9911796707
TMI Blog2024 (8) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... cy relationship between both the parties. While the Appellant is trying to project the entire gamut of operations as one cohesive supply, between AIF and SHELL, however, it is evident that the appellant is making different supplies to SHELL and different supplies to the Farmers. From a business point of view which is relevant to taxation matters, the appellant is engaged with the Farmers for the sole purpose of gaining the Carbon Credits which are to be transferred to their client viz., SHELL - The end result of the supply to the Farmers is the accruing of Carbon Credits. AIF then supplies these Carbon credits to SHELL on a Principal-to-Principal basis. Thus, it cannot be disputed that there are multiple supplies to different recipients. Whether those supplies can be clubbed together and be categorised as Composite Supply ? - HELD THAT:- The appellant is making some supplies to SHELL and some supplies to Farmers. The law envisages that for an act to be categorized as a Composite Supply there should be a Principal Supply with other naturally bundled supplies to a single recipient. Whereas, in the transactions narrated by the Appellant, the supply provided to the Farmers is a distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundation is social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small scale farmers. The Applicant is formed for social purpose to assist the people and society and rural development. The Applicant has entered into a Project Development Agreement ( Agreement ) with M/s. Shell Energy India Private Limited ( SEIPL ) where, as per Schedule 1 of the said agreement, Project has been defined as Afforestation, Reforestation and Revegetation (ARR) for Sustainable Agriculture and Land Management and Afforestation. The project will be undertaken in the state of Andhra Pradesh to increase productivity of privately held agricultural lands in 2 mandals of Integrated Tribal Development Agency, Paderu, District Alluri Sitharamaraju, covering an area of approximately 23,000 hectares and 20,000 farmers. The Appellant and SEIPL wish to collaborate together to ensure the long-term success of ARR Project in the establishment of plantations and sustainable economic development of local communities. The aforesaid mentioned agreement, SEIPL has agreed to support development of Appellant s ARR project by incurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the farmers, but are not limited to: - Project design and implementation Establishing landownership Community awareness, engagements, and mobilization in line with VCSCCB 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, animal husbandry . Questions raised with AAR Andhra Pradesh Question 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 time) having SAC code 9986. Question 2: If the answer is affirmative, whether taxable rate applicable would be NIL in term no. 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017. The Authority for Advance Ruling Andhra Pradesh in its orders in AAR No. 02/AP/GST/2024 dated 10.01.2024 held: Answer 1 : No Answer 2 : Does not arise. Aggrieved by the impugned order, the appellant has filed the present appeal on the following grounds. 2. Grounds of Appeal: THE APPELLANT HAS, VIDE THE GROUNDS OF APPEAL, ADDRESSED THE GROUNDS ON WHICH THE IMPUGNED ORDER HAS BEEN PASSED IN THE FOLLOWING MANNER: THE AUTHORITY FOR ADVANCE RULING HAS ERRED IN HOLDING THAT THE ACTIVITIES PERFORMED BY APPELLANT CANNOT BE CLASSIFIED AS SUPPORT SERVICES TO AGRICULTURE: The AAR has erred in concluding that the activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the SEIPL which includes the following services:- Project design, establishing ownership of land, Entering into agreement with land owners for undertaking the project and other ancillary activities Raising nurseries (cultivation, plantation, maintenance), procuring saplings including transportation of saplings and plantations Undertaking monitoring, maintenance and replacement of planted saplings and crops Providing GPS coordinates of plantation and maintaining GIS platforms Coordination with carbon consultant to achieve reduction in GHG as per the standards of VCS-CCB (verified carbon standard-Climate, community Biodiversity) which includes compliance with VCS-CCB requirements 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 carbon consultant Work closely with carbon consultant and provide any other information and data that may be required to help the carbon consultant undertake their role effectively. Discussions Applicability of Notifications The Appellant now wishes to discuss the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced below for ease of reference: 9986 Support services to agriculture, hunting, forestry, fishing, mining and utilities 99861 Support services to agriculture, hunting, forestry, and fishing 998611 Support services to crop production This service code includes i. services to improve the propagation quality of the seed, including treatment of genetically modified seeds; removal of non-seed materials, undersized, mechanically or insect-damaged and immature seeds; removal of seed moisture to a safe level for seed storage; drying, cleaning, grading and treating of seeds to be marketed; ii. post-harvest crop services such as preparation of crops for primary markets, cotton ginning services; iii. Other support services to crop production like