GST AAAR Andhra Pradesh Ruling on Composite Supply for Carbon Credits

In re Archipel India Foundation (GST AAAR Andhra Pradesh)

The GST AAAR Andhra Pradesh recently upheld the Authority for Advance Ruling’s (AAR) decision regarding the classification of transactions undertaken by Archipel India Foundation (AIF) in collaboration with Shell Energy India Private Ltd (SEIPL). The central issue of the appeal was whether the transactions involved in AIF’s project were to be considered a “Composite Supply” under the Goods and Services Tax (GST) law. The project in question involves afforestation, reforestation, and sustainable land management activities aimed at enhancing agricultural productivity and generating carbon credits.

The Agreement between AIF and SEIPL outlines a collaboration where SEIPL supports the AIF project by covering development and operational costs with the goal of acquiring carbon credits. In return, SEIPL gains full legal ownership of the carbon credits generated by the project. The project is designed to improve land management and increase productivity for farmers in Andhra Pradesh. Under this agreement, AIF is responsible for implementing the project and managing various operational aspects, while SEIPL’s role is to provide financial support and obtain carbon credits.

During the review, the AAAR scrutinized the nature of the supplies made by AIF to both SEIPL and the farmers. It was noted that AIF’s services were divided into two main streams: one directed towards SEIPL, involving project design and carbon credit coordination, and the other towards farmers, involving practical support such as sapling procurement, plantation, and maintenance. The key question was whether these multiple supplies could be classified as a single “Composite Supply” under GST law.

The AAAR concluded that the transactions between AIF and its two distinct parties—SEIPL and the farmers—did not meet the criteria for a “Composite Supply” as defined under Section 2(30) of the CGST Act. According to the Act, a Composite Supply must involve two or more taxable supplies that are naturally bundled and supplied together to a single recipient, where one of the supplies is the principal supply. In this case, AIF’s transactions were distinct and separate: supplies to SEIPL and supplies to farmers were separate and did not constitute a bundled supply to a single recipient.

The AAAR’s decision emphasized that AIF’s transactions could not be categorized as a “Composite Supply” due to the distinct nature of the interactions with SEIPL and the farmers. As such, the question of identifying a principal supply within a composite supply framework became irrelevant. The ruling affirmed that the supplies made by AIF were not bundled in the manner required for classification as a Composite Supply under GST law. Thus, the AAR’s initial ruling was upheld, confirming that the transactions did not fit the definition of Composite Supply and were correctly assessed.

Read AAR Order: GST on Composite Supply for Agriculture, forestry, fishing & animal husbandry Support Services

FULL TEXT OF THE ORDER OF APPELLATE  AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH

(Under Section 101 of the Central Goods and Service Tax Act and the Andhra Pradesh Goods and Service Tax Act).

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

The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and APGST Act”] by M/s. Archipel India Foundation (herein after referred to as the “Appellant”) against the Advance Ruling No. AAR No.02/AP/GST/2024 dated 10.01.2024 issued by Authority for Advance Ruling, Andhra Pradesh.

1. Background of the Case:

Appellant in Brief

• The applicant, M/s. Archipel India Foundation 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 longterm 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 expenses related to development and operational activities of the project with intention to be granted the full rights and title to 100% of the Verified Carbon Units (hereinafter referred as ‘VCU’) generated by the Project and participate in the project governance as a non-operating party.
• The Appellant is the Project Proponent, Developer and Operator, implementing and coordinating all required operational activity under the oversight of the Joint Coordination Committee under the terms of this Agreement.

Business Activity in Brief

The Appellant wishes to refer to the scope of services to be performed under the Agreement as follows:

Page 4 of the agreement – Definition

AIF Service Obligations means the services (and related obligations) for the establishment, management and delivery of the Project listed in Schedule 1 (AIF Service Obligations) and undertaken by AIF in accordance with this Agreement, including Sustainable Agriculture and Land Management, Forest Management and Carbon Management Activities.

