2019 (9) TMI 824 - AAR - GST

Taxability of 'logging' services under CGST & SGST Acts clarified, not agricultural produce. 9% tax rate applies.

In Re: M/s. Deputy Conservator of Forests

The case addressed the taxability of 'logging' services under the CGST and SGST Acts, determining that logging does not qualify for a nil rate of GST as ... Classification of services - agricultural produce - service of “logging” - forestry operation - plants grow up to become trees - they are harvested to yield timber, poles, billets, firewood, pulpwood, etc. which are raw material - levy of SGST and CGST Act - Is it legally correct to infer that the service of “logging” and its components described before do not attract any SGST under the CGST Act, 2017? If not, what is the correct position by law? - HELD THAT:- The term “agricultural produce” is crucial in the instant case. In common parlance it means growing of crops. The applicant submits in their application that the service being received by them yields timber, firewood etc.. However the yields of timber, firewood etc do not qualify as “agricultural produce” and are more specifically in the nature of “forest produce” - it is clearly evident that the activity of “Logging” does not yield agricultural produce and hence is not covered under entry number 24 of the Notification No. 11/2017 - Central Tax (Rate) dated 28th June 2017, effective from 01.07.2017. The services received by the applicant are of composite in nature and the principal supply is covered under sub-entry (ii) of entry no.26 of the Notification No. 11/2017-Central tax (Rate) dated 28.06.2017 which reads “Manufacturing services on physical inputs (goods) owned by others, other than (i) above” and taxable at 9% under the CGST Act and 9% under SGST Act. Similarly it is taxable at 18% under the IGST Act. In case the trees have grown from “plants” not planted by the Karnataka Forest Department, but that which grew by natural regeneration but were nurtured, managed and protected by the Karnataka Forest Department, does the same nil rate of SGST and CGST apply to them too? If not, what would be the rate? - HELD THAT:- The activity of the Government Corporation done to the Forest Department is independent of the nature of the activity involved in the growing of trees and hence what applies to the naturally grown trees applies to the trees which are nurtured, managed and protected by the Forest Department. In case of sale of forest produce or any other goods belonging to Karnataka Forest Department, where the buyer is registered or is based in and transports the goods to outside the State of Karnataka, what should be charged under the CGST Act, 2017, (A) SGST and CGST, or (B) IGST? - In case of sale of forest produce or any other goods belonging to Karnataka Forest Department, where the buyer is registered or is based outside the State of Karnataka, but uses the goods within the State of Karnataka, what should be charged under the CGST Act, 2017? (A) SGST and CGST, or (B) IGST? - HELD THAT:- Since the location of the supplier, [Department of Forests, Government of Karnataka is within the state of Karnataka], is Karnataka and the place of supply (as per the conclusion arrived in the preceding paragraphs), is also Karnataka, as per section 8(1) of the IGST Act, 2017, the nature of supply would be an “intra-State supply” within Karnataka State and hence CGST and SGST would be applicable on the transaction and not IGST - But, if the disclosure of destination is part of the supply contract and the contract makes it mandatory to issue transport permit to the place of such destination, then the place of supply would be the place of termination of movement of such goods and if both the place of supply and location of the supplier is within the same state, then it would amount to an “intra-State supply” and CGST and SGST would be chargeable. If the place of supply and the location of the supplier are in different states, then the transaction would amount to an “inter-State supply” and IGST would be chargeable. CGST and SGST must be charged as the place of supply and the location of the supplier are in the same State, in the reference transaction provided in the application. Issues Involved:1. Taxability of 'logging' services under CGST and SGST Acts.2. Tax rate applicable to trees grown naturally but managed by the Forest Department.3. Tax implications on interstate sale of forest produce.4. Tax implications on intrastate sale of forest produce.Issue-Wise Detailed Analysis:1. Taxability of 'Logging' Services:The applicant, a government department, sought clarification on whether the service of 'logging' attracts GST. The applicant argued that 'logging' is a forestry operation and should fall under the heading 9986, thus qualifying for a nil rate of GST as per entry no. 24 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. However, the authority determined that 'logging' does not yield agricultural produce but rather forest produce, such as timber and firewood, which do not qualify as agricultural produce. Consequently, the activity of 'logging' does not fall under the support services to agriculture or forestry as defined in the notification. The services received by the applicant are considered composite in nature, with the principal supply falling under sub-entry (ii) of entry no. 26 of the same notification, taxable at 9% CGST and 9% SGST, or 18% IGST.2. Tax Rate for Naturally Grown Trees:The applicant sought clarification on whether the same nil rate of SGST and CGST applies to trees that grew naturally but were managed by the Forest Department. The authority concluded that the tax treatment for logging services is independent of whether the trees were planted by the Forest Department or grew naturally. Therefore, the same tax rate applies to both scenarios, which is 9% CGST and 9% SGST, or 18% IGST.3. Tax Implications on Interstate Sale of Forest Produce:The applicant questioned the applicable tax when forest produce is sold to a buyer registered outside Karnataka who transports the goods out of the state. According to Section 10 of the IGST Act, the place of supply is determined by the location where the movement of goods terminates. In this case, the sale conditions specify that the point of sale and delivery is the depot in Karnataka. Therefore, the supply is completed in Karnataka, and the movement of goods by the buyer after the sale is independent of the supply contract. As the location of the supplier and the place of supply are both in Karnataka, the transaction is considered an intra-state supply, attracting CGST and SGST.4. Tax Implications on Intrastate Sale of Forest Produce:The applicant also sought clarification on the tax implications when the buyer is registered outside Karnataka but uses the goods within the state. The authority reiterated that the place of supply is Karnataka, as the delivery occurs at the depot in Karnataka. Since the location of the supplier and the place of supply are both in Karnataka, the transaction is considered an intra-state supply, attracting CGST and SGST.Ruling:1. The operations of 'logging' attract tax under the Goods and Services Tax Acts, independent of whether the trees were planted by the Forest Department or grew naturally.2. The transactions described in the application are considered intra-state supplies and attract CGST and SGST, irrespective of where the goods are taken by the recipient after the supply is completed.