In re Vallalar Borewells (GST AAR Tamilnadu)
Q1. Whether the following supply of services provided by the applicant are in relation to agricultural operations directly in connection with raising of agricultural produce
i.Drilling of Borewells for supply of water for agricultural operations like cultivation including seeding, planting and ploughing.
ii. Letting out of compressors for pumping of water from the borewells to the agricultural fields.
Ans: ‘Provision of agricultural machinery with crew and operators’ and ‘operation of irrigation systems for agricultural purposes’ are listed as ‘Support services to crop production’. In the case at hand the applicant does not undertake the ‘operation of irrigation system for agricultural purposes’ and also `compressors’ are not agricultural machinery. They undertake the activity of drilling of borewells in the agricultural land and let out compressors. The said activity is not classifiable under SAC 9986. It is pertinent to note that even setting up of an irrigation system with pipe lines are classifiable only under SAC 9983 and the activity of ‘operation’ of such irrigation system alone is coded as ‘Support service to agriculture’. In the case at hand, the applicant undertakes only drilling of bore wells in the agricultural land and are letting out compressors. The applicant are classifying the same under SAC 995434, when the said activity is undertaken in places other than agricultural land and under SAC 995434 when the drilling is done in other than agricultural land.
Water-well drilling services are specifically covered under 995434 and the said category includes all Water-well drilling services without any exceptions. Therefore, it is evident that the drilling of borewell without exceptions (even in the agricultural land) is a construction service involving drilling water well and not a support service for agriculture. As the activity do not merit classification under SAC 9986, the applicant is not eligible for exemption as per Sl. No. 54 of Notification No. 12/2017-CT(R), dated 28.06.2017.
Q2. If the answer to the above question is in the affirmative, whether the said services are covered by the entry Sl.No 54 of Notification No. 12/2017-CT(R), dated 28.06.2017.
Ans: In respect of letting of Compressor, the applicant claims that the same is let out for pumping water from the bore-wells drilled by them in the agricultural land, on drilling of the said wells and therefore is a ‘Support service for agriculture’. Their contention is that water is essential for cultivation and the compressor are let out to pump water. Compressor is not an agricultural machinery and is a General-Purpose Machinery. Also, only provision of agricultural machinery with crew and operators are stated as ‘Support service for agriculture’. Therefore, letting out of the same is also not a ‘Support service for agriculture’ classifiable under SAC 9986 and the applicant is not eligible for exemption as per SI. No. 54 of Notification No. 12/2017-CT(R), dated 28.06.2017.
AAAR Order: GST on Drilling of Borewells for supply of water for agricultural operations
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TAMILNADU
M/s. Vallalar Borewells, No.10-C, Melapudur Main Road, Trichy 620 001. (hereinafter referred as ‘Applicant’) is registered under the GST vide GSTIN No. 33ABAFM0641E1ZY. They have sought Advance Ruling on the following questions:
1. Whether the following supply of services provided by the applicant are in relation to agricultural operations directly in connection with raising of agricultural produce:
i. Drilling of Borewells for supply of water for agricultural operations like cultivation including seeding, planting and ploughing.
ii. Letting out of compressors for pumping of water from the borewells to the agricultural fields.
2. If the answer to the above question is in the affirmative, whether the said services arc covered by the entry Sl.No54 of Notification No. 12/2017-CT(R), dated 28.06.2017
The applicant has submitted the copy of the application in Form GST ARA-01 and also submitted a copy of challan evidencing payment of application fees of Rs.5000/- each under sub-rule(1) of Rule 104 of CGST Rule 2017 and SGST Rules 2017.
2.1 The applicant has stated that they provide drilling of borewell services mainly to agriculturists engaged in raising of agricultural crops. Water is a part and parcel of essential requirements in cultivation and raising of agricultural crops. Likewise, compressors which are let out by them to agriculturists enable the motor to function and discharge water as required for cultivation and allied agricultural uses. They also obtain a confirmation letter from the agriculturist that the borewell drilled in their land is used only for the agricultural purpose.
