned in the exemption notification no. 25/2012 . Milk cannot be said as Agriculture produce. Therefore service is applicable. - Reply By KASTURI SETHI - The Reply = Kunal Pawar Ji, I have read your views expressed on 27.10.2015. Milk cannot be termed as agriculture produce by any stretch of imaginati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (practically, lawfully and as per dictionary meaning). There is a world of difference between the activity of 'rearing of animals' and their 'produce'. Hypothetically, for a moment if we consider 'milk' as agriculture produce, then hair and skin of all forms of animals i.e.sheep, rabbit, camel, she-goat, buffalo etc. would also be treated as agriculture produce. Can you consider 'leather' also as agriculture produce ? Not possible. Hence practically, lawfully and as per literal meaning of the word in dictionary, milk cannot be included in the gamut of the definition of 'agriculture produce' laid down under Section 65 B (3) (5) of the Finance Act. - Reply By MARIAPPAN GOVINDARAJAN - The Reply = Dear Kasthuri Sethi Sir, your explanation and justification is superb. - Reply By Kunal Pawar - The Reply = Thanks a lot Kasturi Sethi Sir for necessary guidance. - Reply By KASTURI SETHI - The Reply = Shri MARIAPPAN GOVINDARAJAN JI, Thanks for liking and appreciating my reply. - Reply By Ganeshan Kalyani - The Reply = Nice explanation sir. - Reply By KASTURI SETHI - The Reply = Dear Sh.Gan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eshan Kalyani Ji, Thanks a lot for appreciating my reply. I have noted that you have not mentioned your email Id in your profile. Non-uploading of your photo is your discretion. - Reply By Ganeshan Kalyani - The Reply = ID updated sir. - Reply By KASTURI SETHI - The Reply = I have received a query from Sh.Piyush Agarwal, Bhuwaneshwar through email. He has desired that reply should be posted in Discussion Forum. His query is (1) Whether rice bran, de-oiled paddy husk and cattle feed are agriculture produce or not ? Food grains or not ? My reply is as under :- First of all we should know what is bran. What is chaff ? What is husk ? what is cattle feed ? What is milling ? During the process whether there is any change in essential character of the goods ? During milling whether any new product emerged ? What is bran ? As per dictionary meaning, Bran is the hard outer layers of cereal grain. It consists of the combined aleurone. Along with germ, it is an integral part of whole grains, and is often produced as a byproduct of milling in the production of refined grains. When bran is removed from grains, the grains lose a portion of their nutriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal value. Bran is present in and may be milled from any cereal grain, including rice, corn (maize), wheat, oats, barley and millet. Bran should not be confused with chaff, which is coarser scaly material surrounding the grain, but not forming part of the grain itself. What is chaff ? ( भूसा) As per dictionary meaning:- Chaff is the dry, scaly protective casings of the seeds of cereal grain, or similar fine, dry, scaly plant material such as scaly parts of flowers, or finely chopped straw. Chaff is indigestible by humans, but livestock can eat it and in agriculture it is used as livestock fodder, or is a waste material ploughed into the soil or burnt. HUSK and chaff are the same. What is milling ? Milling is a cutting process that uses a milling cutter to remove material from the surface of a workpiece. The milling process removes material by performing many separate, small cuts. What is cattle feed ? Grass, hay, legume, bran, chaff, gram (चना), CORN= मकई या दाना या अनाज का पेड़ DEFI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NITION OF AGRICULTURE PRODUCE Board s Circular No.B.11/1/2002/TRU dated 1.8.2002 Para No.4 Service provided in relation to agriculture produce and service provided by cold storage is outside the ambit of the levy. Doubts have been raised about the scope of term agricultural produce . In order to clarify the scope of this term beyond doubts, an order has been issued under the power vested under section 95 of the Finance Act (see Order No. 1/2002-S.T., dated 1-8-2002). As clarified in the order, the term agricultural produce would cover all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, and similar products. However, manufactured products such as sugar, edible oils, processed food etc. will not come under the purview of the term agricultural produce . Notification No.8/2004-ST dated 9.7.2004 (ii) agricultural produce means any produce resulting from cultivation or plantation, on which either no further processing is done or such processing is done by the cultivator like tending, pruning, cutting, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arvesting, drying which does not alter its essential characteristics but makes it only marketable and includes all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute, indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice, coffee and tea but does not include manufactured products such as sugar, edible oils, processed food and processed tobacco. ANALYSIS Bran is an integral part of the whole