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of <h1>Cotton seeds from mill processing don't qualify as agricultural produce, transport services taxable under GST N/N 12/2017</h1> The AAR, Punjab ruled that cotton seeds (Banaula) do not qualify as agricultural produce for GST exemption under N/N. 12/2017. The authority held that ... Exemption from GST - Cotton Seeds “Banaula” - inclusion in the list of agricultural produce for exemption in GTA service - applicability of N/N. 12/2017 dated 28'11 June, 2017 (Tariff heading 9965/9967) - if taxable, then rate of GST - HELD THAT:- One of the essential conditions to qualify as agriculture produce is that the produce does not require any further processing or processing is carried by producer/cultivator. In present case, it may be seen that the cotton seed emerges after processing in mills, thus the above condition is not fulfilled and the same cannot be said to be agriculture produce as per the Notification - Further, it is held in the plethora of judgments that exemption Notification should be strictly construed and beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise at all by implication. Thus, cotton seed emerging from the intermediate process do not fall in the definition of 'agricultural produce' under GST. It is apparent from the definition of 'agricultural produce' that the government intends to provide exemption to the produce occurring only at the first stage of the cultivation or rearing and not to those which are processed in factories after they are sold by the cultivator/producer. Rate of GST - HELD THAT:- The services provided by a goods transport agency in relation to transportation of cotton seeds in a goods carriage are classifiable under heading 9965 and leviable to CGST @2.5%, provided that credit of input tax charged on goods and services used in supplying the service has not been taken, else @6%, under Sr. No. 9 of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. Issues Involved:1. Whether Cotton Seeds 'Banaula' qualify as agricultural produce for exemption in GTA service under Notification No.12/2017 dated 28th June 2017.2. Applicable tax rate on GTA services in respect of Cotton Seeds if they do not qualify for exemption.Issue-wise Detailed Analysis:1. Agricultural Produce Exemption:- The applicant, engaged in receiving Cotton Seeds 'Banaula' transported by Goods Transport Agencies (GTA), sought clarification on whether these seeds qualify as agricultural produce for GST exemption under Notification No.12/2017.- The definition of 'agricultural produce' under Notification No.12/2017 states it must be a produce from cultivation or rearing, with no further processing or only minimal processing by the producer that does not alter its essential characteristics.- The applicant argued that Cotton Seeds 'Banaula' should be considered agricultural produce based on definitions in the Punjab Agricultural Produce Markets Act, 1961, and cited the Hon'ble CESTAT Delhi judgment in R. K & Sons Vs. CCE Rohtak.- The jurisdictional authority countered that cotton seeds undergo significant processing (ginning) to separate lint from seeds, which disqualifies them from being considered agricultural produce under GST law.- The Advance Ruling Authority concluded that the processing involved in extracting cotton seeds from raw cotton means they do not meet the GST definition of agricultural produce. The exemption is intended only for products directly resulting from cultivation or rearing without significant processing.2. Applicable Tax Rate:- Given that Cotton Seeds 'Banaula' do not qualify as agricultural produce, the ruling addressed the applicable tax rate for GTA services.- The services provided by a goods transport agency for transporting cotton seeds fall under heading 9965 of the GST Tariff Act.- The applicable GST rate is 5% (2.5% CGST and 2.5% SGST) if no input tax credit is claimed, or 12% (6% CGST and 6% SGST) if input tax credit is claimed, as per Sr. No. 9 of Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017.Ruling:1. Cotton Seed (Banaula) is not eligible for exemption from GST on GTA services under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.2. The applicable GST rate on GTA services for transporting Cotton Seed (Banaula) is 5% (2.5% CGST and 2.5% SGST) without input tax credit, or 12% (6% CGST and 6% SGST) with input tax credit.
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