2019 (3) TMI 1010 - AAAR - GST

Appellate Authority Upholds Ruling on Agricultural Produce Tax Rate

The Appellate Authority upheld the ruling of the Authority for Advance Ruling, stating that only the products in Group A qualify as 'agricultural produce' ... Support services to agriculture, forestry, fishing, animal husbandry - definition of agricultural produce - essential characteristics - primary market - loading, unloading, packing, storage or warehousing of agricultural produce - processes usually done by a cultivator or producer - CBIC Circular No. 16/16/2017 GSTDefinition of agricultural produce - essential characteristics - primary market - loading, unloading, packing, storage or warehousing of agricultural produce - Fennel, coriander, cumin, carom, fenugreek, mustard (both types), nigella and poppy seeds (Group A) are agricultural produce and storage services in relation to them are exempt/at nil rate unless additional processing not usually done by a cultivator is undertaken. - HELD THAT: - The Authority found that the processes applied to the Group A items are limited to cleaning of dust, stones and impurities, which may be undertaken at farm level and do not alter the essential characteristics of the produce. Such cleaning enhances marketability in the primary market but does not change the nature of the produce. Accordingly, storage or warehousing services for these items fall within the exemption/nil rate accorded to support services to agriculture in the notifications, subject to the caveat that any processing beyond that usually done by a cultivator would remove the produce from the definition of 'agricultural produce'.Storage/warehousing services in relation to the listed Group A commodities are exempt/at nil rate, unless non-farm-level processing is carried out.Definition of agricultural produce - essential characteristics - processes usually done by a cultivator or producer - Turmeric, dried ginger, dates and dry dates (Group B) do not qualify as agricultural produce where they have undergone drying, polishing or other specialized processing not usually done by cultivators; storage services for such processed forms are taxable. - HELD THAT: - The Authority observed that drying and polishing that convert green/raw turmeric and ginger into dried/processed forms, and the specialized sorting/cleaning/drying/polishing applied to dates, are processes typically undertaken in specialized plants and not at farm level. Those processes add to marketability and change the product's market character such that the resultant processed goods fall outside the notification definition of 'agricultural produce'. Consequently, storage/warehousing of such processed items is not exempt.Storage/warehousing of the processed forms of the Group B commodities is not exempt and is taxable.Definition of agricultural produce - essential characteristics - Tamarind pulp/inner part (where shelling and seed removal have been undertaken using specialized machinery) does not fall within the definition of agricultural produce; storage of such processed tamarind is taxable. - HELD THAT: - The Authority found that obtaining tamarind pulp by shelling/cracking and removal of seeds is performed by specialized machines and results in a product that has lost the essential characteristics of the raw pod. Therefore the inner pulp without shell/seeds does not qualify as 'agricultural produce' under the notification and storage services in relation to such processed tamarind are not exempt.Storage/warehousing of processed tamarind (pulp without shell/seeds) is not exempt and is taxable.Definition of agricultural produce - essential characteristics - primary market - Dry mango (amchur), kathodi, dry gooseberry, dry water caltrop and dry peas (Group D) are products of processing of green counterparts and, having undergone substantial value-adding processes, do not qualify as agricultural produce for exemption purposes; storage services for them are taxable. - HELD THAT: - The Authority noted that these dry products result from processes-washing, cutting, shelling, cleaning, drying, packing-performed after procurement in mandis by traders, and such processing effects considerable value addition and changes in essential characteristics relative to the product in the primary market. These processes are not typically done at farm level and therefore the resultant dry products fall outside the notification's scope; storage services are not exempt.Storage/warehousing services for the Group D items are not exempt and are taxable.Definition of agricultural produce - processes usually done by a cultivator or producer - Cinnamon, gum (gond) and arjuna chaal (Group E), which undergo specialized extraction, cleaning and processing beyond farm-level operations, are not agricultural produce for the purposes of the notifications; storage services for them are taxable. - HELD THAT: - The Authority found that cinnamon requires specific extraction and processing (hammering, scraping, drying, cutting, fumigation, packing) carried out in specialized plants; raw gum is cleaned and refined industrially; arjuna bark similarly undergoes processing before use. Since these operations are not carried out at farm level and alter the form/value suitable for consumer use, such processed products are excluded from the definition of agricultural produce and storage services in relation thereto are not exempt.Storage/warehousing services for the Group E commodities are not exempt and are taxable.Definition of agricultural produce - essential characteristics - Groundnuts and coconut (Group F), when deshelled by specialized machinery or processes