The term ‘Agricultural produce’ (कृषि उपज) is required to be interpreted in the context of GST law because various supplies pertaining to agricultural produce are given exemption from the levy of GST and there has always been an ambiguity for goods falling into the category of agricultural produce or not, which is warranted by the need of numerous advance rulings and Judicial pronouncements on the subject matter.
Navigating the GST landscape requires diligence and in this very article, I will try to delve deep and decode the meaning of “Agricultural produce” taking into account the notifications, advance rulings, and court orders concerning the same.
LEGAL FRAMEWORK
In common parlance, goods such as:-
Grains/cereals (maize, rice, wheat, barley, corn, sorghum, millet, lentil, etc), Spices (cumin, coriander, turmeric, fennel, cardamom, fenugreek, poppy, carom etc), Oil seeds (soyabean, groundnut, flaxseeds, sesame, mustard, etc), Herbs (psyllium, basil, chia, ashwagandha, chirayata etc)
are all considered “Agricultural produce” and their trade at the initial level, is usually regularised by the Agricultural Produce Market Committee (APMC), which is a marketing board established by state governments in India.
Under GST law, the term “Agricultural produce” is first mentioned and defined under Notification number 11/2017 – Central Tax (Rate) dated 28-06-2017 which notifies the rate of levy of Central Tax as “Nil” on:-
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S. NO. 24 |
Heading 9986 | Support services to agriculture, forestry, fishing, animal husbandry.
Explanation. –“Support services to agriculture, forestry, fishing, animal husbandry” mean – (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; (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. |
| (ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. | ||
| (iii) Carrying out an intermediate production process as job work in relation 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. |
In addition to Heading 9986, the term has also been mentioned in the notification number 12/2017 – Central Tax (Rate) dated 28-06-2017 which exempts levy of Central Tax on:-
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S. NO. 20 |
Heading 9965 | Services by way of transportation by rail or a vessel from one place in India to another of the following goods –
(a) ……………; (b) …………….; (c) …………….; (d) …………….; (e) agricultural produce; (f) milk, salt and food grain including flours, pulses and rice; and (g) …………….; |
| S. NO.
21 |
Heading 9965 or Heading 9967 |
Services provided by a goods transport agency, by way of transport in a goods carriage of –
(a) agricultural produce; (b) ………………….; (c) ………………….; (d) milk, salt and food grain including flour, pulses and rice; (e) ………………….; (f) ………………….; (g) ………………….; or (h) …………………. |
Note:- Heading 9986 as mentioned in notification number 11/2017 CT Rate, has again been reproduced at serial number 54 in notification number 12/2017 CT Rate making such services as exempt.
As per the two notifications above, it can be categorically said that in the context of agricultural produce, there are broadly two heads of services namely:-
1. Support services to agriculture which includes (Heading 9986):-
a. cultivation-level services, like harvesting, threshing, cleaning, drying, cutting, sorting, cooling, and packaging practically carried out at the farm fields,
b. loading, unloading, packaging, storage or warehousing.
c. Services given at the APMC level, by APMC itself or commission agents involving its trade.
d. Intermediate production process as job work
2. Transportation of agricultural produce by rail or a vessel domestically or by Goods Transport Agency (Heading 9965 and 9967)
After finding out the nature and category of services associated with agricultural produce which are not subject to GST, it is crucial to understand the meaning under the law where the actual ambiguity (as mentioned at the beginning of the article, and the sole purpose of writing it) lies:-
The meaning of “Agricultural Produce” for the above-mentioned notifications is given in the explanation as:-
“agricultural produce” means 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 –
a. either no further processing is done or
b. 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 this regard, a circular has also been issued numbered 16/16/2017-GST dated 15/11/2017, in which at serial number 1 it has been clarified that:-
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· Only green tea leaves and not tea (as it is a processed product made in tea factories after carrying out several processes, such as drying, rolling, shaping, refining, oxidation, packing etc) is the “agricultural produce” eligible for exemption available for loading, unloading, packing, storage or warehousing of agricultural produce. The same is the case with coffee obtained after the processing of coffee beans. · Jaggery being a processed form of sugarcane loses its essential characteristic and is not an agricultural produce. · The process of de-husking or splitting is usually not carried out by farmers or at farm level but by the pulse millers. Therefore pulses (dehusked or split) are also not agricultural produce. However whole pulse grains such as whole gram, rajma etc. are covered in the definition of agricultural produce. · Processed spices, processed dry fruits, processed cashew nuts etc also fall outside the purview of agricultural produce. |
The definition required to be analysed from different aspects, let’s take up each one by one:-
QUALIFYING POINTS
1. Ownership:- Goods can be agricultural produce even in the ownership of a person other than the farmer, and exemptions for services such as warehousing/transportation are not limited to produce in the ownership of a farmer.
