Seeds produced by companies don't qualify as agricultural produce under GST exemption notifications per AAR ruling

The AAR, Telangana ruled that seeds produced and processed by a seed company do not qualify as "agricultural produce" under GST exemption notifications. Applying the principle of noscitur a sociis from Godfrey Phillips India Ltd. v. State of UP, the authority held that seeds meant for sowing differ from agricultural produce intended for food, fiber, fuel, or raw material. Consequently, services like storage, loading, unloading, packing, cleaning, drying, grading, chemical treatment, and transportation of seeds by job workers are not exempt from GST under the relevant notification entries, as these exemptions apply only to services engaged by cultivators/agriculturalists, not seed companies.

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Issues Involved:
1. Classification of seeds as agricultural produce.
2. GST exemption on storage, loading, unloading, and packing of seeds.
3. GST exemption on processes like cleaning, drying, grading, and chemical treatment of seeds.
4. GST exemption on transportation of seeds.
5. Taxability of processes undertaken by the applicant for self-use.

Issue-wise Detailed Analysis:

1. Classification of Seeds as Agricultural Produce:
The applicant, engaged in the production and sale of agricultural seeds, sought clarification on whether their seeds qualify as "agricultural produce" under Notification No. 12/2017 and 11/2017. The Seed Act, 1966 defines seeds used for sowing, but the GST law distinguishes between "seed" and "grain." Seeds are included in Serial No. 79 of Notification No. 02/2017, exempting "all goods of seed quality." However, the definition of "agricultural produce" under Notification No. 12/2017 requires that the produce must be for food, fibre, fuel, raw material, or similar products, and should not undergo further processing beyond what is typically done by a cultivator. The applicant's seeds, meant for sowing and not for food, fibre, or fuel, do not meet this definition. Therefore, the seeds produced by the applicant do not qualify as agricultural produce.

2. GST Exemption on Storage, Loading, Unloading, and Packing of Seeds:
The applicant queried whether these activities, performed by job workers, are exempt under Serial No. 54(e) of Notification No. 12/2017 and Serial No. 24(1)(e) of Notification No. 11/2017. The ruling clarified that these entries pertain to services related to the cultivation of plants and rearing of animals for food, fibre, fuel, raw material, or agricultural produce. Since the applicant's seeds do not qualify as agricultural produce, the storage, loading, unloading, and packing services are not exempt from GST.

3. GST Exemption on Processes like Cleaning, Drying, Grading, and Chemical Treatment of Seeds:
The applicant sought clarification on the exemption status of these processes under Serial No. 54(c), (h) of Notification No. 12/2017 and Serial No. 24(1)(c), (h) of Notification No. 11/2017. The ruling stated that these entries also pertain to services related to the cultivation of plants and rearing of animals for food, fibre, fuel, raw material, or agricultural produce. As the applicant's seeds do not qualify as agricultural produce, these processes are not exempt from GST.

4. GST Exemption on Transportation of Seeds:
The applicant queried whether the transportation of seeds from farms to storage facilities, between storage facilities, to distributors, and for sales returns is exempt under Serial No. 21(a) of Notification No. 12/2017. The ruling clarified that this entry provides exemption for transportation services related to agricultural produce. Since the applicant's seeds do not meet the definition of agricultural produce, the transportation services are not exempt from GST.

5. Taxability of Processes Undertaken by the Applicant for Self-Use:
The applicant sought clarification on whether processes like cleaning, drying, grading, chemical treatment, and packing, undertaken for self-use, constitute a taxable supply under Section 7(a) of the CGST Act, 2017. The ruling clarified that supply to oneself is not considered a taxable supply and is therefore exempt from GST.

Summary of Rulings:
1. Seeds produced by the applicant do not qualify as agricultural produce.
2. Storage, loading, unloading, and packing of seeds by job workers are not exempt from GST.
3. Processes like cleaning, drying, grading, and chemical treatment of seeds by job workers are not exempt from GST.
4. Transportation of seeds is not exempt from GST.
5. Processes undertaken by the applicant for self-use are not considered taxable supplies and are exempt from GST.

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