tilling of fields preparatory to planting; planting, cultivation and fertilization of crops; spraying, including from the air; iv. pest control for agriculture; trimming of fruit trees and vines; transplanting and thinning of crops; harvesting; v. provision of agricultural machinery with crew and operators; operation of irrigation systems for agricultural purposes; vi. other services necessary for agricultural production; Crop production services on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinates of plantation and maintaining GIS platforms. These activities involve cultivation, plantation, maintenance, monitoring etc. The word Agricultural operations as mentioned in notification 11/2017-CT (R) is not been defined in the GST law and only an inclusive and indicative list of activities covered in such operations has been given. It has been defined as Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing . From the above, it can be noted that definition of agricultural operation is inclusive and restrictive in nature. Therefore, the meaning of agricultural operation is wider to cover other than listed operations like cultivation, harvesting etc. However, it should be directly linked to production of agricultural produce. Further, it is also to be noted that under erstwhile service tax regime (entry was same in negative list), the CBIC vide circular no. Circular: 189/8/2015-S.T. dated 26-Nov-2015 clarified that ancillary activities related to seed testing is also covered as agricultural operations directly related to agricultural produce. The present activities such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prepare appropriate statements, evidences etc. to capture the reduction in GHG. Further, this will also fulfill the requirements of verra for registering and obtaining the carbon credit. It is a support services provided by AIF to carbon consultant. In view of the above stated, it is submitted that the Appellant is providing multiple services under the agreement to SEIPL. From a perusal of the services being provided as explained above, it appears that the services being provided under the agreement would qualify as support services to agriculture . Judgments and other Rulings Applicant placed reliance in case of M/s. Vikas Centre For Development (Advance Ruling No. GUJ/GAAR/R/2022/50, dated 30th December, 2022). The question before the Gujarat authority is whether the activity of Afforestation, which includes the plantation of mangroves is exempted from GST under Sr. No.1 of Notification No.12/2017-CT (Rate). In this case, the applicant has sought for exemption under entry 1 of notification 12/20217 which provides exemption to an entity registered under 12AA of Income Tax Act by way of charitable activities. Although in the present case, the Appellant is not registered as entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he predominant nature of supply is Support service to agriculture for which the agreement was entered into between the Appellant and SEIPL. Other services such as project design, implementation, dealing with farmers, contract with farmers etc. are initial activities undertaken at the commencement of the agricultural operations to enable cultivation of plants, as without the said activities , it is not possible to commence the agricultural operations. Due to these facts, these services are support services to agriculture which will fall under the residual SAC code of 998619 (Other support services related to agriculture, hunting, forestry and fishing). The Appellant would like to submit that entry 24 read with SAC code 9986 which provides for support service covers not only direct agricultural operations but also pre and post agricultural activities also such as :- Pre-agricultural activities such as tilling of fields preparatory to planting Post-agricultural activities such as loading, unloading, warehousing, packing storage of agricultural produce, services by any agricultural produce marketing committee or services provided by commissioner agent for sale or purchase of agricultur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustainable agriculture and land management and afforestation to increase productivity of privately held agricultural lands. Further, in terms of the agreement, SEIPL has agreed to support the development of the Project by incurring expenses in relation to development and operational activities for the Project, with the intent to be granted full legal, beneficial and unencumbered title to 100% of the Verified Carbon Units (VCUs) generated by the Project and participate in the project governance as a non-operating party. The AAR has passed an observation that the Appellant is involved in trading of carbon credits without understanding the actual nature of the services which are being provided under the agreement by the Appellant to SEIPL. The Appellant submits that the AAR has failed to appreciate the fact that all carbon credits are being issued in the name of SEIPL by the farmers directly and that the Appellant is merely acting as a facilitator to ensure that the project is successfully carried out. The AAR wrongly understood the activity of the appellant as carbon trading. The AAR completely ignored the question for which the application is made and incorrectly assumed trading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut analysis of the services which are being provided under the Agreement. The AAR has completely disregarded