Page 20 of the agreement – Project development and operations

• • AIF shall implement the Project as set out in, and in accordance with, each Project Description in Schedule 1 and any other requirements as may be communicated to AIF by the Joint Coordination Committee from time to time.
  • AIF shall be solely responsible to manage and maintain the relationships with farmers and local communities throughout the Project Duration, undertake any operational activities that may be required to support farmers on ground in plantation required activities and enter into relevant agreements with landowners to ensure transfer of 100% carbon credits to Shell.
  • AIF shall provide all the necessary information and support to the Carbon Consultant appointed by Shell to manage requirements of VCS and CCB standards (including but not limiting to PDD, Monitoring report etc.) as detailed in Schedule 1

Terms of Schedule 1

In terms of Schedule 1- (Project Description) of the Agreement, the appellant wishes to submit that roles and responsibilities of the appellant as follows (Page 48 & 49 of the Agreement):-

AIF will act as a Project Proponent, Developer and Operator in implementing and coordinating all required operational activity and will provide its services to carry out ARR project. Responsibilities of AIF includes all activities in the level of field actions including relationships with 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 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 financial progress of the Project

The Appellant wishes to submit the following in relation to billing and milestones aspects basis the agreement

• • The detailed milestone plan will be approved by Joint Coordination Committee in quarterly meetings. Disbursement of funds will be basis achieved milestone every quarter.
  • The Appellant shall submit properly specified invoices for all payments to be by SEIPL to AIF under this Agreement on quarterly basis.
  • The Appellant shall, on a quarterly basis issue a written request to SEIPL (Cash Call) for an advance of an amount that is equal to Appellant’s total budgeted expenditure (inclusive of all Operating Expenses) for the next quarter after adjusting for any prior unused advances funded.
  • The Appellant needs to invoice SEIPL in INR currency, 30 days prior to start of next quarter and SEIPL to make payment on Day 1 of the quarter.
  • The Cash Call is linked to the completion of agreed milestones. In case a milestone is incomplete or unachieved, both parties will review and agree on the timing and amount of the next cash call.
  • A detailed quarter wise budget for the first three years shall be provided to SEIPL and SEIPL shall approve the Annual Budget before the end of each year. If SEIPL does not approve, then the last approved Annual Budget shall continue until the said Annual Budget is approved.
  • From the roles and responsibilities of the Appellant under the agreement, it can be noted that multiple components of goods and services 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 primary activities performed by the Appellant is in the nature of planation and growing trees which is related to agriculture. Serial No. 24 of Notification 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”.

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 activities performed by the Appellant cannot be classified as support services to agriculture. The relevant paragraph of the Impugned Order is reproduced below for ease of reference.

The activities required to be undertaken for the purpose of achieving the Project Objectives are not purely related agricultural activities but also involves activities such as Project Design, Carbon Accounting, Validation, Monitoring, Reporting and Verification, Project Administration, Project Operations, Biodiversity Impact Assessment, Community Engagement etc., We found that such activities doesn’t quite fit the definition of support services 9986”.

“It is pertinent note 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”.

“Hence, in view of the above, 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.24 of Heading 9986 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017“

The Appellant and SEIPL have entered into a project development agreement. Under the said agreement, the term, “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 Sitharama Raju, covering an area of approximately 23,000 hectares and 20,000 farmers. With the help of this project, various benefits will accrue such as economic benefits to farmers, environmental benefits such as reduction of soil erosion etc., social benefit by way of skill development and social and economic benefits to marginalized section of communities and farmers.

Further submits that the project contributes to the conservation of local biodiversity 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.

It is further submitted that Appellant will provide multiple services to 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 relevant extracts of Notification 11/2017-Central Tax (Rate) dated June 28, 2017 (hereinafter referred as Notification 11′) which prescribes the rate of tax for various services.

