TaxTMI 
TaxTMI 
2024 (8) TMI 134
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10.01.2024 issued by Authority for Advance Ruling, Andhra Pradesh. 1. Background of the Case: Appellant in Brief • The applicant, M/s. Archipel India Foundation is social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small scale farmers. The Applicant is formed for social purpose to assist the people and society and rural development. • The Applicant has entered into a Project Development Agreement ("Agreement") with M/s. Shell Energy India Private Limited ("SEIPL") where, as per Schedule 1 of the said agreement, "Project" has been defined as Afforestation, Reforestation and Revegetation (ARR) for Sustainable Agriculture and Land Management and Afforestation. • The project will be undertaken in the state of Andhra Pradesh to increase productivity of privately held agricultural lands in 2 mandals of Integrated Tribal Development Agency, Paderu, District Alluri Sitharamaraju, covering an area of approximately 23,000 hectares and 20,000 farmers. • The Appellant and SEIPL wish to collaborate together to ensure the long-term success of ARR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the appellant as follows (Page 48 & 49 of the Agreement):- AIF will act as a Project Proponent, Developer and Operator in implementing and coordinating all required operational activity and will provide its services to carry out ARR project. Responsibilities of AIF includes all activities in the level of field actions including relationships with the farmers, but are not limited to: - • Project design and implementation • Establishing landownership • Community awareness, engagements, and mobilization in line with VCSCCB requirements including undertaking all data collection, surveys on climate, community and biodiversity to establish baseline and for periodic monitoring reports including necessary data collection and monitoring of the Project as per the advice of the carbon consultants and Shell for preparation of the PDD, validation and verification of the project as per the MRV protocols required by VERRA. • Entering into agreement with landowners for undertaking the project and transfer of 100% carbon credits. • Raising nurseries and procuring saplings as per the agreed species including transportation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t can be noted that multiple components of goods and services are contemplated in as a bundle. In such scenario, CGST Act provides for the concept of 'composite supply' to determine the taxability of such bundled transaction and to provide certainty in respect of tax treatment under GST for such supplies. • Further, it can be noted that primary activities performed by the Appellant is in the nature of planation and growing trees which is related to agriculture. Serial No. 24 of Notification No. 11/2017-CGST (Rate) dated June 28, 2017 (amended time to time) provides nil rate of rate for "Support services to agriculture, forestry, fishing, animal husbandry". Questions raised with AAR Andhra Pradesh Question 1: Whether the activities of the applicant under the agreement can qualify as 'composite supply under GST law with Principal Supply as "Support services to agriculture, forestry, fishing, animal husbandry" as provided in the SL No 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017 (as amended time to time) having SAC code 9986. Question 2: If the answer is affirmative, whether taxable rate applicable would be NIL in term no. 24 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of this project, various benefits will accrue such as economic benefits to farmers, environmental benefits such as reduction of soil erosion etc., social benefit by way of skill development and social and economic benefits to marginalized section of communities and farmers. Further submits that the project contributes to the conservation of local biodiversity by creating and maintaining diverse ecosystems through agroforestry, benefiting both plant and animal species. The adoption of regenerative agriculture practices, including the use of scientifically developed compost, mulehing, and green manuring, ensures long-term soil health and sustainable crop production. It is further submitted that Appellant will provide multiple services to the SEIPL which includes the following services:- • Project design, establishing ownership of land, Entering into agreement with land owners for undertaking the project and other ancillary activities • Raising nurseries (cultivation, plantation, maintenance), procuring saplings including transportation of saplings and plantations • Undertaking monitoring, maintenance and replacement of planted saplings and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....achinery or vacant land with or without a structure incidental to its use; (e) loading, unloading, packing, storage or warehousing of agricultural produce; (f) agricultural extension services; (g) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce. (ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. Carrying out an intermediate production process as job work in relation 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 or agricultural produce. Nil - The Appellant also wishes to refer to the explanatory notes to service codes. The relevant extract of Heading 9986 is reproduced below for ease of reference: "9986 Support services to agriculture, hunting, forestry, fishing, mining and utilities 99861 Support services to agriculture, hunting, forestry....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tiate that agricultural operations should be linked to production of any agricultural produce including cultivation, harvesting etc. • In view of the above, the Appellant has tabulated the scope of work and linked the same with the classification of services: Activities as per the agreement Classification of Service • Project design • Establishing ownership of land • * Entering into an agreement with landowners for undertaking the project and other ancillary activities These are the initial activities before start of the cultivation of plants. These activities may not be termed as agricultural operations directly in relation to agricultural produce. However, SAC code of 9986 also carries a residual entry of other support services related to agriculture etc. not elsewhere classified. Therefore, these initial activities although not directly related to production of agriculture produce, but can be considered as incidental and ancillary for undertaking agricultural operations. • Raising nurseries • Procuring saplings (agreed species) including transportation of saplings and plantations. â....