Is milk an agriculture produce ?

[Kunal Pawar]

Whether commission received on account of collection and supply of milk to Dairies taxable under BAS. If milk considered as agriculture produce, it is exempted being includes in negative list. However, nowhere in the definition of Agriculture produce, it is clearly mentioned that milk is an agriculture produce.

[Rajagopalan Ranganathan]

Sir,

Milk is dairy product and not agricultural produce. Hence it is not included in the Negative list. Regarding payment of service tax on commission for collection and supply of milk to dairy, if the commission is paid by dairy then it is taxable under BAS or BSS (Business Support Service).

[Mahir S]

Sir,

Dairy farming is altogether a different identity and therefore Milk does not fall under the agricultural product and hence does not fall under the the purview of negative list under service tax.

[Kunal Pawar]

Sir,

Thanks for guidance.

As per Section 65B(3) & 65B(5), definitions of agriculture and agriculture produce are as under :-

Section 65B(3) - "agriculture" means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products &

Section 65B (5) - "agricultural produce" means any produce of agriculture on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

In the definition of agriculture, rearing of all life forms of animals is considered as agriculture and my question is whether milk is included in rearing of all life forms of animals. Further, in the definition of agriculture produce also, any produce of agriculture is included and again my query is whether milk may get included in any produce of agriculture produce.

Please assist.

[Ganeshan Kalyani]

The term milk is not mentioned in the exemption notification no.25/2012. Milk cannot be said as Agriculture produce. Therefore service is applicable.

[KASTURI SETHI]

Kunal Pawar Ji,

I have read your views expressed on 27.10.2015. Milk cannot be termed as agriculture produce by any stretch of imagination (practically, lawfully and as per dictionary meaning). There is a world of difference between the activity of 'rearing of animals' and their 'produce'. Hypothetically, for a moment if we consider 'milk' as agriculture produce, then hair and skin of all forms of animals i.e.sheep, rabbit, camel, she-goat, buffalo etc. would also be treated as agriculture produce. Can you consider 'leather' also as agriculture produce ? Not possible. Hence practically, lawfully and as per literal meaning of the word in dictionary, milk cannot be included in the gamut of the definition of 'agriculture produce' laid down under Section 65 B(3) & (5) of the Finance Act.

[DR.MARIAPPAN GOVINDARAJAN]

Dear Kasthuri Sethi Sir, your explanation and justification is superb.

[Kunal Pawar]

Thanks a lot Kasturi Sethi Sir for necessary guidance.

[KASTURI SETHI]

Shri MARIAPPAN GOVINDARAJAN JI,

Thanks for liking and appreciating my reply.

[Ganeshan Kalyani]

Nice explanation sir.

[KASTURI SETHI]

Dear Sh.Ganeshan Kalyani Ji,

Thanks a lot for appreciating my reply. I have noted that you have not mentioned your email Id in your profile. Non-uploading of your photo is your discretion.

[Ganeshan Kalyani]

ID updated sir.

[KASTURI SETHI]

I have received a query from Sh.Piyush Agarwal, Bhuwaneshwar through email. He has desired that reply should be posted in Discussion Forum. His query is

(1) Whether rice bran, de-oiled paddy husk and cattle feed are agriculture produce or not ? Food grains or not ?

My reply is as under :-

First of all we should know what is bran. What is chaff ? What is husk ? what is cattle feed ? What is milling ? During the process whether there is any change in essential character of the goods ? During milling whether any new product emerged ?

What is bran ?

As per dictionary meaning, “Bran is the hard outer layers of cereal grain. It consists of the combined aleurone. Along with germ, it is an integral part of whole grains, and is often produced as a byproduct of milling in the production of refined grains. When bran is removed from grains, the grains lose a portion of their nutritional value. Bran is present in and may be milled from any cereal grain, including rice, corn (maize), wheat, oats, barley and millet. Bran should not be confused with chaff, which is coarser scaly material surrounding the grain, but not forming part of the grain itself.”

What is chaff ? (भूसा)

As per dictionary meaning:- Chaff is the dry, scaly protective casings of the seeds of cereal grain, or similar fine, dry, scaly plant material such as scaly parts of flowers, or finely chopped straw. Chaff is indigestible by humans, but livestock can eat it and in agriculture it is used as livestock fodder, or is a waste material ploughed into the soil or burnt.

HUSK and chaff are the same.

What is milling ?

Milling is a cutting process that uses a milling cutter to remove material from the surface of a workpiece. The milling process removes material by performing many separate, small cuts.

What is cattle feed ?

Grass, hay, legume, bran, chaff, gram (चना), CORN= मकई या दाना या अनाज का पेड़

 

DEFINITION OF AGRICULTURE PRODUCE

 

 

Board’s Circular No.B.11/1/2002/TRU dated 1.8.2002

Para No.4 Service provided in relation to agriculture produce and service provided by cold storage is outside the ambit of the levy. Doubts have been raised about the scope of term “agricultural produce”. In order to clarify the scope of this term beyond doubts, an order has been issued under the power vested under section 95 of the Finance Act (see Order No. 1/2002-S.T., dated 1-8-2002). As clarified in the order, the term agricultural produce would cover all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, and similar products. However, manufactured products such as sugar, edible oils, processed food etc. will not come under the purview of the term ‘agricultural produce’.

Notification No.8/2004-ST dated 9.7.2004

(ii) “agricultural produce” means any produce resulting from cultivation or plantation, on which either no further processing is done or such processing is done by the cultivator like tending, pruning, cutting, harvesting, drying which does not alter its essential characteristics but makes it only marketable and includes all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute, indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice, coffee and tea but does not include manufactured products such as sugar, edible oils, processed food and processed tobacco.”