grain (may be wheat, rice, maize, barley, millet, oat). Bran is separated from whole grain by milling. Bran is present in the whole grain as a hard out layer covered by chaff or husk before milling. After milling they are separated into three parts i.e. grain itself , bran and chaff or husk which were already there in as an integral part of wholegrain as agriculture produce. After milling, all the three parts of whole grain do not lose their identity . Neither any change takes place in the essential character of goods (agriculture produce) nor any new product emerges as a result of milling. Bran is eaten by human being as well as animals. Biscuit of bran are available. Dalia is ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de of wheat and bran. Bran is not separate from wheat for dalia . All the items mentioned above are food grains (whether milled or not) and bran of these is complete food grain being more nutritious than wholegrain. Thus these are food grains as well as agriculture produce. Milling has done nothing except separating into three parts. Essential character has not been altered. Grain and bran are eaten by human being and husk whether de-oiled or not it is eaten by animal. Husk is cattle feed. Are grain, bran and husk manufactured product ? No. They existed before milling and even after milling. As per Board s circular and notification mentioned supra, only manufactured products are out of ambit of agriculture produce. For example:- Sugarcane is agriculture produce and sugar obtained there from is manufactured product because a new product has emerged. Basic essential character changed. After the manufacture of Sugar, there is by-product called bagasse. Bagasse can be compared to chaff or husk. Though bagasse has emerged after milling/crushing sugar cane, Hon ble Supreme Court in the case of Union of India Vs. DSCL SugarsLtd. 2015 reported as (322) E.L.T. 769 (S.C.) = 2015 (10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 566 - SUPREME COURT has held that it is an un-manufactured product, being not result of any process. Despite being a bye-product it has been held as unmanufactured. By applying the ratio of the judgement of the Apex Court and Board s Circular read with Notification we can deduce that grain, bran and husk are agriculture produce and hence exempted from Service Tax in respect of GTA service. Cattle feed includes Grass, hay, legume, bran, chaff, gram (चना), CORN (मकई या दाना या अनाज का पेड़). I think there should not be even an iota of doubt or dispute that these are agriculture produce. Conclusion : By undergoing any process does not mean it is out of the gamut of agriculture produce. There are two major factors i.e. A new product must emerge and essential character of the goods must be altered to be out of natural product or agriculture produce. 2015 (322) E.L.T. 769 (S.C.) = 2015 (10) TMI 566 - SUPREME COURT IN THE SUPREME COURT OF INDIA A.K. Sikri and Rohinton Fali Nariman, JJ. UNION OF INDIA Versu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s DSCL SUGAR LTD. _______ Pl. Note that there is one mistake in Board s Circular and Notification. Jaggery has been declared as agriculture produce whereas jaggery is manufactured product or proceed food. Essential character of sugar cane is altered and a new product emerged. Sugar is manufactured product and Jaggery is agriculture produce (?) How can be ? Contradiction in this aspect. - Reply By Ganeshan Kalyani - The Reply = In detailed reply. It enriched my knowledge. Thanks Kasturi Sir. - Reply By piyush agarwal - The Reply = Definition of agricultural produce as per 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 Definition of Agriculture as per Section 65B(3) Agriculture: As per section 65B(3) of the act, it 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. Paddy is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce of agriculture, on which further processing is done by man or machine to procure Rice, hence rice is not a agricultural produce. - Reply By Ganeshan Kalyani - The Reply = Continue reading the definition of agricultural produce also ahead to underlined text which reads as "or such processing as is usually done by a producer or cultivator which does not alter its essential characteristics but makes it marketable for primary market". The process done by man or machine to produce rice does not alter the characteristics but only makes it marketable in primary market. Hence it is still agricultural produce. Further any process after procuring from primary market would stretch beyond agricultural definition and would be taxable. - Reply By piyush agarwal - The Reply = Circular No. 177/03/2014 ST dated 17th February, 2014 clarified 'agricultural produce' available in section 65B(5) of the Finance Act covers 'paddy'; but excludes 'rice' . Hence it means rice is not a agricultural produce. - Reply By Ganeshan Kalyani - The Reply = The circular states that service related to rice is exempt from service tax. For e.g. transportation of rice, loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding unloading of rice, milling of paddy into rice etc. - Reply By KASTURI SETHI - The Reply = Sir, Rice is exempted from Service