not ordinarily done at farm level, cease to be agricultural produce for exemption purposes; storage of the deshelled forms is taxable. - HELD THAT: - The Authority rejected the appellant's contention that shell removal is a trivial process done at farm level, holding that shell removal enabling sale in secondary market is typically undertaken using machines or specialized plants and is not necessary for primary market sale. The resultant kernel without shell therefore does not retain the product's primary-market characteristics and falls outside the notification's exemption; storage services are taxable.Storage/warehousing services for deshelled forms of Group F commodities are not exempt and are taxable.Definition of agricultural produce - processes usually done by a cultivator or producer - Dry fruits with shells removed (Group G) undergo specialized cleaning, deshelling, drying, sorting and grading not done at farm level and therefore do not qualify as agricultural produce; storage services for such processed dry fruits are taxable. - HELD THAT: - The Authority held that dry fruits like figs, almonds, walnuts, pistachios and lotus seeds are sold in raw/green form in the primary market, and the subsequent processes (cleaning, deshelling, specialized drying, sorting, grading, packing) that make them consumer-ready are performed in specialized facilities and substantially add value. Such processed forms lose their primary-market character and fall outside the notifications' definition of agricultural produce; storage of these processed forms is not exempt.Storage/warehousing services for the processed forms of Group G dry fruits are not exempt and are taxable.Final Conclusion: The Appellate Authority for Advance Ruling upheld the Authority for Advance Ruling's determinations: storage/warehousing services attract nil/exempt treatment only where the goods retain their essential characteristics as agricultural produce and any processing is of the kind usually done by a cultivator; for the listed products, Group A qualifies subject to the caveat, while Groups B to G (as processed/deshelled/industrial-processed forms) do not qualify and storage services in relation thereto are taxable. The appeal is dismissed. Issues Involved:1. Definition of 'agricultural produce' under Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017.2. Applicability of NIL rate of duty on storage services for various products.Detailed Analysis:Issue 1: Definition of 'Agricultural Produce'The crux of the case revolves around whether the goods stored by the appellant qualify as 'agricultural produce' under Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017. The relevant definition states:> 'Agricultural produce means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.'Issue 2: Applicability of NIL Rate of DutyThe appellant argued that the goods stored in their cold storage facilities should attract a NIL rate of duty as per S. No. 24 of the Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017, which provides a NIL rate for services of loading, unloading, packing, storage, or warehousing of agricultural produce.Group-wise Analysis:Group A:Products: Fennel, Coriander, Cumin Seeds, Carom Seeds, Fenugreek Seeds, Mustard Seeds, Brown Mustard Seeds, Nigella Seeds, Poppy Seeds.Findings:The cleaning process for these products, which involves removing dust and impurities, does not alter their essential characteristics. Thus, they qualify as 'agricultural produce,' and the storage services attract a NIL rate of duty.Group B:Products: Turmeric, Dried Ginger, Dates, Dry Dates.Findings:The processes of drying and polishing undertaken by traders add marketability and value, thus altering their essential characteristics. These products do not qualify as 'agricultural produce,' and the storage services do not attract a NIL rate of duty.Group C:Product: Tamarind.Findings:The shelling and removal of seeds, typically done by specialized machines, alter the essential characteristics. Therefore, tamarind does not qualify as 'agricultural produce,' and storage services do not attract a NIL rate of duty.Group D:Products: Dry Mango, Kathodi, Dry Gooseberry, Dry Water Caltrop, Dry Peas.Findings:The processes of washing, drying, and cutting add significant value and change the essential characteristics. These products do not qualify as 'agricultural produce,' and storage services do not attract a NIL rate of duty.Group E:Products: Cinnamon, Gum, Arjuna Chaal.Findings:These products undergo specific processes like hammering, scrapping, drying, and refining, which are not done at the farm level. They do not qualify as 'agricultural produce,' and storage services do not attract a NIL rate of duty.Group F:Products: Groundnuts, Coconut.Findings:The removal of the outer shell is a process that adds marketability and is not done at the farm level. These products do not qualify as 'agricultural produce,' and storage services do not attract a NIL rate of duty.Group G:Products: Dry fruits such as Fig, Almond, Walnuts, Pistachio, Lotus Seeds.Findings:Processes like cleaning, deshelling, drying, sorting, and grading add significant value and change the essential characteristics. These products do not qualify as 'agricultural produce,' and storage services do not attract a NIL rate of duty.Conclusion:The Appellate Authority upheld the ruling of the Authority for Advance Ruling (AAR), stating that only the products in Group A qualify as 'agricultural produce' and attract a NIL rate of duty for storage services. The products in Groups B to G do not qualify and thus do not attract a NIL rate of duty. The appeal was disposed of accordingly.