2018 (7) TMI 967 - AAR - GST

Court clarifies GST exemption for cold storage services based on agricultural produce definition.

The court ruled that goods in Group A qualify as agricultural produce if no specialized processing is conducted, making the supply of cold storage ... Support services to agriculture - agricultural produce - essential characteristics - primary market / first marketability - storage or warehousing of agricultural produce - nil rate / exemption for support services to agricultureAgricultural produce - essential characteristics - primary market / first marketability - storage or warehousing of agricultural produce - support services to agriculture - Goods listed in Group A fall within the definition of 'agricultural produce' and supply of cold storage services in relation thereto is exempt (nil rate) under the Notifications. - HELD THAT: - The Authority applied the Notifications' definition of 'agricultural produce', which permits only such processing as is usually done by a cultivator or producer that does not alter the produce's essential characteristics and is aimed at attainment of marketability in the primary market. The Authority held that the Group A items arrive in a ready or marketable shape from farmers, and the limited cleaning typically performed (removal of stones, dust or similar impurities) does not alter their essential characteristics or effect value addition beyond primary marketability. Consequently storage or warehousing of those items qualifies as a support service to agriculture and attracts the nil rate of tax, subject to the caveat that any processing beyond that which is usually done by the cultivator at farm level (e.g., specialized machine cleaning, grading, colour-sorting etc.) would remove the exemption. The reasoning appears at paragraphs 8.3-8.4 and the ruling is recorded in paragraph 9(1). [Paras 8, 9]Supply of cold storage services in respect of Group A goods is exempt (nil rate), unless those goods undergo processing beyond that usually done by a cultivator which alters their essential characteristics.Agricultural produce - essential characteristics - primary market / first marketability - support services to agriculture - value addition - Goods listed in Groups B to G do not fall within the definition of 'agricultural produce' for exemption purposes and cold storage services in relation to those goods are taxable. - HELD THAT: - The Authority examined each group and concluded that items in Groups B-G undergo processes after sale in the primary market that are not usually carried out by cultivators at farm level and that effect a change in essential characteristics or result in considerable value addition (examples: drying, polishing, dehusking, deshelling, specialized cleaning, grading and other skilled processes). Such post-primary-market processing places these products outside the Notifications' definition of 'agricultural produce'; therefore storage of those processed products cannot be treated as an exempt support service to agriculture and remains chargeable to GST. The Authority's findings and examples are set out in paragraph 8.4 and the ruling is recorded in paragraph 9(2). [Paras 8, 9]Supply of cold storage services in respect of goods in Groups B to G is not exempt and is chargeable to GST, because those goods have undergone processing beyond what is usual at farm level and have lost their character as agricultural produce.Final Conclusion: The Advance Ruling: cold storage services for the Group A items are exempt (nil rate) as support services to agricultural produce so long as no processing beyond that usually done by cultivators has been carried out; cold storage services for items in Groups B-G are not exempt and remain taxable because those items have undergone post-primary-market processing that changes their essential characteristics. Issues Involved:1. Whether the goods mentioned in Group A to Group G fall under the definition of agricultural produce.2. Whether the supply of cold storage services to these goods attracts a NIL rate of duty as per Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017 and Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017.Issue-Wise Detailed Analysis:Issue 1: Definition of Agricultural Produce- Group A (Fennel, Coriander, Cumin Seeds, etc.): If no further processing is done or such processing is done as usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for the primary market, then these goods fall under the definition of agricultural produce. However, if specialized processing is done (e.g., cleaning, sorting, grading using machines), they fall outside this definition.- Group B (Turmeric, Dried Ginger, Dates, Dry Dates): These goods undergo specialized processes like drying and polishing, not usually done by cultivators, which change their essential characteristics. Hence, they do not fall under the definition of agricultural produce.- Group C (Tamarind): The removal of shells and seeds, usually done by machines, changes the essential characteristics of tamarind. Thus, it does not fall under the definition of agricultural produce.- Group D (Dry Mango, Kathodi, Dry Gooseberry, Dry Water Caltrop, Dry Peas): These products undergo specific processes such as washing, cutting, drying, which lead to considerable value addition and change their essential characteristics. Therefore, they do not fall under the definition of agricultural produce.- Group E (Cinnamon, Gum, Arjuna Chhal): These products undergo specific processes like hammering, scrapping, drying, cleaning, and refining, which are not done by farmers. Thus, they do not fall under the definition of agricultural produce.- Group F (Groundnuts, Coconut): The removal of outer shells using machines changes the essential characteristics of these products. Hence, they do not fall under the definition of agricultural produce.- Group G (Dry Fruits such as Fig, Almond, Walnuts, Pistachio, Lotus Seeds): These products undergo processes like cleaning, deshelling, drying, which change their essential characteristics. Therefore, they do not fall under the definition of agricultural produce.Issue 2: Taxability of Cold Storage Services- Group A: The supply of cold storage services to these goods is exempt from GST if no specialized processing is done. If specialized processing is done, they fall outside the definition of agricultural produce, and the supply of cold storage services would be chargeable to GST.- Groups B to G: The goods do not fall under the definition of agricultural produce. Therefore, the supply of cold storage services to these goods remains chargeable to GST.Ruling:1. Goods in Group A fall under the definition of agricultural produce if no specialized processing is done, and the supply of cold storage services is exempt from GST. If specialized processing is done, they fall outside this definition, and the supply of cold storage services is chargeable to GST.2. Goods in Groups B to G do not fall under the definition of agricultural produce, and the supply of cold storage services to these goods is chargeable to GST.