2.2 On the Interpretation of Law, the applicant has stated that a plain reading of the relevant portion of the said notification supra is very clear and unambiguous in covering agricultural operations directly related to raising of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing. In their case the borewells drilled provides the required quantity of water for cultivation of agricultural crops. The supply of compressors which becomes a part of the motor, which pumps water from the borewells/wells for agricultural operations is inseparable from the activity of cultivation. Hence the said supply of service is squarely covered by the above entry.
3. Due to the prevailing pandemic situation and in order not to delay the proceedings, the applicant was addressed through the email address mentioned in their application to seek their willingness to participate in a virtual personal hearing in digital media vide email dated 06.07.2020. The applicant consented and the hearing was held on 13.08.2020. The authorized representative appeared and reiterated their submissions in the application. They were asked to produce the following:
1. List of compressors which is being let out
2. Sample documents for letting out/confirmation letter
3. Work order for drilling borewells/invoice raised in all categories
4. P&L Account or Balance sheets
4. In furtherance to the above Hearing, the applicant submitted the following documents on 11.09.2020 and 15.09.2020
i. Invoice No. EX/18-19/051 dated 05.01.2019 raised on Duraisamy, Viralimalai for ‘Drilling and Hire Charges for agriculture’ under the Description HSN 9986 along with Letter dated 05.01.2019 of C. Duraisamy addressed to the applicant stating the drilling of borewell in the agricultural land and that they intend to use well for agricultural purposes and document of Revenue Department to establish the ownership of the land with Shri. C. Duraisamy;
ii. Invoice No. 19-20/08/047 dated 05.08.2019 raised on V.R. Muthu & Bro’s, Ayanrediyapatti for Drilling Hire Charges’ with CGST & SGST under the description HSN 995434;
iii. Invoice No. 19-20/06/022 dated 13.06.2019 raised on Anand Engineering Products Pvt Ltd., Kulithalai-Tk, Karur for ‘Drilling Hire Charges’ with Output CGST & SGST under the description HSN 995434;
iv. ITR Acknowledgement for the Assessment Year 2019-20 along with Memo of Taxable income for the A.Y. 2019-20;
v. Profit & Loss Account for the year ended 31.03.2019;
vi. Balance Sheet as on 31.03.2019;
vii. Invoice No. EX/18-19/034 dated 12.08.2018 raised on Shri. Ganesan, Villapatti, Iluppur for Drilling and Hire Charges for agriculture’ under the Description HSN 9986 along with Letter dated 12.08.2018 of Shri. Ganesan addressed to the applicant stating the drilling of borewell in the agricultural land and that they intend to use well for agricultural purposes and document of Revenue Department to establish the ownership of the land with Shri. Ganesan
viii. Invoice No. 26/08/18-19 dated 09.08.2018 raised on Sriram Chemicals for Drilling Hire Charges with CGST & SGST under the description HSN 995434
ix. Invoice No. 08/05/18-19 dated 02.05.2018 raised on FSM Hyper P Ltd for Drilling Hire Charges with CGST & SGST under the description HSN 995434
x. ITR Acknowledgement for the Assessment Year 2018-19 along with Memo of Taxable income for the A.Y. 2018-19
xi Profit & Loss Account for the year ended 31.03.2018;
xii. Balance Sheet as on 31.03.2018.
5. The applicant is under the administrative jurisdiction of State authorities. The State Jurisdictional authority vide their letter Rc. No. 0391/2020/A1 dated 15.06.2020 has stated that
> Drilling of bore- well is a one-time process and supply of water is another process. Further, water drawn from the bore-well may be used for agriculture purpose or also for any other means. So, it cannot be construed that it is exclusively used only for agriculture purpose.
> With reference to supply of water for cultivation, seeding, planting and ploughing, bore-well are being used when there is water scarcity otherwise, when water is released from the dam, the use of bore well is minimum or may not be used. So there is 50:50 chances for use of such borewell.
> In respect of letting out of compressors for pumping of water from the bore-wells to the agricultural fields they have stated that there are two types of services.