2. Nature of processing:- The process such as drying, cleaning, sorting, grading, cooling or packaging (not involving any specialized process using high-end machinery), even at the end of “traders” will still keep the goods under the category of agricultural produce as it can also be done by a cultivator at farm level.
3. Extent of processing:- Extent should be such that it doesn’t lead to a change in essential characteristics of the goods.
Who’s carrying out the processing is not important, what’s crucial here is the fact that such a process shall be of such extent that the goods still retain essential characteristics.
4. Location of processing:- Definition nowhere says that it shall mandatorily be carried out at an agriculture farm, but the nature of the process (which may be carried out some other location too) should be such that it is usually carried out at an agriculture farm.
For example, if processing work like cleaning, grading, sorting etc is being carried out at the trader’s premises would also keep the goods under the said category, unless any special machines are deployed for same.
5. Marketability:- The process carried out on the agricultural produce shall also be of such nature that it shall only make such produce marketable for the primary market and not the secondary or further markets. Hence it is very important to understand the meaning of primary market.
In general understanding, the APMCs are considered as the primary market, because it is the first point of trade of such agricultural goods between cultivators and traders.
Once the ownership gets transferred to traders, the goods might (or might not) undergo further processing and get ready to be further sold in the secondary market.
It shall hence be of utmost importance that the process carried out upon the goods shall be only of such nature that it makes the produce capable enough to be marketed at APMC level, and not beyond that.
Rather than being marketed in the primary market, the important aspect is the marketability of ‘produce’ to get marketed in the primary market.
Although the above-mentioned points are a very subjective criterion to ascertain the category of particular goods, let us refer to the rulings on the subject to understand it better.
JUDICIAL PRONOUNCEMENTS
1. AAR Andhra Pradesh In the case of M/s SSVK Cold Storage Pvt. Ltd who are engaged in cold storage operations for both traders and farmers an advance ruling dated 28-03-2018 by AAR Andhra Pradesh, have concluded that:
the notification about warehousing of agricultural produce is service-specific and not person-specific. Hence the entry for exemption is equally applicable for agricultural produce of both the farmer as well as the trader.
2. AAR Telangana In the case of M/s Gubba Cold Storage Private Limited who are also engaged in services of storage and warehousing of agricultural produce, food grains including pulses and rice etc.; an advance ruling dated 04-01-2020 by AAR Telangana, has specifically ruled that:
“… the notification is with regard to service supplied and not person specific. As such, the entry No. 54(e) is equally applicable for storage services in respect of agricultural produce of both the farmers and the traders.”
*It can be easily concluded from the above 2 rulings, that the ownership of goods is immaterial for the qualification of agricultural produce.*
3. AAAR Rajasthan In the case of M/s Sardar Mal Cold Storage & Ice Factory who are engaged in cold storage operations an advance ruling dated 15-10-2018 by AAAR Rajasthan, has ruled about the category of goods falling/not falling in the definition of agricultural produce:-
| Fennel (Saunf), Coriander(Dhaniya), Cumin Seeds (Jeera), Carom Seeds (Ajwain), Fenugreek Seeds (Kasoori Methi), Mustard Seeds (Sarson), Brown Mustard Seeds(Rai), Nigella Seeds (Kalonji), Poppy Seeds(Posta Dana) | The process of cleaning (dust, mud and impurities at the end of the trader) can be undertaken at the farm level also, hence services of storage or warehousing of such produce would remain exempt, however, if any processing is done on above products as is not usually done by a cultivator or producer at the farm level, then these would fall outside the definition of agricultural produce.” |
| Processed turmeric and dates | Further drying and polishing of turmeric and ginger is a specialized process not carried out by cultivators. These processes adds to the marketability and value of these products and makes them suitable for sale directly to the consumer.
