2019 (3) TMI 918 - AAAR - GST

Appellate Authority denies NIL tax rate on cleaning agricultural produce for missing exemption criteria.

In Re: M/s. Rara Udhyog

The Appellate Authority upheld the ruling, determining that the Appellant's cleaning activity of agricultural produce does not qualify for the NIL rate of ... Taxability - activities of 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 - whether the activity of cleaning of the above produce is exempted under the Entry S. No. 24 (i)(i)(c) and 24(i)(iii) of Notification No. 11/2017-Central tax (Rate) dated 28/06/2017 and Entry S. No. 54(c) and 55 of Notification No 12/2017-Central Tax (Rate) dated 28/6/17? - challenge to AAR decision. Held that:- There are three ingredients of the Entry No. 24(i)(i)(c)and 54( c) ibid: (i) Stated processes should be carried out an agricultural farm; (ii) Stated processes should be of such nature which does not alter the essential characteristics of the agricultural produce; (iii) Stated processes should be of such nature which make the produce marketable for the primary market - A process must satisfy all the three conditions before being declared as the process exempted from GST vide the above said entries Nos. 24(i)(i)(c) and 54(c) ibid under the above notifications Nos. 11/2017-Central Tax (Rate) and 12/2017-Central Tax (Rate). Coming to the first condition, we find that the impugned process is not being carried out at an Agricultural Farm. It is being carried out mechanically in the Factory away from the Agricultural Farm - Coming to the second condition, we find that the process of cleaning does not alter the essential characteristics of the agricultural produce - Coming to the third condition, we find that the process of cleaning undertaken at the end of the appellant make the produces like Saunf (Fennel),Dhaniya (Coriander), Jeera (Cumin seeds) marketable for the secondary market. After this cleaning these produces comes to the stage where these can be directly consumed by the general public. While Saunf (Fennel), Dhaniya (Coriander), Jeera (Cumin seeds) which farmer brings into the primary market is not suitable for direct consumption by the general public - the impugned process succeeds only on one count while it failed miserably on other two counts. By no stretch of imagination activity of mechanized cleaning falls 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 are operations like harvesting, threshing, plant protection, testing, and supply of farm labour etc., carried out at agricultural farm. The activity of the Appellant i.e. M/s. Rara Udhyog, Jaipur is not covered under Notification No. 11/2017-Central tax (Rate) dated 28/06/2017 and Notification No. 12/2017-Central Tax (Rate) dated 28/6/17 - Ruling of the AAR is upheld. Issues Involved:1. Whether the activity of the Appellant 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 Appellant is 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.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 Appellant, engaged in cleaning agricultural produce such as Saunf (Fennel), Dhaniya (Coriander), and Jeera (Cumin seeds), argued that their activity should be exempt under Entry S. No. 24 (i)(i)(c) and 24(i)(iii) of Notification No. 11/2017-Central tax (Rate) dated 28/06/2017. They contended that the cleaning process does not alter the essential character of the produce but makes it marketable for the primary market, similar to processes exempted under the previous Finance Act, 1994.Analysis:- The relevant entry provides NIL rate of GST on processes carried out at an agricultural farm, which include cleaning, trimming, and sorting, provided they do not alter the essential characteristics of the agricultural produce but make it marketable for the primary market.- The Appellate Authority noted that the Appellant's cleaning process is not undertaken at an agricultural farm but at a factory. This fails the first condition of the entry.- Although the cleaning process does not alter the essential characteristics of the produce, it makes the produce marketable for the secondary market, not the primary market. This fails the third condition of the entry.- The Appellate Authority concluded that the process must satisfy all three conditions (performed at an agricultural farm, not altering essential characteristics, and making it marketable for the primary market) to qualify for NIL rate under the specified entry. The Appellant's process only satisfied one condition.2. Coverage under Entry S. No. 54(c) or Entry No. 55 of Notification No 12/2017-Central Tax (Rate) dated 28/6/17:The Appellant also argued that their cleaning activity should be exempt under Entry S. No. 54(c) and 55 of Notification No 12/2017-Central Tax (Rate) dated 28/6/17, which provides NIL rate of GST for processes carried out at an agricultural farm that do not alter the essential characteristics of the produce but make it marketable for the primary market.Analysis:- The relevant entry provides NIL rate of GST for processes carried out at an agricultural farm, including cleaning and sorting, provided they do not alter the essential characteristics of the produce but make it marketable for the primary market.- The Appellate Authority reiterated that the Appellant's cleaning process is conducted at a factory, not at an agricultural farm, thus failing the first condition.- The cleaning process makes the produce marketable for the secondary market, not the primary market, failing the third condition.- The Appellate Authority concluded that the process must satisfy all three conditions (performed at an agricultural farm, not altering essential characteristics, and making it marketable for the primary market) to qualify for NIL rate under the specified entry. The Appellant's process only satisfied one condition.Conclusion:The Appellate Authority upheld the AAR's ruling, concluding that the Appellant's activity of cleaning agricultural produce is not covered under Notification No. 11/2017-Central tax (Rate) dated 28/06/2017 and Notification No. 12/2017-Central Tax (Rate) dated 28/6/17. The activity does not meet the criteria of being performed at an agricultural farm, nor does it make the produce marketable for the primary market, thus failing to qualify for the NIL rate of tax.