Tax for all purposes. Bran of wheat, rice, oats, barley etc. is edible for human beings as well as animal. It is eaten by animals direct and human beings eat by mixing with an other eatable item. Bran is agriculture produce though it undergoes some processes by machine or manually by farmers. I invite comments from all experts on my views expressed above. - Reply By KASTURI SETHI - The Reply = Assessee is concerned with relief. Govt has granted relief to the assessee by granting exemption from Service Tax in respect of rice vide Notification 4/14-ST dated 17.2.14 read with Board's Circular No. 177/03/2014 ST dated 17th February, 2014. - Reply By Ganeshan Kalyani - The Reply = I have went through the Notification and I agree with Kasturi sir's view. - Reply By piyush agarwal - The Reply = Rice is not exempted from service tax for all purpose like other agricultural produce . Example Transportation, loading, unloading, packing, storage and warehousing of rice are exempt from service tax. However, suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of labours, supply of machinery towards rice or commission on sale of rice are taxable service under service tax. - Reply By Ganeshan Kalyani - The Reply = Your second para seems not right as supply of labour for agricultural activity is exempt from service tax and so as other activity for agricultural purpose. - Reply By KASTURI SETHI - The Reply = I fully agree with Sh. Ganeshan Kalyani, Sir. But here Sh.Piyush Agarwal does not agree that rice is agriculture produce.Services by a commission agent for sale or purchase of agriculture produce is also in the negative list Section 66(D)(d)(vii) . Renting or leasing of agro machinery for agriculture produce is also in the negative list. Section 66 (D)(d)((iv) . - Reply By KASTURI SETHI - The Reply = As per Board's Circular No.No.177/3/2014-ST dated 17.2.2014 Paddy is covered under agriculture produce and rice is excluded from the definition of 'agriculture produce' so many benefits available to agriculture produce in the Negative List have been extended to rice. As per dictionary meaning, ' Paddy is a field flooded with water where rice is grown or a rice field.Paddy is agriculture produce and ric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not, it cannot be digested. Dictionary meaning of paddy cannot be changed or twisted. If we read the expression/term of 'Services relating to agriculture or agriculture produce under Section 66(D)(d) ' between the lines, rice, bran and husk of paddy are either covered under the definition of 'agriculture produce' or in 'services relating to agriculture'. Let us go through Board's circular which reads as follows:- Rice - Exempted from Service Tax - Clarifications Circular No. 177/3/2014-S.T., dated 17-2-2014 F.No. 334/03/2014-TRU Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Rice - Exemptions from Service Tax - Regarding. Paddy is an agriculture produce and rice is not agriculture produce because of milling process or threshing (Negative List) which changed the essential character of paddy. This is view of Sh.Piyush Agarwal. I do not agree with Sh.Piyush Agarwal on the following grounds:- (1) Services in relation to agriculture or agriculture produce are in the Negative List under Section 66(D)(d) of the Finance Act . As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r para No.5 of Board's Circular dated 17.2.14.milling of paddy is an intermediate production process in relation to agriculture. What we obtain after milling of paddy ? These are rice, bran and husk. If Board's circular says that rice is excluded from the definition of 'agriculture produce' it cannot be denied that rice, bran and husk of paddy are in relation to agriculture. 2. Because of milling the paddy into rice, rice has not become a manufactured product like 'sugar' from sugarcane where all the essential characters are changed and a new product emerges from sugarcane, an agriculture produce. Milling or threshing separates the paddy into three separate parts i.e. rice, bran and husk which already exist. No new product has emerged in this way.Paddy is only separated into three goods by way of milling/ threshing. All these three goods have not lost their individual identity or essential character at the time of milling paddy. They retain their original shape as they grew; only they were separated into three goods.Rice, bran and husk all are agriculture produce. 