Drilling of Borewells for supply of water in agricultural land is not ‘Support Service for agriculture

By Editor Goods and Services Tax Judiciary December 18, 2020

TaxGuru Citation: 2020 taxguru.in 2896
Case Name: In re Aravind Drillers (GST AAR Tamil Nadu)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: AAR Tamilnadu, Advance Rulings

Already Upgraded? Log in.

In re Aravind Drillers (GST AAR Tamil Nadu)

1. Drilling of Borewells for supply of water in agricultural land is not ‘Support Service for agriculture classifiable under ‘SAC 9986’ for the reasons stated in para 8.3 above

2. Letting out of compressors for pumping of water from the borewells to the agricultural field is not ‘Support Service for agriculture classifiable under `SAC 9986’ for the reasons stated in para 8.4 above

3. The above two activities of the applicant are not ‘Support service for agriculture’ classifiable under SAC 9986 and therefore the exemption at SI.No.54 of Notification No.12/2017-C.T.(Rate) is not applicable to the tivities of the applicant.

AAAR order: No GST exemption on Drilling of Borewells for supply of water for agricultural operations

FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TAMIL NADU

Note: Any appeal against this Advance Ruling order shall lie before the Tamil Nadu State Appellate Authority for Advance Rulings, Chennai as under Sub Section (1) of CGST Act / TNGST Act 2017, within 30 days from the date on the ruling sought to be appealed is communicated.

At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.

M/s. Aravind Drillers, 1, Kurinji Street Annamalai Nagar, Salai Road, Tiruchirapalli, Tamilnadu-620018 (hereinafter referred as ‘Applicant’) is registered under the GST vide GSTIN No. 33AAIPJ6250H1ZV. They have sought Advance Ruling on the following questions:

1. Whether the following supply of services provided by the applicant are in relation to agricultural operations directly in connection with raising of agricultural produce:

i. Drilling of Borewells for supply of water for agricultural operations like cultivation including seeding, planting and ploughing.

ii. Letting out of compressors for pumping of water from the borewells to the agricultural fields.

2. If the answer to the above question is in the affirmative, whether the said services are covered by the entry Sl.No54 of Notification 12/2017-CT(Rate) dated 28.06.2017

The applicant has submitted the copy of the application in Form GST ARA-01 and also submitted a copy of challan evidencing payment of application fees of Rs.5000/- each under sub-rule(1) of Rule 104 of CGST Rule 2017 and SGST Rules 2017.

2.1 The applicant has stated that they provide drilling of borewell services mainly to agriculturists engaged in raising of agricultural crops. Water is a part and parcel of essential requirements in cultivation and raising of agricultural crops. Likewise, compressors which are let out by them to agriculturists enable the motor to function and discharge water as required for cultivation and allied agricultural uses. They also obtain a confirmation letter from the agriculturist that the borewell drilled in their land is used only for the agricultural purpose.

2.2 On the Interpretation of Law, the applicant has stated that a plain reading of the relevant portion of the said notification supra is very clear and unambiguous in covering agricultural operations directly related to raising of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing. In their case the borewells drilled provides the required quantity of water for cultivation of agricultural crops. The supply of compressors which becomes a part of the motor, which pumps water from the borewells/wells for agricultural operations is inseparable from the activity of cultivation. Hence the said supply of service is squarely covered by the above entry.

3. Due to the prevailing pandemic situation and in order not to delay the proceedings, the applicant was addressed through the email address mentioned in their application to seek their willingness to participate in a virtual personal hearing in digital media vide email dated 06.07.2020. The applicant consented and the hearing was held on 13.08.2020. The authorized representative appeared and reiterated their submissions in the application. They were asked to produce the following:

1. List of compressors which is being let out

2. Sample documents for letting out/confirmation letter

3. Work order for drilling borewells/invoice raised in all categories

4. P&L Account or Balance sheets

4. In furtherance to the above Hearing, the applicant submitted the following documents on 11.09.2020 and 15.09.2020

i. Invoice No. 19-20/EX/016 dated 22.07.2019 raised on Raj endran for Drilling and Hire Charges for agriculture’ under the Description HSN 9986 along with Letter dated 22.07.2019 of Shri Rajendran addressed to the applicant stating the drilling of borewell in the agricultural land and that they intend to use well for agricultural purposes and document of Revenue Department to establish the ownership of the agricultural land with Shri. Raj endran ;

ii. ITR Acknowledgement for the Assessment Year 2019-20

iii. Profit & Loss Account for the year ended 31.03.2019;

iv. Balance Sheet as on 31.03.2019;

v. Invoice No. AD 19-20/10/024 dated 11.10.2019 raised on Aalif Farm, Pudukottai for ‘Drilling Hire Charges’ with CGST & SGST under the description HSN 995434;

vi. Invoice No. AD 19-20/08/020 dated 09.08.2019 raised on High Energy Batteries Ltd., Mathur for ‘Drilling Hire Charges’ with Output CGST & SGST under the description HSN 995434;