Entry 24 of Notification 11 provides rates of tax for heading 9986 which relates to “Support Services to agriculture, forestry, fishing, animal husbandry”, the same has been extracted below for ease of reference

Sl.No	Chapter, Section or Heading	Description of Service	Rate (per cent.)	Condition
24	Heading 9986	(i) Support services to agriculture, forestry, fishing, animal husbandry. Explanation. – “Support services to agriculture, forestry, fishing, animal husbandry” mean – (i) Services relating to cultivation ofplants 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 or Board or services provided by a commission agent for sale or purchase of agricultural produce. (ii) Services by way of preconditioning, 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. 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.	Nil	–

The Appellant also wishes to refer to the explanatory notes to service codes. The relevant extract of Heading 9986 is reproduced 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 inputs owned by others like operation of a crop production unit on a fee or contract basis

This service code does not include:-

– formation and clearance of agricultural land, cf. 995432

– services provided by agronomists and agricultural economists, cf. 998311

– other pest control services, cf. 998531

– 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 Appellant submits that from perusal of explanatory notes and meaning of support services to agriculture, it is worthwhile to note that an activity would qualify as ‘support services to agriculture’ if the activity is related to cultivation of plants for food, fibre, fuel, raw material or other similar products or agricultural produce by way of agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant production or testing.
• It is further submitted that in order to categorize an activity as agricultural support services, it is necessary to substantiate that agricultural operations should be linked to production of any agricultural produce including cultivation, harvesting etc.
• In view of the above, the Appellant has tabulated the scope of work and linked the same with the classification of services:

Activities as per the agreement	Classification of Service
> 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 before start of the cultivation of plants. These activities may not be termed as agricultural operations directly in relation to agricultural produce. However, SAC code of 9986 also carries a residual entry of other support services related to agriculture etc. not elsewhere classified. Therefore, these initial activities although not directly related to production of agriculture produce, but can be considered as incidental and ancillary for undertaking agricultural operations.
> Raising nurseries > Procuring saplings (agreed species) 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.	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 cultivation, transportation of sapling, cultivation, ensuring irrigation and appropriate fertilizers, pest control, monitoring, maintenance would qualify as agricultural operations directly related to agricultural produce. Further, the GPS tracking activities of plantation etc. can also be said as ancillary to plant protection. 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
Coordination with Carbon Consultant to achieve reduction in GHG as per the standards of VCS-CCB. This includes the followings activities: > Compliance with VCS-CCB requirements (Verified Carbon Standard – Climate, Community & Biodiversity) > 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 maybe required to help the Carbon Consultant undertake their role effectively	In order to generate carbon credit and obtain certification and scrips from the registry, the project needs to be in compliance with VCS-CCB requirements. Further, in order to register the project in accordance with Verra Carbon Standard (VCS), the carbon consultant needs to prepare and submit various baseline reports, Project Development Document(PDD), field audit for validation and verification of carbon credit. In order to prepare the above reports to be submitted with registry, the carbon consultant would require various data and information. In relation to this, the appellant would liaison with and assist carbon consultant in providing relevant information, statements and documents. It can be noted that the appellant will work on ground and will the best position to provide the requisite information to the carbon consultant such as details of plants, documents 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 appellant needs 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 entity under 12AA of Income Tax Act, however the discussion and findings of the AAR is relevant.

The facts of the case is similar to the present facts of the Appellant except 12AA registration. The AAR held that the activity of the applicant i.e., planation of Mangroves is having a benefit for environment, social and economic. The AAR held the activities of the applicant relating to Afforestation, which includes plantation of mangroves are activities relating to “preservation of environment” and accordingly will qualify as charitable activity.

The above ruling emphasizes the activity of the applicant which is preservation of environment.

The Appellant in this regard places reliance on the decision of Karnataka Advance Ruling Authority in the Application filed by M/s. Avani Infosoft Private Limited [KAR ADRG 28/2022 dated 12 August 2022] wherein the question before the authority was whether services provided by Applicant is covered under agricultural extension services and hence exempted in terms of Entry no 57 of Notification 9/2017.

