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.

[piyush agarwal]

Rice is not exempted from service tax for all purpose like other agricultural produce. Example

Transportation, loading, unloading, packing, storage and warehousing of rice are exempt from service tax.

However, supplies of labours, supply of machinery towards rice or commission on sale of rice are taxable service under service tax.

[Ganeshan Kalyani]

Your second para seems not right as supply of labour for agricultural activity is exempt from service tax and so as other activity for agricultural purpose.

[KASTURI SETHI]

I fully agree with Sh. Ganeshan Kalyani, Sir. But here Sh.Piyush Agarwal does not agree that rice is agriculture produce.Services by a commission agent for sale or purchase of agriculture produce is also in the negative list Section 66(D)(d)(vii). Renting or leasing of agro machinery for agriculture produce is also in the negative list. Section 66 (D)(d)((iv).

[KASTURI SETHI]

 

As per Board's Circular No.No.177/3/2014-ST dated 17.2.2014 Paddy is covered under agriculture produce and rice is excluded from the definition of 'agriculture produce' so many benefits available to agriculture produce in the Negative List have been extended to rice.

As per dictionary meaning, ' Paddy is a field flooded with water where rice is grown or a rice field.Paddy is agriculture produce and rice is not, it cannot be digested. Dictionary meaning of paddy cannot be changed or twisted. If we read the expression/term of 'Services relating to agriculture or agriculture produce under Section 66(D)(d)' between the lines, rice, bran and husk of paddy are either covered under the definition of 'agriculture produce' or in 'services relating to agriculture'. Let us go through Board's circular which reads as follows:-

"Rice - Exempted from Service Tax - Clarifications

Circular No. 177/3/2014-S.T., dated 17-2-2014

F.No. 334/03/2014-TRU

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Excise & Customs, New Delhi

Subject : Rice - Exemptions from Service Tax - Regarding."

 

Paddy is an agriculture produce and rice is not agriculture produce because of milling process or threshing (Negative List) which changed the essential character of paddy. This is view of Sh.Piyush Agarwal.

I do not agree with Sh.Piyush Agarwal on the following grounds:-

(1) Services in relation to agriculture or agriculture produce are in the Negative List under Section 66(D)(d) of the Finance Act. As per para No.5 of Board's Circular dated 17.2.14.milling of paddy is an intermediate production process in relation to agriculture. What we obtain after milling of paddy ? These are rice, bran and husk. If Board's circular says that rice is excluded from the definition of 'agriculture produce' it cannot be denied that rice, bran and husk of paddy are in relation to agriculture.

2. Because of milling the paddy into rice, rice has not become a manufactured product like 'sugar' from sugarcane where all the essential characters are changed and a new product emerges from sugarcane, an agriculture produce. Milling or threshing separates the paddy into three separate parts i.e. rice, bran and husk which already exist. No new product has emerged in this way.Paddy is only separated into three goods by way of milling/ threshing. All these three goods have not lost their individual identity or essential character at the time of milling paddy. They retain their original shape as they grew; only they were separated into three goods.Rice, bran and husk all are agriculture produce.

3. It is a fact that rice is not a manufactured product. Then what is it ? Rice, bran and husk all are agriculture produce. In case rice, bran and husk of paddy are not to be treated as agriculture produce or in relation to agriculture, the Board's circular dated 17.2.14 is not in letter and spirit of Service Tax law or we may say it is contrary to the Service Tax law. It needs to be amended.

If we read the expression/term of 'Services relating to agriculture or agriculture produce under Section 66(D)(d)' between the lines, rice, bran and husk of paddy are either covered under the definition of 'agriculture produce' or in 'services relating to agriculture'.

These are my views/interpretations.

