2016 (7) TMI 1712 - AT - Service Tax

Cotton Ginning Process Doesn't Change Essential Characteristics, Qualifies as Agricultural Produce Under Notification 13/2003-ST

R.K & Sons Versus CCE, Rohtak

The Tribunal ruled that ginned cotton qualifies as 'agricultural produce' under Notification No. 13/2003-ST, exempting commission agents from service tax. ... Direction to dispose of the appeal within six months - HELD THAT:- Reliance placed in M/S RK AND SONS VERSUS COMMISSIONER OF CENTRAL EXCISE, ROHTAK [2016 (1) TMI 562 - CESTAT NEW DELHI] where it was held that 'As appellant is a commission agent of ginned cotton, it is eligible for the benefit of Notification No. 13/2003-ST.' Appeal disposed off. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment was whether ginned cotton qualifies as 'agricultural produce' under Notification No. 13/2003-ST, thereby exempting it from service tax. This issue required interpretation of the definition of 'agricultural produce' and whether the process of ginning alters the essential characteristics of cotton, thus affecting its tax exemption status.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework centers on Notification No. 13/2003-ST, issued under section 93 of the Finance Act, 1994. This notification exempts business auxiliary services provided by commission agents related to the sale or purchase of agricultural produce from service tax. The definition of 'agricultural produce' is crucial, as it includes produce from cultivation or plantation with minimal processing that does not alter its essential characteristics. The notification explicitly lists 'raw vegetable fibres such as cotton' as included within this definition.Court's Interpretation and ReasoningThe Tribunal examined whether ginned cotton fits within the definition of 'agricultural produce.' Initially, the argument was that ginned cotton results from further processing of raw cotton, thus potentially excluding it from the definition. However, the Tribunal noted that 'raw vegetable fibres such as cotton' are specifically included in the definition. The interpretation that would exclude ginned cotton would render the inclusion of 'raw vegetable fibres such as cotton' redundant, which is contrary to established principles of statutory interpretation. The Tribunal emphasized that statutory interpretation should avoid rendering any part of the statute meaningless.Key Evidence and FindingsThe Tribunal focused on the nature of ginned cotton, which involves separating seeds from cotton fibres. It found that this process does not transform cotton into a manufactured product but merely prepares it for the market, aligning with the definition's intent. The Tribunal also referenced the exclusionary part of the definition, which lists manufactured products like sugar and processed food, to reinforce that ginned cotton does not fall into these categories.Application of Law to FactsApplying the law to the facts, the Tribunal concluded that ginned cotton remains within the scope of 'raw vegetable fibres such as cotton' and thus qualifies as 'agricultural produce' under the notification. Consequently, the services provided by commission agents dealing with ginned cotton are exempt from service tax.Treatment of Competing ArgumentsThe Tribunal considered the argument that ginning constitutes further processing that should exclude cotton from the definition. However, it dismissed this interpretation, emphasizing the inclusive language of the notification and the principle of avoiding redundancy in statutory language. The Tribunal's reasoning highlighted that ginned cotton, without additional processing like carding, remains within the definition's ambit.ConclusionsThe Tribunal concluded that the appellant, as a commission agent of ginned cotton, is entitled to the exemption under Notification No. 13/2003-ST. Therefore, the service tax demand against the appellant does not survive, and the appeal was allowed.SIGNIFICANT HOLDINGSThe Tribunal's significant holding is that ginned cotton qualifies as 'agricultural produce' under Notification No. 13/2003-ST, exempting it from service tax. This decision affirms the principle that statutory interpretation should not render any part of the statute redundant. The Tribunal stated, 'holistic, harmonious and fair construction of the definition of agricultural produce leads to the inescapable conclusion that while ginned cotton would be covered within the scope of 'raw vegetable fibres such as cotton' and hence qualify to be called 'agricultural produce', ginned cotton if subjected to any further processes like carding etc. would get out of the purview of 'agricultural produce'.' The final determination was to set aside the impugned order and allow the appeal.