Critical reasoning of Notification no. 03/2013 ST dated 01.03.2013

An article by:-

CA. Pradeep Jain

CA. Preeti Parihar

Shubham Sancheti

Introduction:-

In previous budget, service tax law was shifted to negative list regime. Mega exemption notification no. 25/2012-ST dated 20.6.2012 was issued to prescribe the list of exempted services. In the current year budget, nominal changes have been done in this list. One such change has been done in the serial no. 21 of this notification which exempts certain services provided by a Goods transport agency. This article has tried to look into the implications of this amendment.

Previous Provisions:

As per the previous provision as contained in serial no. 21 of mega exemption notification, the transport of following goods by Goods transport agency was exempted:-

(a)  fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

(b)  goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or

(c)   goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;

Amended Provision:

Union budget, 2013 has issued Notification no. 03/2013-ST dated 1.3.2013 to amend the above notification. The amended provision under serial no. 21 reads as follows:-

21. Services provided by a goods transport agency, by way of transport in a goods carriage of,-

(a) agricultural produce;

(b) goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;

(c) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty;

(d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

(e) chemical fertilizer and oil cakes;

(f) newspaper or magazines registered with the Registrar of Newspapers;

(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

(h) defense or military equipments;”;

These above services by GTA in relation to transportation of the specified goods shall be exempted.

Analysis of amendment:-

• The new exemptions added to material listed in serial no. (e) to (h) viz, chemical fertilizers, newspaper-magazines, relief materials, defense equipments, etc. were already there in this notification if these products were transported through rail or vessel. Now, budget, 2013 has also extended the exemption if these materials are transported through road by a goods transport agency. This has been done to ensure the uniformity in exemption in case of same material whether it is transported by road, or by rail or by vessel.
• The exemption contained in serial no. (b) and (c) as pertaining to the limit of Rs. 750/- and Rs. 1500/- are kept intact.
• The agricultural produces have been added to this list. The term “agriculture produce” has been defined in section 65B of the Finance Act which reads as follows:-

(5) 'agricultural produce' means any produce of agriculture 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;

Thus, as per above definition, any produce of agriculture on which minimum processing is done by cultivator which does not alter its essential characteristics but makes it marketable for the primary market.

• In place of the previous entry consisting of “fruits, vegetables, eggs, milk, food grains or pulses”, a new entry consisting of “foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages” have been inserted. The fruits, vegetables, eggs as contained in previous entry will remain included in the term foodstuff. Food grains and pulses as stood previously under this entry will now be included in the term “agricultural produces”.

 Some probable points of dispute:-

The new entry related to the foodstuffs is going to be the centre of dispute in this amendment. The foodstuffs include the “flours”. However, a question arises whether the flours that are not directly eatable like guar flour will also be included and exemption will be allowed? The answer lies in the analysis of the term “food stuff” which is defined as follows:-

• As per Collinsdictionery.com – “Any material, substance, etc, that can be used as food”
• As per wordwebonline.com – “consumer goods sold by a grocer” or “a substance that can be used or prepared for use as food.

Thus, as per above definitions, the food stuff is any item that can be used or prepared for use as food. The exemption includes the flours, thus any type of flour which can be prepared for use as food will be included herein. However, some of the interesting uses of the guar flour/ guar gum powder are that it is used in the processed cheese, in bakery, in soups, in noodles and also in preparation of beverages. On the other hand, it is also used for industrial purposes like in chemical industry, paper industry, cosmetics, etc. Similar is the case with salt. Besides a foodstuff, it is also used in the aluminium purification, caustic/chlorine manufacture, pottery production, soap and glycerine manufacture, etc. The divergent uses of the products are definite indicators of probable litigation as the department will deny the exemption by saying that it is not a foodstuff, rather it is used for industrial purpose. Also, it will not be possible to correlate the item always with its end use in order to claim the exemption. Thus, some sort of clarification is required on this aspect.

Further, there was no need of adding the tea, coffee and jaggery as these were already included in the definition of “agricultural produces”. This fact is already clarified in the education guide dated 20.6.2012. These clarifications say that plantation crops like rubber, tea or coffee will be covered in the definition of agricultural produce. Further as per explanation given in para 4.4.7 of education guide, cereals, pulses, copra and jaggery will also be covered in the definition of agricultural produce. However, jaggery, tea and coffee have been covered in the new entry of food stuff.

While parting:-

Despite the ambiguities referred hereabove, the additions made in the list of goods to be transported by GTA will always be appreciated. There was discrimination previously in respect of the same goods when transported by rail/vessel and when the same are transported by road.  It is good on part of government who has taken steps to bridge this gap by amending the mega exemption notification.