3. It is a fact that rice is not a manufactured product. Then what is it ? Rice, br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an and husk all are agriculture produce. In case rice, bran and husk of paddy are not to be treated as agriculture produce or in relation to agricultur e, the Board's circular dated 17.2.14 is not in letter and spirit of Service Tax law or we may say it is contrary to the Service Tax law. It needs to be amended. If we read the expression/term of 'Services relating to agriculture or agriculture produce under Section 66(D)(d)' between the lines, rice, bran and husk of paddy are either covered under the definition of 'agriculture produce' or in 'services relating to agriculture'. These are my views/interpretations. - Reply By piyush agarwal - The Reply = Respected Sethi Kalyani Sir, I would like to draw your attentions on bold letters on Circular 177/03/2014 ST dated 17th February, 2014 These doubts have arisen in the context of definition of 'agricultural produce' available in section 65B(5 ) of the Finance Act, 1994 . T he said definition covers 'paddy'; but excludes 'rice '. However, many benefits available to agricultural produce in the negative list [ section 66D(d) ] have been ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to rice, by way of appropriate entries in the exemption notification. Section 65(B) is definition of agricultural produce. The said circular clarify of definition of agricultural produce c overs 'paddy'; but excludes 'rice'. Word many benefits means most benefits and not all benefits. therefore only Transportation, loading, unloading, packing, storage and warehousing of rice are exempt from service tax being rice is food grain and these service are also exempted for agricultural produce. However, supplies of labours, supply of machinery towards rice or commission on sale of rice are taxable service under service tax for being food grain but these services would be EXEMPTED if rice would have been agricultural produce. Service relating to agriculture or agricultural produce by way of inter alia services provided by a commission agent for purchase or sale of agricultural produce are covered under clause (d) of section 66D. However, CBEC vide Circular 177/03/2014 ST dated 17th February, 2014 clarified definition of agricultural produce u/s 65(5) c overs 'paddy'; but excludes 'rice'. Hence sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of rice on commission basis will be taxable. Above views are mine interpetation. - Reply By Ganeshan Kalyani - The Reply = Out of my experience I would like to state that law is based on how you interpret it. It is also true that Gvt cannot be generous in giving away all benefits. But the law is always good in giving the best to its citizen. Hence I would request you accept the fact and enjoy the life. Thanks. - Reply By KASTURI SETHI - The Reply = w.r.t. Sh.Piyush Agarwal's views, I would like to further point out that Board's circulars have no statutory force. It is a fact that Act/Rules will prevail over circular. Jaggery has been declared as agriculture produce vide Board's circular No. B.11/1/2002/TRU dated 1.8.2002 and Notification No.8/2004-ST dated 9.7.2004 whereas it is manufactured product. Jaggery is manufactured out of sugarcane. Sugarcane undergoes so many processes i.e. crushing /squeezing by machine, boiling the juice, filtering and drying and then a new product is emerged.Jaggery cannot be agriculture produce like sugar which is manufactured product . Both circular and notification are still in force . This aspect has not been touc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed till date. Both should have either been amended or withdrawn from 1.7.12 keeping in view the changes/amendments in Service Tax at large scale effective from 1.7.2012 I mean to say Board's circular is challengeable and not final. The Apex Court has also held that Board's circular which is contrary to law is not binding on the departmental officers. Definition of 'agriculture' under Section 65 B(3) is also defective. rearing of all life-forms of animals, except the rearing of horses,-------------- Why the horses have been excluded from the definition of agriculture ? There are so many animals whose body parts or hair etc. are not useful at all and all those should have been excluded. What is the basis of excluding horses from the definition of agriculture ? This definition should also be amended and it will be amended only when SCNs are issued due to defective definition. Paddy is exempted and rice is taxable What is logic ? The ultimate purpose of exemption to paddy is defeated by excluding rice from the definition of agriculture produce. After all human beings eat rice which is major part of paddy and rice is food grain. bran of rice is also usefu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Husk is of no use. Circular is defective. - Reply By KASTURI SETHI - The Reply = Sh.Ganeshan Kalyani Ji, Board's circular dated 17.2.14 has created confusion and not Sh.Piyush Agarwal. However, all of three have given sufficient material (or you may say foundation) to SH. MARIAPPAN GOVINDARAJAN, (an architect of more than 1000 articles on this site alone) to write an article for onward transmission to the Board to dispel confusions. Ball is in his court now. . - Reply By Ganeshan Kalyani - The Reply = Fully agree with you. Thank you and thanks to Mr. Kunal Pawar who posted the initial query in this Issue ID and thanks to Mr. Piyush Agarwal for healthy discussion on the subject. Thanks for enriching my knowledge. - Reply By piyush agarwal - The Reply = Thank you Sethi Sir Kalyani Sir for sharing your knowledge with us. It was my pleasure to have great discussion with you all. Thanks. - Is milk an agriculture produce ? - Query Started By: - Kunal Pawar Dated:- 26-10-2015 Service Tax - Got 30 Replies - Service Tax - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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