2018 (6) TMI 622 - AAR - GST

Ruling on Taxability of Agricultural Produce & Processed Goods: Key Clarifications

The Authority ruled that de-husked pulses, jaggery, processed dry fruits, and certain processed spices do not qualify as 'Agricultural Produce' under the ... Support services to agriculture, forestry, fishing, animal husbandry - agricultural produce - produce out of cultivation on which no further processing is done or processing does not alter essential characteristics - loading, unloading, packing, storage or warehousing of agricultural produce - Nil rate - processed produce falls outside definition of agricultural produceAgricultural produce - produce out of cultivation on which no further processing is done or processing does not alter essential characteristics - processed produce falls outside definition of agricultural produce - Whether the listed items (pulses, jaggery, processed dry fruits, tamarind, copra, etc.) qualify as 'agricultural produce' under Notification No. 11/2017-Central Tax (Rate). - HELD THAT: - The Authority applied the Explanation to the Notification which defines 'agricultural produce' as produce out of cultivation on which either no further processing is done or such processing as is usually done by a cultivator/producer that does not alter essential characteristics but makes it marketable for the primary market. Processes that alter essential characteristics or are not usually carried out by cultivators take the item outside the definition. Applying that test, de-husked or split pulses (commonly known as 'dal'), jaggery, processed dry fruits (processed cashew nuts, raisins, apricot, fig, date), tamarind after kernel extraction, shelled groundnuts/groundnut seeds, and copra are held not to be agricultural produce because the processing involved alters essential characteristics or is not the usual farm-level processing. Whole pulse grains and cereals on which no such non-usual processing is done remain within the definition. [Paras 5, 6]De-husked/split pulses, jaggery, processed dry fruits, tamarind (after processing), shelled groundnuts, and copra are not agricultural produce; whole pulse grains and unprocessed cereals (or those processed only as usually done by a cultivator) are agricultural produce.Processed spices fall outside definition of agricultural produce - agricultural produce - processing not altering essential characteristics - Whether turmeric and ginger (and processed spices generally) form part of 'agricultural produce'. - HELD THAT: - The Authority distinguished between raw turmeric/ginger on which no further processing or only cultivator-usual processing (that does not alter essential characteristics) is done, and processed turmeric/ginger or processed spices. Processed spices, including processed turmeric and processed ginger (soonth), involve processing beyond what is usually done by a cultivator and therefore fall outside the Notification's definition of 'agricultural produce'. Raw turmeric and ginger that have not undergone such processing (or only undergone cultivator-usual processing) remain within the definition. [Paras 6]Processed spices, including processed turmeric and processed ginger, are not agricultural produce; turmeric and ginger with no further or only cultivator-usual processing are agricultural produce.Groundnuts with shell - agricultural produce - groundnuts shelled/processed - not agricultural produce - Whether groundnuts (with shell or shelled/processed) qualify as 'agricultural produce'. - HELD THAT: - The Authority held that groundnuts with shell, when no further processing is done or only such processing as is usually done by a cultivator is performed (not altering essential characteristics), fall within the definition of agricultural produce. In contrast, processed or shelled groundnuts/groundnut seeds involve processing beyond the cultivator-usual level and therefore fall outside the definition. [Paras 6]Groundnuts with shell (subject to no further or only cultivator-usual processing) are agricultural produce; shelled/processed groundnuts are not.Loading, unloading, packing, storage or warehousing of agricultural produce - Nil rate - agricultural produce - definition controls rate applicability - Whether services of loading, unloading, packing, storage or warehousing of the items in question attract Nil rate under the Notification. - HELD THAT: - The Authority noted that Sl. No. 24 of Notification No. 11/2017-Central Tax (Rate) and Sl. No. 54 of Notification No. 12/2017-Central Tax (Rate) provide Nil rate for support services to agriculture, including loading, unloading, packing, storage or warehousing of 'agricultural produce' as defined by the Explanation. Consequently, the tax treatment of such services depends on whether the goods qualify as 'agricultural produce' under the Explanation; those services are Nil rated where the stored/packed goods meet that definition, and not Nil rated where the goods fall outside it. [Paras 5, 8]Loading, unloading, packing, storage or warehousing services are Nil rated only in respect of goods that meet the Notification's definition of 'agricultural produce'; for items excluded from that definition, those services do not attract the Nil rate.Final Conclusion: The Authority ruled that several of the applicant's listed items (de-husked/split pulses, jaggery, processed dry fruits, tamarind after processing, shelled groundnuts, copra, processed spices) are not 'agricultural produce' under Notification No. 11/2017-Central Tax (Rate), while whole pulse grains, cereals and raw turmeric/ginger (subject to no further or only cultivator-usual processing) are agricultural produce; consequently, the Nil rate for support services (loading, unloading, packing, storage, warehousing) applies only to those items that qualify as agricultural produce under the Notification. Issues:1. Interpretation of the definition of 'Agricultural Produce' under Notification No. 11/2017-Central Tax (Rate).2. Taxability of various agricultural products and processed goods for services related to loading, unloading, packing, storage, or warehousing.Issue 1: Interpretation of 'Agricultural Produce' Definition:The applicant sought clarification on whether specific products fall under the definition of 'Agricultural Produce' as per Notification No. 11/2017-Central Tax (Rate). The applicant argued that goods like cereals, pulses, spices, copra, jaggery, and various fruits are covered under the definition. However, the GST Commissionerate contended that products requiring further processing beyond cultivation do not qualify as 'Agricultural Produce' under the said notification.Issue 2: Taxability of Agricultural Products and Processed Goods:The Authority analyzed the definition of 'Agricultural Produce' under the notification and provided a detailed ruling on the taxability of various products. It was determined that de-husked pulses, jaggery, processed dry fruits, processed spices, and certain other goods do not fall within the definition of 'Agricultural Produce' due to processing altering their essential characteristics. On the other hand, whole pulse grains, certain cereals, and specific products with minimal processing that maintain their essential characteristics for the primary market were considered as 'Agricultural Produce' eligible for NIL tax rate on related services.Summary of Ruling:The Authority ruled that de-husked pulses, jaggery, processed dry fruits, and certain processed spices do not qualify as 'Agricultural Produce' under the notification. However, whole pulse grains, specific cereals, and certain products with minimal processing maintaining essential characteristics for the primary market are considered 'Agricultural Produce' eligible for NIL tax rate on related services. The ruling clarified the taxability of various agricultural products and processed goods based on the interpretation of the notification's definition of 'Agricultural Produce.'