2020 (1) TMI 139 - AAAR - GST

Appeal dismissed: handling imported raw whole yellow peas not exempt under Sl. 54(e) as primary market is foreign

In Re: M/s. T.P. Roy Chowdhury & Company Pvt. Ltd.

AAAR dismissed the appeal and upheld the WBAAR ruling that the services of handling imported raw whole yellow peas are not exempt under Sl. 54(e) of the ... Agricultural produce or not - raw whole yellow peas - services by way of handling the imported raw whole yellow peas - whether the service exempt under Sl. No. 54(e) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (corresponding State Notification No. 1136 FT dated 28.06.2017), as amended from time to time - challenge to AAR decision - HELD THAT:- There is no dispute that raw whole yellow peas are agricultural produce covered under serial no. 45 of the Rate Notification and are exempted goods. However, this particular consignment of raw whole yellow peas was harvested in foreign land and the concerned primary market or the farmers' market is located in that foreign land - it is observed from a combined reading of entry number 54 of the Exemption Notification and definition 2(d) of the Exemption Notification that all services and processes are excluded beyond the primary market. The term primary market in common parlance refers to farmers market like “mandi” or “arhat” being a place where the farmers directly sell their product to the buyers like wholesalers. millers. food processing units, etc. The spirit of the legislature was intended to boost the agricultural sector of the home country and not that of a foreign land - The primary market in the instant case being located in foreign shores does not conform to the definition as stated above. Further there is no evidence that the grains have not undergone any type of treatment before leaving the foreign country from where they have been imported into India. There are no infirmity in the ruling pronounced by the WBAAR - appeal fails. ISSUES PRESENTED AND CONSIDERED 1. Whether imported raw whole yellow peas constitute 'agricultural produce' within the meaning of the Exemption Notification and its Notes (definition 2(d)). 2. Whether services by way of loading, unloading, handling, etc., of the imported raw whole yellow peas at the port of entry are eligible for exemption under Sl. No. 54(e) of the Exemption Notification. 3. Whether the exemption under Sl. No. 54(e) extends to activities performed after the produce has left the primary market located in a foreign country, and whether the Exemption Notification is person- or market-specific. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: The definition of 'agricultural produce' in Note 2(d) to the Exemption Notification describes produce out of cultivation on which either no further processing is done or only such processing as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market. Issue 1 - Precedent Treatment: The AAR Andhra Pradesh decision referenced by the appellant was relied upon to argue that classification and exemption apply irrespective of whether the holder is a farmer or trader. The Respondent distinguished that precedent on facts (storage provided to both farmers and traders who purchased directly from farmers). Issue 1 - Interpretation and reasoning: The tribunal accepts that raw whole yellow peas fall under the Rate Notification as 'dried leguminous vegetables' and are prima facie agricultural produce. However, it emphasizes that the critical qualifier in Note 2(d) is the relation to the primary market and the absence of further processing that alters essential characteristics. The definition contemplates produce as marketed in or for the primary market (i.e., farmer-to-buyer markets such as mandis/arhats). Where produce is harvested abroad and the primary market is located overseas, the domestic legislative intent to boost the home country's agricultural sector does not extend to post-import handling in India. The tribunal also notes absence of evidence affirming no treatment occurred prior to importation. Issue 1 - Ratio vs. Obiter: The ratio establishes that classification as 'agricultural produce' for purposes of the Exemption Notification requires conformity with Note 2(d)'s requirement linking the produce to the primary market relevant to the domestic scheme; findings about the specific consignment (harvested abroad; no evidence of absence of prior treatment) are applied facts. Observations about legislative intent (boosting domestic agriculture) are interpretative ratio supporting the decision; the AAR Andhra Pradesh distinction is treated as persuasive but not binding and is effectively distinguished on facts. Issue 1 - Conclusion: Although raw whole yellow peas are listed under the Rate Notification, the particular consignment did not satisfy the primary market linkage required by Note 2(d) because it originated and had its primary market abroad and there was no evidence that it remained untreated prior to import. Therefore the consignment could not be treated as agricultural produce within the domestic Exemption Notification's intended scope for the purpose of exempting associated services. Issue 2 - Legal framework: Sl. No. 54(e) of the Exemption Notification exempts services by way of transport, storage, loading, unloading, handling, packing, etc., in relation to agricultural produce that qualifies under the definition and scope of the Notification. Issue 2 - Precedent Treatment: The appellant relied upon the AAR Andhra Pradesh decision and general arguments (including CBIC Circular No.16/16/2017-GST) that incidental breakage/splitting during handling does not disqualify the produce or the related services. The Respondent asserted that the percentage of split kernel was significant and altered essential characteristics. Issue 2 - Interpretation and reasoning: The tribunal accepts that minor breakage/splitting can be incidental and consistent with Circular No.16/16/2017-GST; however, exemption for services under Sl. No. 54(e) is conditional on the underlying goods being within scope (see Issue 1). The tribunal reasons that services performed after the goods have left the primary market (and/or where primary market is located abroad) fall outside the Exemption Notification's ambit. Thus even if handling-related damage were minor, exemption for the Appellant's services cannot be granted absent the required primary-market linkage and assurance that no processing altering essential characteristics occurred before import. Issue 2 - Ratio vs. Obiter: The core ratio is that exemption of services under Sl. No. 54(e) is derivative of the goods' status as agricultural produce per Note 2(d) and is confined to services performed within the Notification's intended market scope. Remarks about percentages of broken/split kernels and CBIC circulars are factual/applicative and do not alter the legal requirement that the primary market linkage be satisfied. Issue 2 - Conclusion: Services of loading, unloading and handling performed at the port of entry for the imported consignment are not eligible for exemption under Sl. No. 54(e) because the consignment's primary market and harvest origin were abroad and the statutory definition confines the exemption to produce tied to the primary market contemplated by the Exemption Notification. Issue 3 - Legal framework: The Exemption Notification and its Notes must be read together; the definition of 'agricultural produce' and the entries granting exemption to services are interdependent and contextualised by the concept of 'primary market.' Issue 3 - Precedent Treatment: The tribunal distinguishes prior AAR authority relied upon by the appellant on the basis that the earlier factual matrix involved domestic primary-market linkages and mixed farmer/trader storage arrangements; thus the earlier ruling is not controlling. Issue 3 - Interpretation and reasoning: The tribunal interprets 'primary market' in ordinary commercial parlance as farmer markets (mandi/arhat) where farmers sell directly to buyers in the domestic context. The Exemption Notification's object is found to be domestic agricultural policy; consequently, the exemption does not extend to produce whose primary market is in a foreign country or to services performed after importation where the statutory connection is absent. The tribunal also notes lack of evidence that no treatment occurred before importation. Issue 3 - Ratio vs. Obiter: It is ratio that the Exemption Notification's benefits are not person-specific but are market- and condition-specific; the Notification's coverage ends where the conditions (primary market nexus; absence of altering processing) are not met. Distinguishing prior AAR authority on facts is applied ratio rather than mere obiter. Issue 3 - Conclusion: The exemption is not available to services rendered in India after the produce has left a foreign primary market; the Exemption Notification's scope is confined to agricultural produce connected to the domestic primary market and satisfying Note 2(d) conditions. Accordingly, the impugned advance ruling denying exemption to the Appellant's services is upheld.