The Hon’ble AAR authority observed that the scope of the applicant under the contract is as follows:-

• • Promote Tree Based Agriculture as guided by Cauvery Calling
  • Farmer enrolment and Demand collection
  • Support farmers with sapling pickup from nurseries
  • Conducting proof of planting surveys
  • Conducting proof of survival surveys
  • Inventory tracking at nurseries
• The Hon’ble AAR authority held that the applicant, through mara mitras, provides education and training to the farmers for cultivation of plants / trees, by applying scientific research and knowledge which qualifies as agricultural extension services as per the definition. All the other activities of the applicant carried out through mara mitras from selection of saplings to assisting in transportation & planting, to monitoring the survival of plants are related to agricultural extension activity. Thus, the services of the applicant are covered under agricultural extension services. Therefore, it can be noted that the authority relied on main activity of the applicant which is providing education and training to farmers.
• The above ruling also recognized that the predominant nature is agricultural extension services and other activities are related to and supportive of agricultural extension services.
• The Appellant most humbly submits that in the case of the Appellant as well, the 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 agricultural produce.
• Therefore, pre-agricultural activities rendered by the appellant such as project design, establishing ownership with farmers etc, will also qualify for support service to agriculture. Similarly, post-agricultural activities i.e., providing the requisite details and documents to carbon consultant will also form part of support service to agriculture.
• In view of the foregoing, the applicant submitted that the AAR has erred in concluding that the activities performed by the Appellant cannot be classified as support services to agriculture.

THE AAR ERRED IN CONCLUDING THAT THE APPELLANT IS INVOLVED IN TRADING OF CARBON CREDIT

“The appellant’s participation in the realm of carbon credit trading, on examination of records, stands as evidence of a significantly prove that the appellant is a commercial enterprise. Carbon credit trading, where the appellant is involved is a big business on commercial lines . We noticed this by carefully looking at their records. This shows us a significant commercial operation. The activities required to be undertaken for the purposes of achieving the Project Objectives are not purely related agricultural activities but also involves activities such as Project Design, Carbon Accounting, Validation, Monitoring, Reporting and Verification, Project Administration, Project Operations, Biodiversity Impact Assessment, Community Engagement etc., We found that such activities doesn’t quite fit the definition of support services 9986”.

“To understand this legally, we need to look at what the appellant is really trying to do. It seems they want to make it look like they’re doing good things for the environment, like planting trees. They’re 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”

• In this regard, the Appellant wish to reiterate the fact that Appellant SEIPL have entered into the agreement to carry out ARR (Afforestation/ Reforestation/ Revegetation) project in the state of Andhra Pradesh on sustainable 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 nonoperating 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 carbon credit which nowhere related to the question before him.
• The appellant is not even involved in trading of carbon credit trading. Assuming without admitting also, the question before the AAR was on taxability of the agricultural support services and not taxability of carbon credit trading.
• It is further submitted that the Impugned order has been passed on the basis of the end result of the project which is carbon credit units earned from the project. The AAR while passing the Order has ignored the essence and purpose of the agreement and scope of the appellant. Thus, it is reiterated that the main purpose with which the Appellant has been set up and the purpose of the Project was to contributes to conservation of local biodiversity by creating and maintaining diverse ecosystems through agroforestry, benefiting both plant and animal species which includes 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.
• It is submitted that for the purpose of fulfillment of the obligations of the project, the Appellant has performed many activities under the project which includes raising nurseries, enter into agreement with landowners for undertaking the project, monitoring and maintenance of planted saplings and crops etc and providing support to the consultant etc.
• The AAR has observed that the Appellant’s strategy of aligning with environmental initiatives while also aiming for profit is intentional. However, the AAR has failed to appreciate the fact that the Appellant is a social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small scale farmers including in India. Without prejudice, the Appellant would like to submit that even assuming the motive is profit then also the AAR need to apply the principles of GST law in order to arrive a conclusion on taxability of activity under the agreement. By simply mentioning that the objective is profit, it can be preclude the authority to apply principles of GST law i.e., levy, supply, composite supply etc.
• In view of the foregoing submissions, it is submitted that the AAR has proceeded to pass the Impugned Order without proper appreciation of the terms and conditions of the agreement and without 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 Detail

