Agricultural seed processing with chemical treatment not exempt from GST despite retaining produce character

The AAAR Telangana upheld a lower authority's order regarding GST levy on agricultural seed processing services. The appellant, acting as a job worker, received, processed, packed and returned seeds, performing activities including storage, loading, unloading, cleaning, drying, grading and chemical treatment. The appellant claimed exemption arguing seeds retained agricultural produce character until chemical processing. The AAAR rejected this plea, ruling that since chemical processing was involved beyond basic cleaning, drying and grading, the exemption under relevant notifications was not available. The appeal was disposed of with the original order upheld.

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Issues Involved:
1. Definition and taxability of "agricultural produce" under GST.
2. Exemption eligibility for storage, loading, unloading, and packing services.
3. Exemption eligibility for processes like cleaning, drying, grading, and chemical treatment.
4. Exemption eligibility for transportation of seeds.

Detailed Analysis:

1. Definition and Taxability of "Agricultural Produce" Under GST:
The primary issue is whether the seeds processed by the appellant qualify as "agricultural produce" under Notification No. 12/2017 and 11/2017. The lower authority ruled that seeds do not qualify as agricultural produce because they undergo significant processing, including chemical treatment, which alters their essential characteristics. The appellant argued that seeds are a form of agricultural produce, citing a Supreme Court ruling that treated chemically processed seeds as agricultural produce. However, the appellate authority upheld the lower authority's decision, stating that the processing done by the appellant goes beyond what is typically done by a cultivator or producer and thus disqualifies the seeds from being considered agricultural produce.

2. Exemption Eligibility for Storage, Loading, Unloading, and Packing Services:
The appellant sought clarification on whether services related to the storage, loading, unloading, and packing of seeds are exempt from GST under Sl.No.54(e) of Notification No. 12/2017 and Sl.No.24(1)(e) of Notification No. 11/2017. The lower authority ruled that these services are not exempt because they are related to seeds, which do not qualify as agricultural produce. The appellate authority agreed, emphasizing that the exemption applies to services related to agricultural produce, which the seeds in question are not.

3. Exemption Eligibility for Processes Like Cleaning, Drying, Grading, and Chemical Treatment:
The appellant also sought exemption for processes such as cleaning, drying, grading, and chemical treatment under Sl.No.54(c) and (h) of Notification No. 12/2017 and Sl.No.24(1)(c), (h), and (iii) of Notification No. 11/2017. The lower authority ruled that these processes are not exempt as they are performed on seeds, not agricultural produce. The appellate authority upheld this ruling, noting that the processing done by the appellant, especially the chemical treatment, alters the essential characteristics of the produce, disqualifying it from being considered agricultural produce.

4. Exemption Eligibility for Transportation of Seeds:
The appellant argued that the transportation of seeds from farms to storage facilities, between storage facilities, and to distributors should be exempt under Sl.No.21(a) of Notification No. 12/2017. The lower authority ruled that this transportation is not exempt as it pertains to seeds, not agricultural produce. The appellate authority agreed, stating that the exemption applies to the transportation of agricultural produce, which the seeds are not.

Conclusion:
The appellate authority upheld the lower authority's decision, denying the appellant's claims for exemption under the specified notifications. The seeds processed by the appellant do not qualify as agricultural produce due to the extensive processing they undergo, including chemical treatment. Consequently, services related to storage, loading, unloading, packing, and transportation of these seeds are not exempt from GST. The appeal was disposed of accordingly.

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