9911796707
TMI Blog2024 (2) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... that the services said to have been undertaken by the appellant are nowhere in tune with the agricultural support services and are mostly independent activities. The worker or activities undertaken by the appellant as per agreement viz., project during doesn t fall under the support services to agriculture under SI. No.2 4 of Heading 9986 of Notification No. 11/2017-Central Tax(Rate), dated 28th June, 2017. - SRI. K. RAVI SHANKAR, AND SRI. B.LAKSHMI NARAYANA, MEMBER Represented by : Debasis Nayak, Director ORDER (Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub-section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017) 1. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and SGST Act, 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the APGST Act. 2. The present application has been filed u/s 97 of the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the projects relating to sustainable livelihoods of small/marginal farmers and farming communities, to implement sustainable agricultural land-use management, promoting a bio-friendly landscape transformation that leverages the traditional knowledge of composting, rotational cropping, intercropping that improves soil fertility, to provide expertise and training to small/ marginal famers and farming communities in growing pulses, cereals, fruits, vegetables and any other crops or produce organically, to undertake and develop agroforestry and carbon sequestration projects that helps in positive climate change and reducing GHG emissions and/or with a view to increase the income levels and livelihoods of small/marginal farmers and farming communities, to provide guidance and technical inputs to engage small/marginal famers and farming communities in animal husbandry and diary development that improve their income levels and livelihoods. The Applicant has enclosed memorandum of association and article of association which depicts the detailed objects of applicant as Annexure-B The Applicant has entered into a Project Development Agreement ( Agreement ) with M/s. Shell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding skill in plantation process from seed collection to full establishment of plantation, promoting marginalized communities etc. (4) Social and economic benefits to farmer families by recognising the effort of women members of the family in agriculture work; ensuring equal participation of women and men in all community meetings and knowledge transfer sessions; access for women to high quality regenerative agriculture trainings; supporting women to open bank accounts etc. The project contributes to the conservation of local bio-diversity by creating and maintaining diverse ecosystems through agroforestry, benefiting both plant and animal species. The adoption of regenerative agriculture practices, including the use of scientifically developed compost, mulehing, and green manuring, ensures long-term soil health and sustainable crop production. Diversifying crop cultivation with native crops like millets enhances food security, as these crops are resilient to changing environmental conditions. Improved livelihoods for local farmer families through increased crop yields, reduced input costs, and enhanced access to diverse food sources. The establishment of market linka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Project as per the advice of the carbon consultants and Shell for preparation of the PDD, validation and verification of the project as per the MRV protocols required by VERRA. Entering into agreement with landowners for undertaking the project and transfer of 100% carbon credits. Raising nurseries and procuring saplings as per the agreed species including transportation of saplings, land preparation, pit digging and plantation as per agreed densities Providing GPS for plantation and maintaining the GIS platform with the details such as area, plots, plantation etc. Undertaking monitoring, maintenance, and replacement (for early mortalities) of the planted saplings and crops Providing all support to the carbon consultant as necessary to file reports with Verra, issuance of credits, etc. Providing any other relevant data (such as planting locations, species planted, community data, photographs etc.) as requested by the carbon consultant Work closely with the Carbon Consultant and provide any other information and data that may be required to help the Carbon Consultant undertake their role effectively Reporting on the physical and fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices are contemplated in as a bundle. In such scenario, CGST Act provides for the concept of 'composite supply' to determine the taxability of such bundled transaction and to provide certainty in respect of tax treatment under GST for such supplies. Further, it can be noted that activities performed by the applicant is in the nature of planation and growing trees which is related to agriculture. Serial No. 24 of Notification No. 11/2017-CGST (Rate) dated June 28, 2017 (amended time to time)provides nil rate of rate for Support services to agriculture, forestry, fishing, animal husbandry . Therefore, it is relevant to determine the nature of supply and applicability of nil rate of tax for the present activities performed by the applicant. 