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Verra, issuance of credits, etc. • Providing any other relevant data (such as planting locations, species planted, community data, photographs etc.) as requested by the carbon consultant • Work closely with the Carbon Consultant and provide any other information and data that maybe required to help the Carbon Consultant undertake their role effectively In order to generate carbon credit and obtain certification and scrips from the registry, the project needs to be in compliance with VCS-CCB requirements. Further, in order to register the project in accordance with Verra Carbon Standard (VCS), the carbon consultant needs to prepare and submit various baseline reports, Project Development Document(PDD), field audit for validation and verification of carbon credit. In order to prepare the above reports to be submitted with registry, the carbon consultant would require various data and information. In relation to this, the appellant would liaison with and assist carbon consultant in providing relevant information, statements and documents. It can be noted that the appellant will work on ground and will the best position to provide the requisite informat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....authority was whether services provided by Applicant is covered under agricultural extension services and hence exempted in terms of Entry no 57 of Notification 9/2017. The Hon'ble AAR authority observed that the scope of the applicant under the contract is as follows:- • Promote Tree Based Agriculture as guided by Cauvery Calling • Farmer enrolment and Demand collection • Support farmers with sapling pickup from nurseries • Conducting proof of planting surveys • Conducting proof of survival surveys • Inventory tracking at nurseries • The Hon'ble AAR authority held that the applicant, through mara mitras, provides education and training to the farmers for cultivation of plants / trees, by applying scientific research and knowledge which qualifies as agricultural extension services as per the definition. All the other activities of the applicant carried out through mara mitras from selection of saplings to assisting in transportation & planting, to monitoring the survival of plants are related to agricultural extension activity. Thus, the services of the applicant are covered under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icipation in the realm of carbon credit trading, on examination of records, stands as evidence of a significantly prove that the appellant is a commercial enterprise. Carbon credit trading, where the appellant is involved is a big business on commercial lines . We noticed this by carefully looking at their records. This shows us a significant commercial operation. The activities required to be undertaken for the purposes of achieving the Project Objectives are not purely related agricultural activities but also involves activities such as Project Design, Carbon Accounting, Validation, Monitoring, Reporting and Verification, Project Administration, Project Operations, Biodiversity Impact Assessment, Community Engagement etc., We found that such activities doesn't quite fit the definition of support services 9986". "To understand this legally, we need to look at what the appellant is really trying to do. It seems they want to make it look like they're doing good things for the environment, like planting trees. They're saying it's a social enterprise. But, behind this seemingly good intention, their main goal is to make a profit from trading carbon credits. They wan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reiterated that the main purpose with which the Appellant has been set up and the purpose of the Project was to contributes to conservation of local biodiversity by creating and maintaining diverse ecosystems through agroforestry, benefiting both plant and animal species which includes adoption of regenerative agriculture practices, including the use of scientifically developed compost, mulehing, and green manuring, ensures long-term soil health and sustainable crop production. • It is submitted that for the purpose of fulfillment of the obligations of the project, the Appellant has performed many activities under the project which includes raising nurseries, enter into agreement with landowners for undertaking the project, monitoring and maintenance of planted saplings and crops etc and providing support to the consultant etc. • The AAR has observed that the Appellant's strategy of aligning with environmental initiatives while also aiming for profit is intentional. However, the AAR has failed to appreciate the fact that the Appellant is a social enterprise in India that develops and implements community-based conservation and sustainable agricultural land....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... landowners to ensure transfer of 100% carbon credits to Shell. Para 5.9. AIF shall provide all the necessary information and support to the Carbon Consultant appointed by Shell to manage requirements of VCS and CCB standards (including but not limiting to PDD, Monitoring report etc.) as detailed in Schedule 1. Page No. 3 AIF will act as a Project Proponent, Developer and Operator in implementing and coordinating all required operational activity and will provide its services to carry out ARR project. Responsibilities of AIF includes all activities in the level of field actions including relationships with the farmers. Page No. 3 Shell has agreed to support the development of the Project by incurring expenses relating to development and operational activities for the Project, with the intent to be granted the full, legal, beneficial and unencumbered title to 100% of the VCUs generated by the Project and participate in the project governance as a non-operating party. • From the above, agreement between the appellant and SEIPL it is quite clear that SEIPL will incur expenses related to the development and operational activities for the project. Further, the carb....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Composite supply can be effected only by a person who is registered or liable to be registered under GST Law The Applicant is registered under GST law and hence this condition is satisfied. Consisting of two or more taxable supplies of goods or services of bath, or any combination thereof Two or more taxable supply is necessary to constitute a composite supply. Taxable supply is defined to mean "a supply of goods or services or both which is leviable to tax under this Act; In the present case, as explained above in detail, there are multiple taxable supplies involved:- * Support service relating to agriculture * Procurement of goods such as saplings, seeds, fertilizers Other Support service relating to agriculture * Creating documentation of GHG reductions in complying with VCS-CCB standards and sharing such info as necessary Supplies should be naturally bundled The term "naturally bundled" is not defined in the GST Law. However, two supplies can be considered as naturally bundled if one is a principal supply and other supply which is ancillary to make the principal supply more effective, more convenient, more comfortable, more useful, and more enjoya....