In re Narsimha Reddy & Sons (GST AAAR Telangana)
Appellants are in the business of production and sale of agricultural seeds. In the process of production, the applicant outsources certain services such as cleaning, drying, grading and packing to the job workers and stores the seeds in various facilities after processing them. In the process they also transport the seeds by engaging a GTA. The applicant filed an application before the lower authority for a ruling on their activities with reference to exemption/taxability under Goods and Services Tax Act. Since, the ruling of the lower authority was pronounced against the interests of the applicant, they filed the present appeal before this authority.
This authority observes that the whole gamut of dispute is around exemption contained in the two 11/2017- Central Tax (Rate) dated 28-06-2017 and Notfn No. 12/2017-CT(R), dt. 28.6.2017. Both the notifications have defined “agriculture produce” as any produce out of 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, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.
The appellant contends that their activities falls under the definition of ‘agriculture produce’, and hence, they are eligible for exemption under above two notifications. As against this contention, the lower authority held that the activities are outside the purview of definition of ‘agriculture produce’ and hence, no exemption is available to the applicant.
Hence, it becomes imperative to analyse the definition of ‘agriculture produce’. The primary factory which needs to be understood is that to get into the bracket of agriculture produce for claiming exemption, the main condition is that either no processing is done on the produce or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.
In the present case, as per the written submission, the applicant takes organizing the production of agricultural seeds, storing the agricultural seeds, drying of maize cobs, it segregates part of the agriculture produce based on its quality and germination strength and undertakes preservation process such as clearing, drying, grading and chemical processing to make the seed fit for sowing purpose and to have better shelf life. The applicant has pleaded that till the chemical processing is taken up the seed retains the character of the agriculture produce on par with any agriculture produce and they are entitled for exemption in respect of services availed by them. Had the activities of the applicant are only cleaning, drying, grading without involving any chemical processing on the subject produce, then the services would be on agriculture produce and exemption would be available. However, since in this case it is not proved beyond doubt by the applicant that their activities get exempted under the said two notifications, we are not inclined to accept the plea of the applicant.
Read AAR Order : Seed is not a agricultural produce & GST payable on its Storage & Packaging Services