• The Appellant also wishes to refer to the scope of services to be performed under the Agreement as follows:

As per Page 20 of the agreement- Project development and operations:

Para 5.8. AIF shall be solely responsible to manage and maintain the relationships with farmers and local communities throughout the Project Duration, undertake any operational activities that may be quired to support farmers on ground in plantation required activities and enter into relevant agreements with landowners to ensure transfer of 100% carbon credits to Shell.

Para 5.9. AIF shall provide all the necessary information and support to the Carbon Consultant appointed by Shell to manage requirements of VCS and CCB standards (including but not limiting to PDD, Monitoring report etc.) as detailed in Schedule 1.

Page No. 3 AIF will act as a Project Proponent, Developer and Operator in implementing and coordinating all required operational activity and will provide its services to carry out ARR project. Responsibilities of AIF includes all activities in the level of field actions including relationships with the farmers.

Page No. 3 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.

• From the above, agreement between the appellant and SEIPL it is quite clear that SEIPL will incur expenses related to the development and operational activities for the project. Further, the carbon credits issued after the completion of the project would be issued in name of SEIPL. Thus, by no stretch of imagination, it can be said that the Appellant is involved in trading of carbon credits. Thus, the observation passed by the AAR is without proper appreciation of facts.

THE AAR ERRED IN CONCLUDING THAT APPELLANT IS PERFORMING VARIOUS ACTIVITIES WHICH ARE NOT PURELY RELATED TO AGRICULTURE

The activities required to be undertaken for the purpose of achieving the project objectives are not purely related agricultural activities but also involves activities such as project design, carbon accounting, validation, monitoring, reporting and verification, project administration, project operations, biodiversity impact assessment, 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 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 should be naturally bundled

d) Supplies shall be in conjunction with each other in ordinary course of business

e) There should be a principal supply

The Applicant has tabulated analysis of each of the conditions and their applicability in the present contract below:-

Table -2

Condition	Analysis	Present Case
Supply should be made by taxable Person	Composite supply can be effected only by a person who is registered or liable to be registered under GST Law	The Applicant is registered under GST law and hence this condition is satisfied.
Consisting 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 depend upon the normal or frequent practices followed in the area of business to which services relate. Several indicators are listed as below: 1) The perception of the consumer or the service receiver – If large number of service receivers of such bundle of services reasonably except such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business. 2) Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. 3) The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of 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, SEIPL (i.e., Service receiver) expectation is to receive packaged service from the supplier. Various categories of supply under the agreement are interlinked and the applicant is in best position to provide entire gamut of supplies. 2. In the present case, ultimate objective of cultivation or planation of crops/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 be related to planation, cultivation, monitoring etc. For example: AlF would be helping corporates in fulfilling the requirements of cultivation or plantation services. Therefore, it can be said that the applicant would be rendering similar services for various service recipients, based on their requirements because that is main/core domain of the applicant 4. Activities starting from project design to cultivation, maintenance can only be done by one party and it is not possible to provide services separately because of dependence of one activity on another. Also, it can be noted that AlF possess specific expertise w.r.t cultivation and maintenance of trees and has the knowhow of which kind of trees are best suited for the particular geography. Here the attraction for service recipient is in the specific expertise of the AIF. 5. Activities starting from project design to cultivation, planation and maintenance 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 that composites supply is ancillary. Thus, principal supply is the supply which is the main/predominant supply 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.

