2018 (7) TMI 884 - AAR - GST

Cleaning activity of agricultural produce at specialized plant not eligible for NIL tax rate per AAR ruling.

The Authority for Advance Ruling (AAR) determined that the applicant's cleaning activity of agricultural produce at a specialized plant does not qualify ... Processes carried out at an agricultural farm which do not alter the essential characteristics of agricultural produce but make it marketable for the primary market - intermediate production process as job work in relation to cultivation of plants - agricultural produce (produce on which either no further processing is done or such processing is usually done by a cultivator and does not alter essential characteristics)Processes carried out at an agricultural farm which do not alter the essential characteristics of agricultural produce but make it marketable for the primary market - agricultural produce (produce on which either no further processing is done or such processing is usually done by a cultivator and does not alter essential characteristics) - Whether the applicant's mechanized cleaning activity is covered by Entry S. No. 24(i)(i)(c) of Notification No. 11/2017 (and Entry No. 54(c) of Notification No. 12/2017) attracting NIL rate of tax - HELD THAT: - The Authority examined the exemption phrase in the notifications and the definition of 'agricultural produce', and held that the NIL rate applies only to processes that are carried out at an agricultural farm and which do not alter the essential characteristics of the produce but make it marketable for the primary market (i.e., first marketability). The applicant operates a specialised cleaning plant located away from the agricultural farm and performs mechanized cleaning using specific machines. Processes undertaken after the stage of first marketability or processes not carried out at an agricultural farm therefore fall outside the scope of the quoted exemption. Applying these principles, the Authority found that the applicant's activity is not covered by the exemption limited to farm-carried processes and hence does not attract NIL rate under the cited entries.The mechanized cleaning carried out at the applicant's cleaning plant away from the agricultural farm is not covered by Entry S. No. 24(i)(i)(c) of Notification No. 11/2017 nor by Entry No. 54(c) of Notification No. 12/2017 and does not attract NIL rate of tax.Intermediate production process as job work in relation to cultivation of plants - processes carried out at an agricultural farm which do not alter the essential characteristics of agricultural produce but make it marketable for the primary market - Whether the applicant's mechanized cleaning activity qualifies as an 'intermediate production process as job work' under Entry S. No. 24(i)(iii) of Notification No. 11/2017 (and Entry No. 55 of Notification No. 12/2017) attracting NIL rate of tax - HELD THAT: - The Authority interpreted the exempting phrase concerning 'intermediate production process as job work' in the context of activities normally linked to production and carried out at or in close relation to agricultural operations (such as cultivation, harvesting, threshing, plant protection and similar farm operations). The applicant's mechanized cleaning, carried out at a dedicated cleaning plant away from the agricultural farm using specialised machinery, was held not to constitute an intermediate production process as job work in relation to cultivation of plants. Consequently, the activity does not fall within the job-work exemption in the cited entries.The mechanized cleaning performed by the applicant does not qualify as an intermediate production process as job work under Entry S. No. 24(i)(iii) of Notification No. 11/2017 or Entry No. 55 of Notification No. 12/2017 and thus does not attract NIL rate of tax.Final Conclusion: The Authority rules that the applicant's cleaning activity, undertaken at its specialised cleaning plant away from agricultural farms, is not covered by the stated nil-rate entries in Notification No. 11/2017 and Notification No. 12/2017 and therefore does not attract NIL rate of tax. Issues Involved:1. Whether the activity of the applicant is covered by Entry S. No. 24 (i)(i)(c) or S. No. 24(i)(iii) of Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017 attracting NIL rate of tax.2. Whether the activity of the applicant is covered by Entry S. No. 54(c) or Entry No. 55 of Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017 attracting NIL rate of tax.Issue-wise Detailed Analysis:1. Coverage under Entry S. No. 24 (i)(i)(c) or S. No. 24(i)(iii) of Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017:The applicant contends that their activity of cleaning agricultural produce such as Saunf (Fennel), Dhaniya (Coriander), and Jeera (Cumin seeds) involves removing impurities without altering the essential characteristics of the produce, thus making it marketable for the primary market. This process, they argue, falls under the category of processes usually done by a cultivator or producer, which should attract NIL rate of tax as per Entry S. No. 24(i)(i)(c) of Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017.However, the Jurisdictional Officer stated that the cleaning activity is not carried out at an agricultural farm but at a specialized cleaning plant, which disqualifies it from being classified under the said entry. The officer also noted that the mechanized cleaning does not constitute an intermediate production process as job work in relation to cultivation of plants.The Authority for Advance Ruling (AAR) found that the exemption under Entry S. No. 24(i)(i)(c) is applicable only to processes carried out at an agricultural farm. Since the applicant’s cleaning plant is located away from the farm, the activity does not qualify for NIL rate of tax under this entry.2. Coverage under Entry S. No. 54(c) or Entry No. 55 of Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017:The applicant also argued that their cleaning activity could be considered an intermediate production process as job work in relation to agricultural produce, thus attracting NIL rate of tax under Entry S. No. 24(i)(iii) of Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017 and Entry No. 55 of Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017.The AAR clarified that intermediate production processes as job work in relation to cultivation of plants typically involve agricultural operations directly related to the production of agricultural produce, such as cultivation, harvesting, threshing, plant protection, and supply of farm labor, which are carried out at the agricultural farm. Since the applicant’s mechanized cleaning process is conducted at an installed plant away from the farm, it does not qualify as an intermediate production process as job work.Ruling:The AAR concluded that the applicant’s activity of cleaning agricultural produce at a specialized plant does not fall under Entry S. No. 24 (i)(i)(c) or S. No. 24(i)(iii) of Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017, nor under Entry S. No. 54(c) or Entry No. 55 of Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017. Consequently, the activity does not attract NIL rate of tax.