the fact that the services which are being provided by the Appellant start from the identification of land on which the activities of afforestation and reforestation can be carried out. The AAR has passed the impugned order with a preconceived mind of rejection of the application filed before him. Further, the AAR also disregarded the fact that the carbon credits are actually issued in the name of SEIPL and not the appellant. The Appellant would like to draw the attention towards aforesaid relied Gujarat AAR ruling in case of Vikas Centre for Development. The Appellant would like to highlight in the case of Vikas Centre facts also, the ultimate objective of the planation of Mangrove trees is generation of carbon credit which will pertain to an overseas entity. However, the question before AAR was on taxability of activity rendered by applicant i.e., whether it would be treated as charitable activity. Accordingly, the AAR has pronounced the ruling of taxability of the activity under the agreement and not influenced about the generation of carbon credit. Service Scope in Detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, community engagement etc and the said activities do not fit in the definition of support services. The Appellant are in the nature of composite supply wherein the principal supply is that of support services to agriculture The term Composite Supply is defined under Section 2 (30) of Central Goods and Services Tax Act, 2017 (CGST Act) (30) composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply Illustration : Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply On perusal of the above definition, it is pertinent to note that for classifying a particular transaction as composite supply following conditions are required to be fulfilled: a) Supply should be made by a taxable Person b) Consisting of two or more taxable supplies of goods or services or both, or any combination thereof c) Supplies shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. It the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. for example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in the ordinary course of business are:- i. There is a single price or the customer pays the same amount, no matter how much package they actually receive or use ii The dements are advertised as a package iii The different elements are not available separately iv The different elements are integral to one overall supply. If one or more is removed, the nature of the supply would be affected. The Applicant has analyzed below whether multiple supplies under the present agreement can be treated as naturally bundled. 1.In the present contract, SEI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance are integral part of each other. It can be easily said that if one activity is removed other activities can't be performed. From the above discussion, the activities under the present agreement can be said to be naturally bundled. In conjunction with each other in the ordinary course of business- The supplies should be provided simultaneously at the same time or at the time of principal supply or just after the main supply. The goods or services or both provided as a package in ordinary course of business. Meaning, thereby it should be the practice of majority of traders/service providers to provide different elements of supplies as a package or bundle. In the present context, the applicant would provide the activities of project design, implementation, cultivation, maintenance of documents and sharing with carbon consultant etc. in conjunction with each other. Principal Supply In terms of 'composite supply definition, there has to a principal supply. A principal supply has been defined under section 2 (90) of the CGST Act as the supply of goods or services which constitutes the Predominant clement of a composite supply and to which any other supply forming part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort services to agriculture, forestry, fishing, animal husbandry. Explanation . 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 agricultural produce by way of (a) agricultural 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the authority must specify the reasons basis which the decision has been passed. A speaking order or a reasoned order means an order speaking for itself by giving reasons. The party affected must know why and on what grounds an order has been passed against him. It is now settled that passing of a speaking order is another important requirement of principle of natural justice [see ACCT vs Shukla Brothers 2016 (46) STR 3 (SC), para 9]. The principles of a reasoned order were summarized by Hon ble Supreme Court in Kranti Associates Pvt Ltd vs Masood Ahmed Khan and Ors. [MANU/SC/0682/2010], the decision was quoted with approval in Oryx Fisheries Private Limited vs UOI [2011 (266) ELT 422 (SC)], quoting relevant extracts: 41. In M/s. Kranti Associates (supra), this Court after considering various judgments formulated certain principles in para 51 of the judgment which are set out below: (a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. (b) A quasi-judicial authority must record reasons in support of its conclusions. (c) Insistence on recording of reasons is meant to serve the wider pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, at 562 para 29 and Anya v. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, adequate and intelligent reasons must be given for judicial decisions . (o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of Due Process 3. Personal Hearing: The proceedings of hearing were conducted through video conference on 21.03.2024. The authorized representative Sri. Aman Goyal, Chartered accountant, attended and reiterated the submissions already made. 4. Additional Submission: A. The Appellant Would Like To Submit That Farmers Directly Transfer The Carbon Credit To The Investor (I.E., Shell Energy India Pvt Ltd). A.1 During the course of personal hearing, your good authorities sought clarification with regard to transfer of carbon personal hearing that the farmers directly transfer full legal, beneficial and unencumbered title to 100% of the Verified Carbon Units (VCUs) generated by the Project to Shell Energy India Markets Private Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submits that the carbon credits generated from the project is directly transferred to the investor of the project (i.e., Shell Energy India Pvt Ltd). On account of the volume of the transaction, quantum of farmers involved and relationship of the appellant with farmer, the appellant is entering into the agreement. However, the rights in 100% carbon credit gets transferred from farmer to the investor directly and no right or benefits thereof accrue to the appellant. The object to the appellant is to provide support services relating to agriculture including plantation of saplings, cultivation, monitoring etc. B. The Appellant Would Like To Submit The Breakup Of Cost Of The Project B.1 During the course of personal hearing, the appellant submits that significant portion of the (approximately 70-75%) of the total cost of the project comprises of purchase of seeds, sampling, farm tools and labour, training to farmers ete. In this regard, your good authority sought for breakup of the total cost of the project with major heads. B.2 With regard to the above, the total estimated cost of the project cost is INR 189 Cr and the indicative breakup is as follows:- Sl.No Particulars Descriptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of (a) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; C.2 In relation to the above, the appellant submits that the meaning of the word relating to and including before you good authorities. Relating to Delhi CESTAT in case of M/s Kailash Deubuild India Put Ltd [2023-VIL-1349-CESTAT-DEL-ST] held that the expression 'services relating to transmission of electricity' has a wide ambit and includes the services of installation of transmission towers for electricity. Therefore, it can be noted that in the present case, entry no. 24 as mentioned above specified that Services relating to cultivation of plants .. and hence the wide meaning needs to be given to this. Further, reliance can be placed in case of Tamilnadu Kalyana Mandapam Association u. Union of India, 3 STR 2бо: (2006) 4 STT 308 (SC), wherein it was held that the phrase, 'in relation to' has to be construed to be of widest amplitude. The scope of words, 'in relation to' is very wide Including The word 'includes' or 'including' gives a wider meaning to the words or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management and Afforestation to increase productivity of privately held agricultural lands in 2 mandals of Integrated Tribal Development Agency, Paderu, District Alluri Sitharama Raju, covering an area of approximately 23,000 hectares and circa 20,000 farmers, Project. D AIF and Shell wish to collaborate together to ensure the long-term success of AIF Project in the establishment of plantations and sustainable economic development of local communities. E Shell has agreed to support the development of the Project by incurring expenses relating to development and operational activities for the Project, with the intent to be granted the full, legal, beneficial and unencumbered title to 100% of the VCUs generated by the Project and participate in the project governance as a non-operating party. F AIF wishes to be the Project Proponent, Developer and Operator of the Project in India, implementing and coordinating all required operational activity under the oversight of the Joint Coordination Committee under the terms of this Agreement. 5.3 Further, Para 3 of the said Agreement lays down the Acknowledgements, Representations and Warranties as follows: 3. Acknowledgements, Representations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planted saplings and crops; Providing GPS co-ordinates of plantation and maintaining GIS Platforms, etc. The end result of the supply to the Farmers is the accruing of Carbon Credits. AIF then supplies these Carbon credits to SHELL on a Principal-to-Principal basis. Thus, it cannot be disputed that there are multiple supplies to different recipients. The Appellant is now seeking clarification as to whether those supplies can be clubbed together and be categorised as Composite Supply . 5.8 Composite Supply is defined under Section 2 (30) of the CGST Act as - (30) composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply The essential requirements for a supply to be treated as Composite Supply are as follows: (i) it should be a supply by a taxable person to a recipient (ii) consisting of two or more taxable supplies of goods or services or both (iii) which are naturally bundled and supplied in conjunction with each other (iv) in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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