In order to determine taxability of composite supply, Section 8 of CGST Act is required to be referred which provides as follows:-

Tax liability on composite 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

(b) _____________________

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.

The appellant would like to refer to Notification 11 which provides rate of tax for supply of services under CGST Act. Serial No. 24 of Notification 11 provides tax rate for the following:

Sl No.	Chapter, Section	Description of Service	Rate (per cent.)	Condition
24	Heading 9986	(i) Support 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 or Board or services provided by a commission agent for sale or purchase of agricultural produce. (h) Services by way of fumigation in a warehouse of agricultural produce. (ii) Services by way of preconditioning, 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.	Nil	–

THE IMPUGNED ORDER IS ISSUED IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AS MUCH AS IT IS A NONSPEAKING/NON-REASONED ORDER; BEREFT OF MATERIAL PARTICULARS AND THE BASIS OF UPHOLDING THE ORDER IS NOT DISCERNIBLE THEREFROM

The appellant in their application has made clear by themselves that the activities under the project agreement is not purely related to agricultural service but also other incidental and ancillary services such as project design, coordination with carbon consultant for provision of data etc. are involved. Therefore, the appellant sought for ruling on whether the activities under the agreement qualifies for composite supply with principal supply as support services related to agriculture. However, the AAR passed the impugned order without providing any legal reasons for analysis of CGST law to arrive the conclusion Taxability has to be decided based on the activity and applicable notification. The profit motive of the appellant does not have any bearing in deciding a ‘composite supply’ or applicability of notification [i.e., 11/2017-CT(R)]

The Appellant’s submissions made during the proceedings before the Hon’ble authority were swiftly dismissed based on that appellant is 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.

However, the Impugned Order fails to provide any specific, cogent, or legally sound reasoning to support this conclusion. It lacks clarity in distinguishing or addressing the Appellant’s arguments and the decisions cited by the Appellant in support of their case.

One facet of the principle of natural justice is that the order passed 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 areset 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 principle of justice that justice must not only be done it must also appear to be done as well.

(d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

(e) Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

(f) Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial quasi -judicial and even by administrative bodies.

(g) Reasons facilitate the process of judicial review by superior Courts.

(h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice.

(i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants faith in the justice delivery system.

(j) Insistence on reason is a requirement for both judicial accountability and transparency.

(k) If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

(l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or ‘rubber-stamp reasons’ is not to be equated with a valid decision making process.

(m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). (n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, 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 Limited (investor of the project).

A.2 In this regard, the Appellant would like to submit that in terms of the project agreement (already submitted as part of appeal, appellant being the project proponent, developer and operator is responsible for maintaining the relationship with the farmer and entering into agreement with landowners for undertaking the project and transfer of 100% carbon credits.

A.3 In terms of the above and as depicted in the diagram submitted before your good authority, the appellant has entered into an agreement with the farmers under which 100% of carbon credits will be transferred by the farmers directly to the investor (i.e., Shell Energy India Pvt Ltd). Considering the volume of the project i.e., 23.000 hectares and 20,000 farmers, the appellant has entered an agreement basis of village wise with the farmers. In this regard, the appellant would like to draw your kind attention towards the agreement entered by appellant and farmers of “Peda Koravangi” village (i.e., Mandal name – Peda Bayalu, District name – Alluri Sitaramaraja District). Copy of the agreement is enclosed as Annexure-B

A.4 The Appellant would like to submit the following relevant extracts of the agreement entered between appellant and farmers.-

Page 3 – clause 2

Formal recognition that all Project’s ancillary benefits (such as use of agriculture produce, fruits trees or harvesting timber) are allocated to the BENEFICIARY, who will have the exclusive possession and use of all the natural resources produced by the Project, including their fruits or other outcomes, with the only exception of transfer of the carbon credits generated during the designated Project Period of Araku Project irrevocably to the investor in the project