 

ANALYSIS

 

Bran is an integral part of the whole grain (may be wheat, rice, maize, barley, millet, oat). Bran is separated from whole grain by milling. Bran is present in the whole grain as a hard out layer covered by chaff or husk before milling. After milling they are separated into three parts i.e. grain itself , bran and chaff or husk which were already there in as an integral part of wholegrain as agriculture produce. After milling, all the three parts of whole grain do not lose their identity. Neither any change takes place in the essential character of goods (agriculture produce) norany new product emerges as a result of milling. Bran is eaten by human being as well as animals. Biscuit of bran are available. Dalia is made of wheat and bran. Bran is not separate from wheat for dalia. All the items mentioned above are food grains (whether milled or not) and bran of these is complete food grain being more nutritious than wholegrain. Thus these are food grains as well as agriculture produce. Milling has done nothing except separating into three parts. Essential character has not been altered. Grain and bran are eaten by human being and husk whether de-oiled or not it is eaten by animal. Husk is cattle feed. Are grain, bran and husk manufactured product ? No. They existed before milling and even after milling.

As per Board’s circular and notification mentioned supra, only manufactured products are out of ambit of agriculture produce. For example:- Sugarcane is agriculture produce and sugar obtained there from is manufactured product because a new product has emerged. Basic essential character changed. After the manufacture of Sugar, there is by-product called bagasse. Bagasse can be compared to chaff or husk. Though bagasse has emerged after milling/crushing sugar cane, Hon’ble Supreme Court in the case of Union of India Vs. DSCL SugarsLtd. 2015 reported as (322) E.L.T. 769 (S.C.) = 2015 (10) TMI 566 - SUPREME COURT has held that it is an un-manufactured product, being not result of any process. Despite being a bye-product it has been held as unmanufactured.

By applying the ratio of the judgement of the Apex Court and Board’s Circular read with Notification we can deduce that grain, bran and husk are agriculture produce and hence exempted from Service Tax in respect of GTA service.

 

Cattle feed includes Grass, hay, legume, bran, chaff, gram (चना), CORN (मकई या दाना या अनाज का पेड़). I think there should not be even an iota of doubt or dispute that these are agriculture produce.

Conclusion : By undergoing any process does not mean it is out of the gamut of agriculture produce. There are two major factors i.e. A new product must emerge and essential character of the goods must be altered to be out of natural product or agriculture produce.

2015 (322) E.L.T. 769 (S.C.) = 2015 (10) TMI 566 - SUPREME COURT

IN THE SUPREME COURT OF INDIA

A.K. Sikri and Rohinton Fali Nariman, JJ.

UNION OF INDIA Versus DSCL SUGAR LTD.

_______

Pl. Note that there is one mistake in Board’s Circular and Notification. Jaggery has been declared as agriculture produce whereas jaggery is manufactured product or proceed food. Essential character of sugar cane is altered and a new product emerged. Sugar is manufactured product and Jaggery is agriculture produce (?) How can be ? Contradiction in this aspect.

 

 

 

[Ganeshan Kalyani]

In detailed reply. It enriched my knowledge. Thanks Kasturi Sir.

[piyush agarwal]

Definition of agricultural produce as per Section 65B(5)

"Agricultural produce" means any produce of agriculture on which either no further processingis done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market

Definition of Agriculture as per Section 65B(3)

Agriculture: As per section 65B(3) of the act, it means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products.

Paddy is produce of agriculture, on which further processing is done by man or machine to procure Rice, hence rice is not a agricultural produce.

[Ganeshan Kalyani]

Continue reading the definition of agricultural produce also ahead to underlined text which reads as "or such processing as is usually done by a producer or cultivator which does not alter its essential characteristics but makes it marketable for primary market". The process done by man or machine to produce rice does not alter the characteristics but only makes it marketable in primary market. Hence it is still agricultural produce. Further any process after procuring from primary market would stretch beyond agricultural definition and would be taxable.

[piyush agarwal]

Circular No. 177/03/2014 – ST dated 17th February, 2014 clarified 'agricultural produce' available in section 65B(5) of the Finance Act covers 'paddy'; but excludes 'rice'. Hence it means rice is not a agricultural produce.

[Ganeshan Kalyani]

The circular states that service related to rice is exempt from service tax. For e.g. transportation of rice, loading unloading of rice, milling of paddy into rice etc.

[KASTURI SETHI]

Sir,

Rice is exempted from Service Tax for all purposes. Bran of wheat, rice, oats, barley etc. is edible for human beings as well as animal. It is eaten by animals direct and human beings eat by mixing with an other eatable item. Bran is agriculture produce though it undergoes some processes by machine or manually by farmers.

I invite comments from all experts on my views expressed above.

[KASTURI SETHI]

Assessee is concerned with relief. Govt has granted relief to the assessee by granting exemption from Service Tax in respect of rice vide Notification 4/14-ST dated 17.2.14 read with Board'sCircular No. 177/03/2014 – ST dated 17th February, 2014.

[Ganeshan Kalyani]

I have went through the Notification and I agree with Kasturi sir's view.

AI Summary

Definition of agricultural produce: whether milk is covered affects service tax exemption for services connected to its supply. Whether milk qualifies as agricultural produce under the statutory definitions is contested: Section 65B treats agriculture to include rearing of animals and defines agricultural produce as items on which only customary processing that does not alter essential characteristics has been done. The discussion contrasts views holding milk to be a dairy product outside the negative list with views relying on the statutory test that processing must produce a new product or alter essential character to exclude an item, and examines analogous controversies over paddy, rice, bran and husk and administrative circulars extending or limiting exemptions.