GST Treatment for Supply of Farm Labourers to the Agriculture R&D units and Farmers Who are growing taxable and non-taxable seeds.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

"A" is a supplier of Man Power for Farm Labour to various Farm Units who are engaged in Research & Development in Seeds Production, including commercial crops like Cotton seeds and other non-commercial seeds. One such unit is M/s RASI SEEDS PVT LTD (R&D FARM). They are exclusively engaged in seed research and development for better yields and sell to Farmers following the procedures prescribed by the Government. Such Units are procuring manpower for Farm Labour.  Supply of Farm Labour is exempted from Tax as per Notification 12/2017. 

Commercial seeds produced/ procured and processed, packed and sold are treated as taxable under GST as it is differentiated from the definition of “Agriculture Produce”, which is not treated as grains. It is affirmed in the Order in the case of M/s. Ganga Kaveri Seeds P. Ltd. 2022 (11) TMI 82 - APPELLATE AUTHORITY FOR ADVANCE RULING, TELANGANA, passed by TELANGANA STATE APPELLATE AUTHORITY FOR ADVANCE RULING vide Order-in-Appeal No. AAAR/09/2022 dated:19.10.2022 and also Advance Ruling in the case No. RAJ/AAR/2019-20/29, Dated 18-12-2019, of Mrs. Manju Devi, M/s M D Enterprises, by the Advance Ruling Authority, Rajasthan - 2020 (1) TMI 979 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN.

 "A"’ is denied exemption for the supply of Farm Labourers to such R&D Units because they are developing cotton seeds, which are taxable goods.

Whether “A” is liable to tax in the above situation, and even if he supplies farm labourers to Farmers growing taxable seeds?

[Sadanand Bulbule]

Supply of Farm Labour to Farmers (for cultivation of crops, including cotton seeds) •

As per Entry 54 of Notification No.12/2017-Central Tax (Rate), “services relating to cultivation of plants… including supply of farm labour” are exempt. This exemption is available irrespective of whether the final produce (crop/seed) is taxable or exempt, because the exemption is based on nature of activity (cultivation), not on whether the produce is taxable.  Therefore, supplying farm labour directly to farmers is exempt from GST.

2. Supply of Farm Labour to R&D Units (Seed Research Companies) •

R&D units are not engaged in cultivation for food, fiber, raw material or animal feed in the ordinary agricultural sense. Courts have consistently held that such R&D activity does not qualify as “agricultural operations” for the purpose of exemption. Therefore, supplying farm labour to R&D units is taxable under GST (18% under manpower supply service).

[Sadanand Bulbule]

It may also be remembered that, Entry No. 54 of Notification No. 12/2017 [supra] does not whisper anything about R&D activities. Rather it orbits around agricultural produce and related activities per se.

[Shilpi Jain]

Its a highly interpretative issue that you have raised.

Services relating to 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.....

To me it looks like there could be a possibility of an exemption considering that the above also includes "other similar products" .

So once you are cultivating (which may also be as a part of the R&D process) and you can demonstrate that you are doing this for other simlar products there shold be a possibility.

 

[Shilpi Jain]

Also there is a lot of controversy around seeds being an agricultural produce. AARs are all unfavourable and cannot be regarded as a final view on this aspect. This will proceed to Courts / Tribunal for decision.

[KALLESHAMURTHY MURTHY K.N.]

Sir/Madam, 

The views of Sri Bulbule Sir are acceptable from one angle, that R&D Units do not cultivate agricultural produce. In the other sense, Shilpi Madam has given a more valuable lead for thoughts.  Though R&D Units do not grow crops, they are working on the agricultural land with field trials and developing innovative seeds and contribute to sustainable agriculture. They not only develop commercial seeds but also other similar products, as Shilpi Madam tells. Why is the manpower used in such activities not treated as agricultural labour for exemption? Does the exemption depend on the outcome or the nature of the work involved?  Even agricultural Experts may lighten more. 

AI Summary

Supply of farm labour: exempt to farmers for cultivation, but taxable when supplied to R&D seed units lacking cultivation.
Supplying farm labour directly to farmers for cultivation is exempt because the exemption targets cultivation-related services regardless of whether the produce (including seeds) is taxable. Supplying manpower to seed R&D units is likely taxable, since R&D field trials and experimental work are treated as outside ordinary agricultural operations; however, an interpretive argument exists that R&D cultivation for "other similar products" could fall within the exemption, making the question fact-sensitive and contested.