GST liability on renting of building for poultry purpose

Applicability of GST on renting of land along with building for poultry purpose

There is always a confusion in the poultry industry on the applicability of GST on the land and building given on rent or lease for rearing or breeding of birds. To understand the issue better, let us go back to the service tax era and know what the provisions were then and was there any change in the GST era.

Let us first understand whether rearing of birds itself is an agriculture activity in service tax?

Negative list contained in Section 66D of the Finance Act, 1994 in clause (d) lists services related to agricultural activity which are not liable for service tax as follows:

(i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;

(ii) supply of farm labour;

(iii) 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;

(iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(v) loading, unloading, packing, storage or warehousing of agricultural produce;

(vi) agricultural extension services;

(vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

Poultry specifically is not covered in the negative list, but according to the definition of agriculture as per section 65B (3) of the Finance Act 1994 “agriculture means the 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.”

Are birds also covered in the definition of animals? The answer is yes. As per Wildlife (Protection) Act (53 of 1972) Sec 2(1) “Animal includes Amphibians, birds, mammals and reptiles and their young, and also includes in the case of birds and reptiles, their eggs.” There are no doubt birds will fall under the category of animals.

Since rearing of all life forms of animals is included in the definition of agriculture, in my opinion the activities of poultry will be exempted, since it will be covered in the above clauses where agriculture is mentioned to be kept out of service tax.

Now the question is whether the renting of building along with land and equipment for the purpose of rearing of birds are also exempted? Will it be covered under the clause (iv) under “renting or leasing of agro machinery or vacant land with or without a structure incidental to its use”?

As per Black’s Law Dictionary; “Land” includes not only the soil or earth, but also things of a permanent nature affixed thereto or found therein, whether by nature as water, trees, grass, herbage, other natural or perennial products, growing crops or trees, mineral under the surface, or by hand of man, buildings, fixtures, fences, bridges as well as works constructed for use of water, such as dikes, canals etc.
Though as per the above definition, land also includes buildings, fixtures etc, but the exemption clearly specifies ‘vacant land’, which in my opinion means land which is vacant and which may have structures which are only incidental, meaning thereby on the plain reading it means, the intention is to exempt the renting of vacant land and any building which is part of the land incidental to the activity of agriculture or rearing of such animals. The renting should not be of building per se. Though there is no clarity on this in service tax regime and no direct case law which gives some direction, the meaning which emerges is, the intention of the Government is to exempt all agriculture and related activities and that includes rearing of animals. Further Government’s intention is to exempt renting of vacant land and not building, though it is used for rearing of animals.

Similar exemptions have been copy pasted in GST. Notification 12/2017 CTR dated 28.06.2017 serial number 54 which exempts the following services:

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.”

The exemptions as above has been as it is taken from service tax. What is exempted is renting or leasing of land which may or may not have a structure which is incidental to the use of land. The reading of the exemption gives the impression that, what Government intends is to exempt the land and not the other way round that is building and attached land per se. We can further refer to Hon Supreme Court judgment on M/s Dilip Kumar & Co (2007) where the court had taken up the dispute on how to interpret tax exemptions. The court had told “Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.” Further in the case of Novopan India Ltd v CCE 1994 Hon Supreme Court has held that “a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State.”

Considering the above, my opinion on the issue is to take a cautious approach and be prepared if the revenue comes with the demand for non-levy of tax. Government should come with a clarification to avoid future disputes and litigations.