Page 4- clause 3 Respective Commitment of the Parties

Commitment of Project Proponent

Neither the PROJECT PROPONENT nor the investor in the Project will have any land title rights and won’t intervene in any disputes of land title among the member farmers during the project period. However, the BENEFICIARY has to honor their contribution in generating carbon credits and transfer of the generated carbon credits to investor in the Project during the designated project period

Commitment of Beneficiary

All the carbon credits that accrue from the project will be transferred to the investor in the project

A.5 Basis the above agreement, the appellant 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	Description	Percentage of Cost
A	Material Cost
A.1	Saplings, Seeds, Slips	Material Cost	27.41%
A.2	Replantation and critical farms	Material Cost	4.32%
A.3	Farm inputs	Material Cost	11.62%
A.4	Farm tools	Farm tools issued to farmers	1.17%
B	Training	Training to Farmers	3.24%
C	Human Resources	Salaries and wages of all village workers and volunteers	25.03%
D	Data Management	Record keeping, MIS etc	0.63%
E	Capex
E.1	Data Management	Software costs	0.32%
E.2	Compost unit	2 units © 750 MT pa capacity	1.32%
E.3	Biocentre unit	Centralized Production Centre for bio-inoculants	1.32%
E.4	GPS devices, tabs, laptops	Tablets, GPS equipment for field surveys, Laptops for staff	0.58%
E.5	Nurseries	Land lease, equipment, seeds, saplings, etc.	1.58%
F	Admin, travel and office expenses	AIF – Field offices and local administration costs	2.63%
G	Monitoring	Monitoring and maintenance	9.76%
H	Central Overheads	AlF team salaries, external experts & resource persons, Office monitoring costs etc	9.09%

B.3 From the above tabulation, it can be noted that majority of the project cost (le., 70-75%) is attributable towards cost of purchasing seeds, sampling, training and labour.

B.4 The appellant wishes to submit that cash calls are made in advance for funding the project and invoices will be issued on quarterly basis on the actual cost incurred by the appellant giving the detailed item wise breakup as part of invoice.

C. The Appellant Would Like To Submit That The Meaning Of The Word Relating To” And “Including” As Used In Notification No. 11/2017

C.1 The Appellant would like to refer to the entry no. 24 of the notification 11/2017-Central Tax which provides fot NIL. rate of tax for heading 9986 which relates to “Support Services to agriculture, forestry, fishing, animal husbandry”. During the personal hearing the applicant submitted that the entry no.24 of the notification 11/2017 uses the word “relating to” and “including”, therefore its coverage is very wide enough and hence restrictive interpretation can be given to this. The Appellant has extracted below the relevant part of the notification for reference:-

“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;

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 26o: (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 phrases in the statutes. The word ‘includes’ is usually used in the interpretation clause in order to enlarge the meaning of the words in the statute. Reliance can be placed in case of Coca Cola India (P.) Ltd. v. CCE [2009] 22 STT 130 (Bombay) wherein it was held that the word “include’ in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction.

5. Discussion and Findings:

We have gone through the submissions made by the appellant in light of the ruling pronounced by the Authority for Advance Ruling. On perusal of the elaborate submissions made by the appellant at the time of hearing and taking into consideration the facts of the case, we make the following observations.

5.1 In order to examine the merits of the appeal and to arrive at a Ruling in respect of the questions posed to this Authority, the short questions to be answered are:

(i) whether the transaction as narrated by the Appellant is a “Composite Supply” under GST Law;

(ii) if so, then is the Principal Supply “Support services to agriculture …” as defined at Sl. No.24 of Notification No.11/2017-Central Tax (Rate) dated 28-06-2017.

