2018 (7) TMI 884 - AAR - GST

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

In Re : M/s RARA UDHYOG

The Authority for Advance Ruling (AAR) determined that the applicant's cleaning activity of agricultural produce at a specialized plant does not qualify ... Levy of GST/NIL rate of duty - processes undertaken on agricultural produce - Manufacture/ marketability - Cleaning of the various Agriculture 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 - Entry S. No. 24 (i)(i)(c) of N/N. 11/2017 Central tax (Rate) dated 28/06/2017 and Entry No. 54(c) of N/N. 12/2017 -Central Tax (Rate) dated 28/6/17. Whether the activity of the applicant 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? - Whether the activity of the applicant covered by Entry S. No. 54(c) or Entry No. 55 of Notification No 12/2017 -Central Tax (Rate) dated 28/6/17 attracting NIL rate of tax? - Held that:- Applicant M/S Rara Udyog, Jaipur has a cleaning plant installed at E-144. RIICO Industrial Area Bagru. Jaipur and undertakes removing of various impurities from various products such as saunf (fennel), dhaniya(coriander) jeera (cumin seeds) etc. or like goods brought to them for cleaning process - As per Entry no. 24(i)(i) of the Notification No. 11/2017 Central tax (Rate) dated 28/06/2017 and the Entry No. 54(c) of the Notification No. 12/2017 Central tax (Rate) dated 28/06/2017 NIL rate of GST is provided on those processes which are carried at Agriculture Farm and which do not change the essential characteristics of the Agricultural Produce but only make it marketable for primary market .i.e. first marketability. It limits the processing only to that extent which makes it marketable for primary market. Hence all other processes which are done after acquiring the stage of first marketability fall outside the scope of above clause - Secondly and most importantly processes undertaken on agricultural produce such as 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, should be carried out at Agricultural Farm i.e. all given processes must necessarily be undertaken at Agriculture Farm only then it would attract NIL rate under GST. Applicant M/S Rara Udyog, Jaipur has himself stated that it has a cleaning plant which clearly suggests that it undertakes specialized activity of cleaning using specific machines and equipments which are installed at its premises and away from Agricultural farm - Thus As per Entry no. 24(i)(i) of the Notification No. 11/2017 Central tax (Rate) dated 28/06/2017 and the Entry No. 54(c) of the Notification No. 12/2017 Central tax (Rate) dated 28/06/2017 NIL rate of GST is Applicable on given processes only if undertaken at an agriculture farm and not otherwise. The activity of mechanized cleaning does not fall under intermediate production process as job work in relation to cultivation of plants. Intermediate production process as job work in relation to cultivation of plants usually relates to agricultural operations directly related to production of any agricultural produce such as cultivation, harvesting, threshing, plant protection, testing, and supply of farm labour etc., carried out at agricultural farm - the activity of mechanized cleaning at an installed plant is not covered under the above clause too and does not attract NIL rate of Tax. Ruling:- The activity of the applicant i.e. M/s Rara Udhyog, Jaipur is not 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 AND Entry S. No. 54(c) or Entry No. 55 of Notification No 12/2017 -Central Tax (Rate) dated 28/6/17 & will 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.