[piyush agarwal]

Respected Sethi & Kalyani Sir,

I would like to draw your attentions on bold letters on Circular 177/03/2014 – ST dated 17th February, 2014

These doubts have arisen in the context of definition of 'agricultural produce' available in section 65B(5) of the Finance Act, 1994. The said definition covers 'paddy'; but excludes 'rice'. However, many benefits available to agricultural produce in the negative list [section 66D(d)] have been extended to rice, by way of appropriate entries in the exemption notification.

Section 65(B) is definition of agricultural produce.

The said circular clarify of definition of agricultural produce covers 'paddy'; but excludes 'rice'.

Word "many benefits" means most benefits and not all benefits. therefore only

Transportation, loading, unloading, packing, storage and warehousing of rice are exempt from service tax being rice is food grain and these service are also exempted for agricultural produce.

However, supplies of labours, supply of machinery towards rice or commission on sale of rice are taxable service under service tax for being food grain but these services would be EXEMPTED if rice would have been agricultural produce.

Service relating to agriculture or agricultural produce by way of inter alia services provided by a commission agent for purchase or sale of agricultural produce are covered under clause (d) of section 66D. However, CBEC vide Circular 177/03/2014 – ST dated 17th February, 2014 clarified definition of agricultural produce u/s 65(5) covers 'paddy'; but excludes 'rice'. Hence sale of rice on commission basis will be taxable.

Above views are mine interpetation.

 

 

[Ganeshan Kalyani]

Out of my experience I would like to state that law is based on how you interpret it. It is also true that Gvt cannot be generous in giving away all benefits. But the law is always good in giving the best to its citizen. Hence I would request you accept the fact and enjoy the life. Thanks.

[KASTURI SETHI]

w.r.t. Sh.Piyush Agarwal's views, I would like to further point out that Board's circulars have no statutory force. It is a fact that Act/Rules will prevail over circular. Jaggery has been declared as agriculture produce vide Board's circular No.B.11/1/2002/TRU dated 1.8.2002 and Notification No.8/2004-ST dated 9.7.2004 whereas it is manufactured product. Jaggery is manufactured out of sugarcane. Sugarcane undergoes so many processes i.e. crushing /squeezing by machine, boiling the juice, filtering and drying and then a new product is emerged.Jaggery cannot be agriculture produce like sugar which is manufactured product. Both circular and notification are still in force. This aspect has not been touched till date. Both should have either been amended or withdrawn from 1.7.12 keeping in view the changes/amendments in Service Tax at large scale effective from 1.7.2012

I mean to say Board's circular is challengeable and not final. The Apex Court has also held that Board's circular which is contrary to law is not binding on the departmental officers.

Definition of 'agriculture' under Section 65 B(3) is also defective. "rearing of all life-forms of animals, except the rearing of horses,--------------" Why the horses have been excluded from the definition of agriculture ? There are so many animals whose body parts or hair etc. are not useful at all and all those should have been excluded. What is the basis of excluding horses from the definition of agriculture ? This definition should also be amended and it will be amended only when SCNs are issued due to defective definition.

Paddy is exempted and rice is taxable What is logic ? The ultimate purpose of exemption to paddy is defeated by excluding rice from the definition of agriculture produce. After all human beings eat rice which is major part of paddy and rice is food grain. bran of rice is also useful. Husk is of no use. Circular is defective.

 

 

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Board's circular dated 17.2.14 has created confusion and not Sh.Piyush Agarwal. However, all of three have given sufficient material (or you may say foundation) to SH. MARIAPPAN GOVINDARAJAN, (an architect of more than 1000 articles on this site alone) to write an article for onward transmission to the Board to dispel confusions. Ball is in his court now.

.

[Ganeshan Kalyani]

Fully agree with you. Thank you and thanks to Mr. Kunal Pawar who posted the initial query in this Issue ID and thanks to Mr. Piyush Agarwal for healthy discussion on the subject. Thanks for enriching my knowledge.

[piyush agarwal]

Thank you Sethi Sir & Kalyani Sir for sharing your knowledge with us. It was my pleasure to have great discussion with you all.

Thanks.

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.