Goods and Services Tax (GST): Implications upon Horticulture Development Services
With the introduction of Goods and Services Tax (GST), the Government has completely revamped the Indirect tax culture in India. The earlier Indirect tax system had multi-layered taxes, levied and administrated by the Central and State Governments at different stages of the value addition. With the implementation of GST laws, all such taxes have been subsumed and only GST will be leviable on supply of goods and/or services, wherein Central Goods and Services Tax (i.e. CGST) and State Goods and Services Tax/Union Territory Goods and Services Tax (i.e. SGST/UTGST) will be levied on intra-state supplies and Integrated Goods and Services Tax (i.e. IGST) will be levied on inter-state supplies.
The taxable event under GST is “Supply” of goods or services or both. The term “Supply” as defined under Section 7 of CGST Act, 2017 provides that (relevant extract):
“For the purposes of this Act, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.’’
On perusal of the above-mentioned scope of work, it is apprised that Horticulture development and maintenance services is covered under taxable event. The term “Horticulture” has not been defined under the previous laws. The GST law also does not define the term “Horticulture”.
As per Wikipedia, “Horticulture is the science and art of growing (plants) – fruits, vegetables, flowers, and any other cultivar. It also includes plant conservation, landscape restoration, soil management, landscape and garden design, construction, and maintenance, and arboriculture. In contrast to agriculture, horticulture does not include large-scale crop production or animal husbandry”.
Basis above, services pertaining to supply of plants and flowers along with manure, sludge, fertilizers, etc. for development of nursery and deployment of manpower for maintenance of such nursery, are in the nature of Horticulture services.
As per the provision of GST law, there is no specific exemption with respect to development and maintenance of nursery. The law also does not provide for any specific exemption for Horticulture services/activities. However, GST law does provide for exemptions pertaining to certain activities of agriculture, which are discussed herein below.
The term “Agriculture” is not defined under current GST law. As per NABARD Act, “agriculture includes horticulture, animal husbandry, forestry, dairy and poultry farming, pisciculture, and other allied activities, whether or not undertaken jointly with agriculture and the expression “agricultural operations” shall be construed accordingly”.
In the draft Act issued in November, 2016, the term agriculture was defined and the same is produced as under:
As per section 2(7) “agriculture with all its grammatical variations and cognate expressions, includes floriculture, horticulture, the raising of crops, grass or garden produce and also grazing, but does not include dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants”
The draft Act also provided that an agriculturist providing agricultural services would be exempt under GST. The term Agriculture as defined under the draft model law did include horticulture, therefore, one could have said that an agriculturist providing agricultural services, including horticulture services were exempt from levy of GST, as per the draft model GST law.
However, the final law notified in July 2017 does not provide for any definition for agriculture and there is no blanket exemption for agricultural activities.
It is pertinent to note that with the implementation of final Act w.e.f. 1st July, 2017, the exemption has been provided to an agriculturist from obtaining registration to the extent of supply of produce out of the cultivation of land.
Further, definition of Agriculturist as per CGST Act, 2017 is as under:
“Agriculturist means an individual or a Hindu Undivided Family who undertakes cultivation of land by own labour or by the labour of family or by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family”
Therefore, on-conjoint reading of the provisions of Final notified GST law with respect to definition of Agriculturist and Section 23, it is inferred that the intent of law makers is to provide exemption only to the agriculturist and that too only to the extent of produce of the cultivation of land. Hence, we understand that the services of Horticulture would not be covered under this exemption, as the Horticulturist is not engaged in supply of cultivated produce, but is engaged in rendering Horticultural services.
For the purpose of these Notifications, support services to agriculture, forestry, fishing, animal husbandry means:
(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;
It follows from above that Agriculture, as a whole, is not exempt from levy of GST and its only certain support services pertaining to agricultural activities which are exempt under GST.
Further, the said exemption does not provide for any specific exemption for Horticulture services.
Keeping in view of above facts, it is pertinent to discuss here the concept of “Composite Supply” as defined under section 2 of CGST Act, 2017.
As per Section (2)(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 moved via services of GTA and the scope of contract also includes the incidental loading and unloading, the supply of transport services by GTA, loading and unloading of goods, is a composite supply and supply of GTA services is a principal supply;
The taxability of composite supply, where supply comprises of two or more supplies, would be as per the principal supply ie., the transaction would be taxed as per the taxability of principal supply.
In present case, though the contract can also provides for supply of plants, fertilisers, seeds etc, however in pith and substance the activity as a whole involves developing and maintaining a nursery. Therefore, the activity as a whole can be regarded as Horticulture services and would be treated as composite supply of services. In other words, the principal supply would be Horticulture services and GST would be charged accordingly.
Determination of Place of supply
As per the provisions of GST law, place of supply determines whether the transaction is an interstate or intrastate supply, so as to levy applicable tax on such transaction. Section 12 & 13 of IGST Act 2017 governs the determination of place of supply in case of supply of services. They also provides Place of supply in case of supply of some specific services as well as place of supply generally. Supply of Horticulture (directly related to immovable property) is covered under services as mentioned in sub-section 3 of Section 12 of above said Act.
Place of Supply in case of Horticulture Services (As per Section 12(3) of IGST Act 2017) =
a) Location at which such Immovable property (here Land) is situated, if such land is situated in India (taxable territory), or
b) Location at Service Recipient, if such land is situated outside India.
Hence in this case, if location of the supplier and place of supply are in the same state, transaction would qualify as intra-state supplies and CGST & SGST would be applicable in equal proportion. Similarly, in case location of the supplier and place of supply is in different state, transaction would qualify as inter-state supplies and IGST would be applicable on such supply.
Rate of Tax
As discussed above, the transaction would be treated as supply of Horticulture services. Since, there is no specific rate of tax provided for Horticultural services under the GST law, the general rate of tax as applicable on provision of services would be applicable on such transaction. Accordingly, GST @18% would be applicable on the present transaction.
The GST on Services of Horticulture development and Maintenance work would be liveable @ 9% SGST and 9% CGST or 18% IGST.