In re PI Industries Ltd (GST AAR Haryana)
AAR held that services of spraying of agrochemicals provided by the applicant to the farmers is an exempted supply under the Act as he provides the spraying service directly to the farmers and the consideration for such service is paid by farmers to the Applicant. The spraying service is provided at the agricultural land of the farmers during the pre-harvesting period only. The agrochemicals used while providing the spraying service do not alter the characteristics of the crops or the agricultural produce and the activity is undertaken only for crop protection and to make the crop produce suitable for consumption and marketable for the primary market. It is covered under the support services to agriculture as nil rated vide notification no 12/2017- CT(R) dated 28th June, 2017. Similarly, the said services rendered by the applicant can be classified under the services related to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or agriculture produce by way of (a) Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing. And (c) Processes carried out at agricultural form including tending, pruning, cutting, harvesting, drawing, cleaning, trimming, sun-drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agriculture produce but make it only marketable for the primary market which are nil rated and notified at Sr. No. 54 of the notification no 12/2017- CT(R) dated 28th June, 2017
1. Whether the supply of spraying services undertaken by the Applicant is covered under Notification No. 12/2017-Central Tax and hence, exempted from payment of tax?
Yes
2. If tax is payable, then whether Applicant can avail input tax credit of inputs and input services used for undertaking supply of spraying services?
Not Applicable
FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING,HARYANA
APPLICANT’S ELIGIBILITY FOR SEEKING AN ADVANCE RULING:
To file an application before the Authority of Advance Ruling, the applicant must satisfy the conditions prescribed under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act, 2017) and Haryana Goods and Services Tax Act, 2017 (hereinafter referred to as HGST Act, 2017). Since the provisions of both the Acts are parametria, any reference to provisions of CGST Act, 2017 in this order should be construed as a reference to corresponding provisions in HGST Act, 2017/IGST Act, 2017 as well.
Sections 97(2) of the CGS T Act, 2017 prescribes that Advance Ruling may be sought inter alia on the questions of (b) Applicability of a notification issue under the provisions of this Act. (d) Admissibility of Input tax paid or deemed to have been paid, (e) Determination of the liability to pay tax on any goods or services or both, (g) Whether any particular thing done by the applicant with respect to any goods and/or services or both amounts to or results in a supply of goods and/or services or both, within the meaning of that term.
Proviso with reference to the Section 98(2) of CGST Act, 2017 states that where the questions raised in the application is already pending or decided in any proceedings in the case of the applicant under any provision of this Act, the application may be rejected by the Advance Ruling Authority after providing an opportunity of being heard to the applicant. But in this case, the applicant has undertaken in form ARA-01 that the issue is neither pending nor decided in any proceedings under any of the provisions of the Act. Besides the applicable fees in the case stands paid by the applicant. So, he is eligible to seek an Advance Ruling under the above provisions and the case is being heard on merits.
Statement of facts as per ARA-01
The Applicant is engaged in the business of manufacturing of agrochemicals. It supplies the agrochemicals to the dealers/distributors who then supply the same to farmers. The quantity of agrochemicals in the packets supplied by the Applicant to dealers/distributors is higher than the one supplied by dealers/distributors. The Applicant supplies the agrochemicals to dealer/distributors in its standard packing (50×100 ml) however, after receiving the agrochemicals, the dealers/distributors may sell the same in retail packages of 100 ml to their customers/farmers. Besides the Applicant supply the services of spraying agrochemicals to the farmers. The spraying of the agrochemicals is undertaken on the crops at the agricultural farm for the protection of the crop produce and such service is provided to the farmers directly. The applicant has elaborated the matter as following:-
(i) Agrochemicals
The agrochemicals play a vital role in reducing crop loss from a range of insects, herbs, fungus, nematodes, rodents, pests etc. It helps in improving the yield and farm income of the farmers. The agrochemicals are used for controlling disease, insects and weeds in the crop produce. They need to be applied to plants and soil in the form of a spray. The main function of a sprayer is to break the chemicals into droplets of effective size and distribute them uniformly over the agricultural land which needs to be protected. The agrochemicals include herbicides, fungicides and insecticides which help to (a) reduce competition from weeds to the crop (b) minimize the effects of fungal diseases, (c) control the infection spread from various kinds of insects, pests and (d) provide micro-nutrients such as manganese or boron to the soil.
(ii) Spraying Services
(a) The agrochemical industry is competitive, therefore, to increase the customer base and brand value, the Applicant decided to start an entirely different activity of providing the spraying services to the farmers which is completely independent and different activity from its manufacturing and distribution of agrochemicals.
(b) The Applicant provides the spraying service to farmers and the consideration for such service is directly paid by farmers to the Applicant. The spraying service is provided at the agricultural land of the farmers during the pre-harvesting period only, i.e. either when the crop is about to be sown or when the crop is standing. The agrochemicals used while providing the spraying service do not alter the characteristics of the crops or the agricultural produce and the activity is undertaken only for crop protection and to make the crop produce suitable for consumption and marketable for the primary market.
(c) The farmer approaches the Applicant directly for availing the spraying services after purchasing the agrochemicals from the dealer/distributor. The Applicant raises an invoice on the farmers for the services provided against the consideration which is determined as per the area of agricultural land for which spraying services are availed.
(d) The spraying service is provided only when the farmer uses the agrochemicals manufactured by the Applicant. The Applicant does not provide spray services with respect to any other company’s crop protection chemicals.
(e) It is to be noted here that the sale of agrochemicals to distributors/dealers is independent of the spraying service provided to the farmers. They are under no obligation to ensure that the farmers procure the spraying services from the Applicant.
(f) The farmers are also under no obligation to procure the spraying services from the Applicant while buying the agrochemicals from the Applicant’s distributors/dealers. However, in the event farmer wishes to procure the spraying services from the Applicant then the agrochemicals have to be procured from the Applicant’s distributors/dealers only. They can either approach the Applicant directly or approach it via dealers/distributors. In case of latter, no additional remuneration or consideration is provided to the dealers/distributors.
(g) For undertaking the spraying service, the Applicant imports the spraying machines from Japan and pays the applicable IGST under Integrated Goods and Services Tax Act (hereinafter referred to as “IGST Act”). The ownership of the machines belongs to the Applicant and the operating cost of the spraying machine i.c. driver’s salary, fuel, repair and maintenance, depreciation is also borne by the Applicant. The farmer pays a consideration for the spraying services procured by it from the Applicant.
Submissions made by the applicant on the legality of the issue at hand;
The Applicant states that the activity related to spraying of agrochemicals provided by him to the farmers is covered under Sr. No. 54 of the Notification No. 12/2017-Central Tax– CT and under Serial No. 57 of the Notification 9/2017- Integrated Tax (Rate) dated 28.06.2017, as amended (hereinafter referred to as (“Notification No. 9/2017–Integrated Tax“). The relevant provisions are as under:-(a) Determination of Supply of goods and services
As per Section 9 of CGST Act, tax is levied on all intra-state supply of goods or services or both, except on the supply of alcoholic liquor for human consumption. Similarly, the respective state legislations provide for the levy of State Goods and Services Tax (hereinafter referred to as “SGST”) on all intrastate supply of goods or services or both. As per Section 5 of the IGST Act, IGST is levied on all inter-state supply of goods or services or both. It is important to examine the meaning ascribed to the words i.e. goods, services and supply under the CGST Act.
(i) Section 2(54) of CGST Act define “Goods” as every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
(ii) Section 2(102) of CGST Act defines “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(iii) Section 7(1) of CGST Act defines supply as:
