Mangrove cultivation for environmental protection classified as environmental services under SAC 9994, attracts 18% GST rate

The AAAR, West Bengal upheld the lower authority's ruling that appellant's mangrove cultivation and nurturing services for environmental protection do not qualify as agricultural support services under SAC 9986. The services were classified as "Other environmental protection services" under SAC 9994, attracting 18% GST as per Serial Number 32 of Notification No. 11/2017-Central Tax (Rate). The authority determined that mangrove cultivation for biodiversity enhancement and ecosystem restoration differs from traditional agriculture for food, fiber, fuel, or raw materials, warranting the higher tax classification.

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Issues Involved:
1. Classification of services provided by the appellant.
2. Applicable GST rate for the services.
3. Interpretation of "agricultural activity" under GST law.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant is engaged in the business of cultivation, planting, and nurturing of mangrove seeds and seedlings in coastal areas as per contracts awarded by environmental organizations. The appellant sought an advance ruling on the classification of these services under the GST Act, arguing that these activities should be classified under Sl. No. 24 of Notification No. 11/2017- Central Tax (Rate) dated 28/06/2017, which pertains to "support services to agriculture, forestry, fishing, animal husbandry" with SAC 9986, attracting a Nil rate of tax.

However, the West Bengal Authority for Advance Ruling (WBAAR) observed that the appellant's services are primarily aimed at enhancing biodiversity and re-establishing ecosystem functions for environmental protection, not for food, fibre, fuel, raw material, or other similar products. Consequently, WBAAR classified these services under "environmental protection services" with SAC 9994, attracting an 18% GST rate.

2. Applicable GST Rate for the Services:
The appellant contended that the services should attract a Nil rate of tax under SAC 9986. However, WBAAR ruled that the services fall under SAC 9994, which pertains to "Sewage and waste collection, treatment and disposal and other environmental protection services" as specified under Sl. No. 32 of Notification No. 11/2017- Central Tax (Rate) dated 28/06/2017, attracting a GST rate of 18% (CGST @ 9% + WBGST @ 9% or IGST @ 18%).

3. Interpretation of "Agricultural Activity" under GST Law:
The appellant argued that their activities should be considered agricultural, citing the definition of "agriculturist" under Section 2(7) of the GST Act and the definition of "agricultural income" under Section 2(1A) of the Income Tax Act, 1961. They also referenced the Supreme Court's interpretation of "agriculture" in CIT v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC), which broadly defines agriculture as the cultivation of land for producing consumable products.

The appellant asserted that their activities involve significant human skill and labour on land, resulting in products like firewood and oxygen, which should qualify as agricultural operations. However, the Revenue argued that the appellant's activities are solely for environmental protection and do not produce food, fibre, fuel, or raw material as required under the explanation to Sl. No. 24 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017.

Conclusion:
The appellate authority found no infirmity in the WBAAR's ruling. It confirmed that the appellant's services do not qualify as "support services to agriculture, forestry, fishing, animal husbandry" under SAC 9986 but are correctly classified as "Other environmental protection services" under SAC 9994, attracting an 18% GST rate. The appeal was thus dismissed, and the WBAAR's ruling was upheld.

The detailed judgment underscores the importance of the primary purpose of the services provided and their alignment with the specified categories under the GST law. The classification hinges on whether the services directly relate to agricultural produce or environmental protection, with significant tax implications.

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