4. Questions raised before the authority: The applicant seeks advance ruling on the following: 1. Whether the activities of the applicant under the agreement can qualify as 'composite supply under GST law with Principal Supply as Support services to agriculture, forestry, fishing, animal husbandry as provided in the Sl. No. 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017 (as amended time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like operation of a crop production unit on a fee or contract basis This service code does not include: This service code does not include: - formation and clearance of agricultural land, cf. 995432 - services provided by agronomists and agricultural economists, cf. 998311 - water distribution services through mains (on a fee or contract basis), cf. 998633 998619 Other support services related to agriculture, hunting, forestry and fishing This service code includes other support services related to agriculture, hunting, forestry and fishing, n.e.c.* The Applicant would like to highlight that Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017 which provides rate of tax also provides an explanation with regard to meaning of Support Services to agriculture, forestry, fishing, animal husbandry . The applicant has extracted the same below for reference:- Support services to agriculture, forestry, fishing, animal husbandry mean.- I. Services relating to 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 or agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the agreement Classification of Services Project design Establishing ownership of land Entering into an agreement with landowners for undertaking the project and other ancillary activities These are the initial activities undertaken at the commencement of the agricultural production to enable cultivation of plants as, without the said activities, it is not possible to commence the agricultural operations. This will allow to identify the optimal plantation densities and plant size for the future scope of the Project. These activities, being essential for cultivation may be termed as agricultural operations in relation to agricultural produce. Further SAC code of 9986 carries a residual entry of other support services related to agriculture etc. n.e.e. to include in its ambit, all such activities which are in the nature of support of agricultural operations The aforesaid activities are instrumental to the production of agriculture produce, and hence, ought to be categorized as incidental and ancillary for undertaking agricultural operations. Raising nurseries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otection. In view of the above, the listed activities can be termed as Support Service to agriculture under SAC code 99861 Further, the activity under this category also includes procurement of saplings, fertilizers, farm inputs, seeds etc. which are inputs to such activity and hence these can be categorized as supply of goods ancillary to the main activity of agriculture. In order to obtain certification for carbon credits and scrips from the registry, the project needs to be in compliance with VCS-CCB requirements. In order to perform above services, the carbon consultant (a sperate third party) would require various data and information. In relation to this, the applicant would provide carbon consultant with relevant information, statements and documents related to planation such as growth of the plant etc. From the nature of the activities, it can be noted that in order to provide the information, documents as per the VCS-CCB standard, the applicant needs to prepare appropriate statements, evidences etc. to capture the reduction in greenhouse gas (GHG) remission. Further, this will also fulfill the requirements of certifying age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsisting of two or more taxable supplies of goods or services of bath, or any combination thereof Two or more taxable supply is necessary to constitute a composite supply. Taxable supply is defined to mean a supply of goods or services or both which is leviable to tax under this Act; In the present case, as explained above in detail, there are multiple taxable supplies involved:- Support service relating to agriculture Procurement of goods such as saplings, seeds, fertilizers Other Support service relating to agriculture Creating documentation of GHG reductions in complying with VCS-CCB standards and sharing such info as necessary Supplies should be naturally bundled The term naturally bundled is not defined in the GST Law. However, two supplies can be considered as naturally bundled if one is a principal supply and other supply which is ancillary to make the principal supply more effective, more convenient, more comfortable, more useful, and more enjoyable. As per the GST Flyer issued by CBIC, whether services are bundled in the ordinary course of business would depen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tree is GHG reduction. In order to achieve this objective, main activity is plantation and maintenance of crops/tree during entire life cycle of the project. Therefore, the activities like project design, implementation, coordination with farmers, agreement with farmers, purchase of saplings, fertilizers etc. can be said as incidental or ancillary for better enjoyment main service i.e., support service relating to agriculture. Implementation, coordination with farmers, agreement with farmers, purchase of saplings, fertilizers etc. can be said as incidental or ancillary for better enjoyment main service i.e., support service relating to agriculture. The main role of AlF is to provide cultivation, planation, monitoring and maintenance services of crops/plants. Therefore, other services like project design, implementation, coordination with farmers, agreement with farmers are incidental to provide main supply. 