Similarly dates and dry dates also after being sold in primary market go under specific process of sorting, cleaning, drying and polishing which is not done by the cultivator. Hence processed turmeric, Dates and Dry dates all fall outside the definition of agricultural produce. |
| Tamarind | In the case of tamarind, the shelling and removal of seeds to obtain the pulp is usually done by specially designed machines. Hence inner pulp without shell and/or seeds do not fall under the definition of ‘Agricultural Produce’ as it loses its essential characteristics. |
| Cinnamon (Dalchini)
Raw gum Arjuna Chaal |
Cinnamon (Dalchini) undergoes a specific process involving hammering, scrapping, drying, cutting, fumigation, packing etc. which usually is not done by farmers but is done by skilled labour at specific plants set up to extract bark from the branches harvested.
The raw gum is collected by the farmers or gum collectors from outer bark of the Acacia tree. It is not sold as such to the consumer. In industrial plants, raw gum is cleaned, refined, powered and made in granular form, fit to be consumed by the consumers. Arjuna Chaal is got from the tree, Arjun Terminalia. The bark also undergoes certain processing before it is fit to be used in Ayurvedic Industries. This processing can‘t be undertaken at the farm level. Hence the above products don’t fall under the category of Agricultural Produce.” |
| Groundnuts (Mungfalli)
Coconut (Copra Gola) |
“In the case of groundnuts (Mungfalli) and coconut (Copra Gola), removal of the outer shell makes these capable of selling in the secondary market also. Further, this process is not undertaken at the farm. Only with the help of machines or specialized plants, the outer shell is removed. Thus the above produce without shells do not fall into the category of Agricultural Produce” |
4. In the case of M/s RARA Udhyog (AAAR Rajasthan), who is engaged in cleaning operations (of stone, dust, mud, and other impurities) of various agricultural produce like Saunf(Fennel), Dhaniya(Coriander), Jeera(Cumin Seeds), etc. or the like goods which are brought to them by the farmers or by the traders, an advance ruling dated 31-10-2018 by AAAR Rajasthan, has specifically said that:-
“we find that the process of cleaning does not alter the essential characterstics of agricultural produce,……… but there is a vast difference between the type of cleaning undertaken at the farm level by the farmer and undertaken at the factory by specialized machines.”
It can thus be clearly understood that merely a process which doesn’t alter essential characterstics would not suffice but it shall also not be carried by specialized machines (which are usually not used at the farm level) for goods to qualify as “Agricultural produce”
5. AAAR Maharashtra In the case of M/s N.B. Patil who is engaged in rendering commission agent services to the farmers concerning the supply of ‘Turmeric’ (Whole Turmeric – Not in powder form) to traders in APMC, an advance ruling dated 02-06-2022 by AAAR Maharashtra, has found that:-
“various processes, such as, boiling, drying and polishing of fresh harvested turmeric are carried out by farmers in their farms to make the turmeric marketable, it is established beyond any doubt that the post-harvesting processes are carried out by the farmers or producers themselves on their farm.
On perusal of the said Test Reports, it is observed that there is no difference between the essential characteristics of the raw turmeric and the dried turmeric as oil content and the curcuminoid content are invariably present in both the samples, though in different concentration. The said difference in the concentration of both the components in both the samples, i.e., raw turmeric and dried turmeric, is attributable to the drying of the fresh/raw turmeric having greater content of moisture, which eventually gets removed upon drying during post-harvesting operation to render higher concentration of the aforesaid components in the dried turmeric.
Since, the term primary market is not defined under GST law, we would like to refer to the letter dated 01.02.2022, issued by APMC, Basmathnagar, Distt.-Hingoli (Maharashtra), wherein it has inter-alia been declared that “The APMC market across the state of Maharashtra act as primary or wholesale market for sale of agricultural produce by the farmers where the Traders/wholesalers make the purchase of such agricultural produce, by following laid down procedure. Thus, attributable to the said APMC letter, it can be aptly concluded that the APMC market, where the impugned product is sold by the farmers, is nothing but primary market.