Whether the supply is a “Composite Supply”

5.2 We have examined the “Project Development Agreement” between (i) Shell Energy India Private Ltd (SEIPL) and (ii) Archipel India Foundation (AIF) in Contract ID: CW637291. As seen from the “Recitals” in the agreement:

A. Shell wishes to be a leader driving the energy transition and to contribute to the global effort to tackle climate change and meet the goals set out in the Paris Agreement. Shell intends to reduce its net carbon footprint in step with society as it moves towards the goal of the Paris Agreement. As part of this ambition, Shell is investing in nature-based solutions such as avoided deforestation, forest restoration and reforestation initiatives, with the aim of delivering benefits to the climate, communities and to develop carbon credits which Shell may retire or sell to its customers.

B. AIF is a social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small-scale farmers including in India.

C. AIF wishes to carry out ARR (Afforestation/ Reforestation/ Revegetation) project in the state of Andhra Pradesh on Sustainable Agriculture and Land 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 and Warranties

Acknowledgement

3.1 Each Party acknowledges for the benefit of each Party that:

(a) it has entered into this Agreement for good and valuable consideration for the performance by each Party of its obligations under this Agreement; and

(b) nothing in this Agreement constitutes or is to be construed as being a joint venture, or agency relationship between the Parties.

5.4 A combined reading of both the Recitals and the Representations and Warranties, it is clearly evident that Shell and AIF are independent entities who entered into an agreement wherein Shell would support AIF in its endeavour for which Shell is to be granted the full, legal, beneficial and unencumbered title to 100% of the VCUs generated by the Project. The agreement between the two entities is not a Joint Venture and further there is no agency relationship between both the parties.

5.5 On the Other hand, AIF has simultaneously tied up with farmers for providing technical and logistical support for the main objective of ARR i.e. Afforestation, Reforestation and Re-vegetation.

5.6 The entire operations of the Appellant for the sake of convenience and discussion can be split up as indicated in the Table hereunder.

Sl. No.	Activities as per agreement	Supply made to
1	Project Design; Establishing ownership of Land; Entering into agreement with landowners for undertaking the project and other activities	SHELL
2	Raising of Nurseries; Procuring saplings including transportation of saplings and plantations; Undertaking monitoring maintenance and replacement of planted saplings and crops; Providing GPS co-ordinates of plantation and maintaining GIS Platforms	Farmers
3	Coordination with carbon consultant to achieve reduction in GHG as per the standards of VCS-CCB.	SHELL

5.7 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. To this end they are said to be engaged in Procuring saplings including transportation of saplings and plantations; Undertaking monitoring maintenance and replacement of 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 the ordinary course of business

(v) where one of the supplies is a principal supply

5.9 As stated above, the appellant is making some supplies to SHELL (Sl. Nos. 1 & 3 in the above table) and some supplies to Farmers (Sl.No.2 in the above table). 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 distinct transaction between two parties viz., the Appellant and the Farmers; and the supply provided to SHELL is another distinct transaction, between the Appellant and SHELL. These disjoint supplies to multiple recipients cannot be claimed to be a “Composite Supply” in terms of Section 2(30) of the CGST / SGST Acts. As evidenced by the Agreement cited above, AIF is neither acting as an agent of SHELL nor are the two engaged in a Joint Venture. As such, the interactions of AIF stop with SHELL and SHELL has no connection with the Farmers. It is indeed AIF who separately engages with the Farmers and derives the Carbon Credits from them so as to make the same available to SHELL as its part of the agreement. As there is a distinct division of supplies and the supplies are rendered to two different entities by AIF, the said supplies cannot be covered under the definition of “Composite Supply” and therefore the Ruling of the AAR is correct and the same is hereby upheld. While we do not want to discuss the aspect of Carbon Credits Trading, however, the fact remains that the entire focus of AIF is to obtain the Carbon Credits accruing to the Farmers so that the same could be supplied to SHELL for the consideration received.

What is the Principal Supply:

5.10 As the said supply itself is not a Composite Supply, the question of what is the “Principal supply” is irrelevant.

Accordingly, we hold as follows:

Decision:

The Ruling passed by AAR vide AAR No. 02/AP/GST/2024 Dtd.10.01.2024 is upheld.