5. The applicant is under the administrative jurisdiction of State authorities. The State Jurisdictional authority vide their letter Rc.No. 520/2020/A4 dated 28.07.2020 has stated that

> Drilling of bore- well for supply of water for agricultural operations like cultivation including seeding, planting and ploughing are not covered by Notification 12/2017 CT(Rate)

> Drillers and Compressors are taxable under GST. The petitioner has invested to purchase the drillers and compressors from registered dealers and paid SGST and CGST. Hence they have received payments from customers for utilizing the drillers and compressors. Further, the Agricultural operations like cultivation including seeding, planting and ploughing will also be made through canal waters/rivers etc., Hence the petitioner has to pay the tax.

They have also stated that there is no show cause notice / issue pending adjudication in their office.

6. The Central jurisdictional authority vide their letter dated 13.08.2020 reported that there are no pending proceedings in the applicant’s case on the issues raised by the applicant in their ARA application in their jurisdiction.

7. Further, the applicant vide letter date 05.11.2020, was asked to furnish the list of compressors which is being let out as required in the virtual hearing held on 13.08.2020 and the applicant furnished the following details on 27.11.2020

i. Form of Registration Certificate of Registration No. TN 45 AQ 4752 in the name of Jayaraman J (Prop: Aravind Drillers) for the vehicle(Rig Earth Moving Equipment) fitted with Compressor

ii. Picture of the vehicle fitted with compressor

8.1 We have carefully examined the statement of facts filed by the Applicant along with application, oral and written submissions made at the time of Virtual hearings and the comments/remarks of the Jurisdictional Authorities. We find that the applicant carries on the borewell drilling for Individual houses, Commercial and Industrial buildings and for agricultural purpose. They also let out compressor for agricultural purpose on lease. The applicant has sought ruling on the following questions:

1. Whether the following supply of services provided by them are in relation to agricultural operations directly in connection with raising of agricultural produce:

i. Drilling of Borewells for supply of water for agricultural operations like cultivation including seeding, planting and ploughing.

ii. Letting out of compressors for pumping of water from the borewells to the agricultural fields.

2. If the answer to the above question is in the affirmative, whether the said services are covered by the entry Sl. No. 54 of Notification 12/2017 CT(Rate) dated 28.06.2017

The question is on the eligibility of the notification to their activities and therefore, the application is admissible under Section 97(2) of the CGST/TNGST Act 2017.

8.2 Having decided the eligibility of the application to be admitted, we take up the issues raised. The applicant carries on borewell drilling. From the documents furnished, it is seen that they raise invoice as ‘Exempted sales’ when the drilling is made for ‘Agriculture’ and in such cases, the invoice is raised classifying the services under SAC 9986 and no tax is charged. When the drilling is undertaken for Industries (other than agriculture), the invoice is raised as ‘Tax Invoice’, classifying the service under SAC 995434 and appropriate tax (CGST as SGST) is collected. The issue raised before us pertains to the ‘drilling and hire service for agriculture’, which the applicant classifies under SAC 9986 as ‘Support services for agriculture’. The contention of the applicant is that the borewells drilled provides the required quantity of water for cultivation of agricultural crops and the entry Sl.No.54 of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017 covers agricultural operations directly related to raising of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; the borewells drilled provides the required quantity of water for cultivation of agricultural crops.; the supply of compressors which becomes a part of the motor that pumps water is inseparable from the activity of cultivation and therefore is a `Support service for agriculture’.

8.3 The relevant entry of Sl.No. 54 Notification No 12/2017 is as below:

SI. No.

C’hapter,
Section,
Heading,
Group or
Service Code
(Tariff)

Description of Services

Rate (per cent.)

Condition

Heading 9986

Se c.c.s relating to cultivation of plants

Nil

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