6. In the case of M/S. Sona Ship Management Private Ltd. (AAR WEST BENGAL) dated 30/05/2023 a ruling was sought as to whether services by way of loading and unloading of imported unprocessed toor and whole pulses and black matpe is exempt, wherein 2 major observations were made:-
“The term ‘primary market’ has not been defined in the GST Act. However, on the basis of location or place of operation, such markets in relation to agricultural produce are located in towns near the centres of production of agricultural commodities. In these markets, a major part of the produce is brought for sale by the producer-farmers themselves. Transactions in these markets usually take place between the farmers and primary traders. [Source: ‘Agricultural Marketing: Concept and Definition’ from the website of Jawaharlal Nehru Krishi Vishwa Vidyalaya ]
“Circular No. 16/16/2017-GST dated 15/11/2017 issued by CBIC clarifies that pulses (de-husked or split) are not considered as agricultural produce since the process of de-husking or splitting of pulses is usually not carried out by farmers or at farm level but by the pulse millers. It therefore appears that for the purpose of agricultural produce, the processes and services that are applied till the goods are at the farmer’s hand to make it marketable for primary market is to be considered. Any services supplied for loading and unloading as supplied by the applicant after the goods left the primary market do not qualify for exemption under serial number 54 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
7. AAAR West Bengal In the case of M/s T.P. Roy Chowdhury & Company Pvt. Ltd. who are engaged in handling imported raw whole yellow peas in bulk an advance ruling dated 23-12-2019 by AAAR West Bengal, has specifically ruled that:-
The term primary market in common parlance refers to farmers market like “mandi” or “arhat” being a place where the farmers directly sell their product to the buyers like wholesalers. millers. food processing units, etc. The spirit of the legislature was intended to boost the agricultural sector of the home country and not that of a foreign land. The primary market in the instant case being located in foreign shores does not conform to the definition (of agricultural produce) as stated above.
8. In the case of Naga Ltd. Vs Puducherry Authority for Advance Ruling, Madras High Court dated 10/11/2023 has given a very comprehensive ruling, wherein the petitioner is engaged in the business of milling wheat into wheat products such as maida, atta, sooji, bran etc and imports wheat for milling purposes. The petitioner engaged service providers for clearing the imported wheat from seaports. The services include the activity of loading, unloading, packing, storage or warehousing of the imported wheat and its further clearance to the petitioner’s factory.
An advance ruling was sought before approaching the high court, which ruled that the support services mentioned above are not exempt, on the ground that “the imported wheat with regard to which the services were rendered was not meant for the primary market but instead meant / intended to be used by the petitioner at its factory for further processing of the wheat imported into atta, maida and sooji.”
The petitioner approached the high court, wherein multiple observations were made:-
“9.1 …….. the mere fact that the buyer of “agricultural produce” intended to subject it to various other processes subsequently resulting in conversion of wheat into maida, atta and sooji would not take the services of loading, unloading, packing, storage and warehousing of the “agricultural produce” out of Serial No. 54(e) of the Exemption Notification. The reasoning in the impugned order of the 1st Respondent results in importing a condition as to the use to which the agricultural produce would be subject to in the hands of the service recipient.
“9.3 The construction of the Notification in the impugned order of the 1st Respondent results in converting the expression “marketable” employed in the definition of “agricultural produce” into “marketed”, which is impermissible. This would be even more evident if we keep in mind the expression “marketable” has been construed and explained by the Hon’ble Supreme Court on more than one occasion to mean that it is only required to be shown that it is capable of being marketed and not actually marketed. Applying the above reasoning to the term “marketable” used in the definition of “agricultural produce” it would be clear that it only means that the goods in question in the instant case wheat must be capable of being marketed in the primary market and it is not necessary to show that it is actually marketed.
Hence, it can be easily concluded from the above judgement of the Madras High Court that, firstly the intended use of goods is not important rather the goods in hand shall be put to test for it to qualify as Agricultural produce.
Secondly, the expression marketable shall not be used as marketed, meaning thereby the goods should be capable of being marketed not necessarily marketed in the primary market, for their qualification under agricultural produce.
SUGGESTION
CBIC shall come up with further clarifications and standard procedures to be adopted by the person engaged in the provision of support services such as warehousing/storage/handling/packaging etc and transportation of agricultural produce, for them to ascertain whether said service is leviable to GST or exempt because as already discussed above it is not ownership specific to the goods (Trader-Cultivator) and it’s challenging (or rather impractical) for the service provider to find out if the goods in their custody:-
1. underwent prior specialized processing like cleaning/grading/sorting etc which is of the nature as is usually carried out at an agricultural farm.
2. retain essential characteristics.
3. are marketable to the primary market.
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