Agricultural produce exemption applies to chilling and packing raw milk used for storage, making the contrary clarification unsustainable.

Raw milk qualifies as agricultural produce because it is obtained from rearing animals and, on the facts stated, had not undergone further processing. Chilling raw milk only to preserve it for storage forms part of storage, since milk cannot be stored without chilling and its essential characteristics remain unchanged; packing after such storage also falls within the exemption for support services to agriculture under Serial No. 24 of Notification No. 11/2017-Central Tax (Rate). The contrary TRU clarification was unsustainable because it incorrectly required chilled and packed milk itself to be agricultural produce and relied on the wrong exemption limb.

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Issues: Whether milk chilling and packing services provided in relation to raw milk fall within the exempt category of support services to agriculture under Serial No. 24 of the table to Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017, and whether the contrary TRU clarification could be sustained.

Analysis: Raw milk is an agricultural produce because it is a produce out of rearing of animals and, in the present context, no further processing had been done to it. The relevant exemption under Serial No. 24 covers support services to agriculture, including loading, unloading, packing, storage or warehousing of agricultural produce. Chilling of milk, when used only to preserve raw milk for storage, is part of storage, since milk cannot be stored without chilling and chilling does not alter its essential characteristics. Packing raw milk after such storage also falls within the same exemption. The impugned circular proceeded on the mistaken premise that chilled and packed milk itself had to qualify as agricultural produce and also relied on the wrong exemption limb concerning processes at an agricultural farm, whereas the applicable clause concerned packing and storage of agricultural produce. The reference to transportation entries and to the general 5% job-work entry did not govern the specific exempt service covered by Serial No. 24.

Conclusion: The chilling and packing services in relation to raw milk are exempt under Serial No. 24 of Notification No. 11/2017-Central Tax (Rate), and the TRU circular taking the contrary view is unsustainable.

Ratio Decidendi: Where raw milk is only chilled for storage and then packed without altering its essential characteristics, such activities constitute packing and storage of agricultural produce and fall within the exemption for support services to agriculture.

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