3. In case of nature based solution business, the applicant would not advertise the entire gamut of supplies as package but customize the same basis the requirement of the service receiver. However, the main activity or recurring activity for AlF would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under a contract and other supplies are ancillary to that supply. In the present context, support services relating to agriculture constitutes predominant element of composite supply. This is also due to the fact that entire contract is dependent on cultivation of plant. Other activities like project design, implementation, dealing with farmers, contract with farmers, procurement of sapling is ancillary or incidental to the main supply Further, it can be noted that out of the total project cost, majority of the cost is budgeted for cultivation, planation, maintenance and monitoring the growth of the plant/trees. Therefore, it can be concluded that the principal supply among the various activities under the contract is the support services to agriculture and other supplies are ancillary or incidental to the main supply. From the above tabulation, it can be noted the present activities of the applicant qualifies as composite supply with principal supply as Support Services to Agriculture and other activities as incidental or ancillary to the principal supply. The Applicant would like to place reliance in case of rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posite and mixed supplies. 8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and In terms of Section 8 of CGST Act, tax liability in case of composite supply shall be determined in terms of Principal supply. In the present case, support services relating to agriculture is a principal supply and other activities like project design, implementation, dealing with farmers, contract with farmers, procurement of saplings, seeds, maintenance of documents and sharing with carbon consultant etc. are incidental or ancillary to the main supply. Applicable Rate of Tax The Applicant would like to refer Notification No. 11/2017-CGST (Rate) dated June 28, 2017 (amended time to time) which provides rate of tax for supply of services under CGST Act. Serial No. 24 of Notification No. 11/2017-CGST (Rate) provide tax rate for the followings: It can be noted from the above rate notification that the tax rate on 'Support services to agriculture' is NIL. As discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; (b) supply of farm labour; (c) 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 the essential characteristics of agricultural produce but make it only marketable for the primary market; (d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; (e) loading, unloading, packing, storage or warehousing of agricultural produce; (f) agricultural extension services; (g) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce. (ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by a commission agent for sale or purchase of agricultural produce. II. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. III. Carrying out an intermediate production process as job work in relation to 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 or agricultural produce. They have submitted the list of activities taken up by them as per agreement and relayed on the following services. Project design and implementation Establishing landownership Community awareness, engagements, and mobilization in line with VCS-CCB requirements including undertaking all data collection, surveys on climate, community and biodiversity to establish baseline and for periodic monitoring reports including necessary data collection and monitoring of the Project as per the advice of the carbon consultants and Shell for preparation of the PDD, validation and verification of the project as per the MRV p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saying it's a social enterprise. But, behind this seemingly good intention, their main goal is to make a profit from trading carbon credits. They want to benefit from support services to maximize their gains. Understanding the legal situation around carbon credit trading is complex. It involves knowing the ever-changing rules. Figuring out if the appellant should get a tax break becomes tricky due to the misalignment in how they fit into the support services category. Furthermore, the Central Government, as delineated in Circular No. 34/8/2018-GST dated 01.03.2018, has issued elucidations concerning the categorization of priority sector lending certificates (PSLCs). The circular underscores the analogy between PSLCs and renewable energy certificates (RECs), explicitly asserting that PSLCs should not be construed as securities. Consequently, they are subjected to Goods and Services Tax (GST) under the residual head. It is pertinent to highlight the intrinsic resemblance between carbon credits and RECs. In alignment with this, Circular No. 46/20/2018-GST dated 06.06.2018 provides additional clarification, stipulating that RECs, PSLCs, and such analogous instruments attract GS ..... X X X X Extracts X X X X X X X X Extracts X X X X
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