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se, ultimate objective of cultivation or planation of crops/tree is GHG reduction. In order to achieve this objective, main activity is plantation and maintenance of crops/tree during entire life cycle of the project. Therefore, the activities like project design, implementation, coordination with farmers, agreement with farmers, purchase of saplings, fertilizers etc. can be said as incidental or ancillary for better enjoyment main service i.e., support service relating to agriculture. Implementation, coordination with farmers, agreement with farmers, purchase of saplings, fertilizers etc. can be said as incidental or ancillary for better enjoyment main service i.e., support service relating to agriculture. The main role of AlF is to provide cultivation, planation, monitoring and maintenance services of crops/plants. Therefore, other services like project design, implementation, coordination with farmers, agreement with farmers are incidental to provide main supply. 3. In case of nature based solution business, the applicant would not advertise the entire gamut of supplies as package but customize the same basis the requirement of the service receiver. However, the main ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... context, support services relating to agriculture" constitutes predominant element of composite supply. This is also due to the fact that entire contract is dependent on cultivation of plant. Other activities like project design, implementation, dealing with farmers, contract with farmers, procurement of sapling is ancillary or incidental to the main supply Further, it can be noted that out of the total project cost, majority of the cost is budgeted for cultivation, planation, maintenance and monitoring the growth of the plant/trees. Therefore, it can be concluded that the principal supply among the various activities under the contract is the "support services to agriculture" and other supplies are ancillary or incidental to the main supply. From the above tabulation, it can be noted the present activities of the applicant qualifies as composite supply with principal supply as "Support Services to Agriculture" and other activities as incidental or ancillary to the principal supply. In order to determine taxability of composite supply, Section 8 of CGST Act is required to be referred which provides as follows:- Tax liability on composite and mixed supplies.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y a commission agent for sale or purchase of agricultural produce. (h) Services by way of fumigation in a warehouse of agricultural produce. (ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. (iii) Carrying out an intermediate production process as job work in relation 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 or agricultural produce. Nil - THE IMPUGNED ORDER IS ISSUED IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AS MUCH AS IT IS A NONSPEAKING/NON-REASONED ORDER; BEREFT OF MATERIAL PARTICULARS AND THE BASIS OF UPHOLDING THE ORDER IS NOT DISCERNIBLE THEREFROM The appellant in their application has made clear by themselves that the activities under the project agreement is not purely related to agricultural service but also other incidental and ancillary services such as project design, coordination with carbon consultant for provision of data etc. are involved. Therefore, the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. (d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. (e) Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. (f) Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial quasi -judicial and even by administrative bodies. (g) Reasons facilitate the process of judicial review by superior Courts. (h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. (i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmers directly transfer full legal, beneficial and unencumbered title to 100% of the Verified Carbon Units (VCUs) generated by the Project to Shell Energy India Markets Private Limited (investor of the project). A.2 In this regard, the Appellant would like to submit that in terms of the project agreement (already submitted as part of appeal, appellant being the project proponent, developer and operator is responsible for maintaining the relationship with the farmer and entering into agreement with landowners for undertaking the project and transfer of 100% carbon credits. A.3 In terms of the above and as depicted in the diagram submitted before your good authority, the appellant has entered into an agreement with the farmers under which 100% of carbon credits will be transferred by the farmers directly to the investor (i.e., Shell Energy India Pvt Ltd). Considering the volume of the project i.e., 23.000 hectares and 20,000 farmers, the appellant has entered an agreement basis of village wise with the farmers. In this regard, the appellant would like to draw your kind attention towards the agreement entered by appellant and farmers of *Peda Koravangi" village (i.e., Mandal nam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....breakup of the total cost of the project with major heads. B.2 With regard to the above, the total estimated cost of the project cost is INR 189 Cr and the indicative breakup is as follows:- Sl.No Particulars Description Percentage of Cost A Material Cost A.1 Saplings, Seeds, Slips Material Cost 27.41% A.2 Replantation and critical farms Material Cost 4.32% A.3 Farm inputs Material Cost 11.62% A.4 Farm tools Farm tools issued to farmers 1.17% B Training Training to Farmers 3.24% C Human Resources Salaries and wages of all village workers and volunteers 25.03% D Data Management Record keeping, MIS etc 0.63% E Capex E.1 Data Management Software costs 0.32% E.2 Compost unit 2 units (c) 750 MT pa capacity 1.32% E.3 Biocentre unit Centralized Production Centre for bio-innoculants 1.32% E.4 GPS devices, tabs, laptops Tablets, GPS equipment for field surveys, Laptops for staff 0.58% E.5 Nurseries Land lease, equipment, seeds, saplings, etc. 1.58% F Admin, travel and office ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oned above specified that "Services relating to cultivation of plants....." and hence the wide meaning needs to be given to this. Further, reliance can be placed in case of Tamilnadu Kalyana Mandapam Association u. Union of India, 3 STR 2бо: (2006) 4 STT 308 (SC), wherein it was held that the phrase, 'in relation to' has to be construed to be of widest amplitude. The scope of words, 'in relation to' is very wide "Including" The word 'includes' or 'including' gives a wider meaning to the words or phrases in the statutes. The word 'includes' is usually used in the interpretation clause in order to enlarge the meaning of the words in the statute. Reliance can be placed in case of Coca Cola India (P.) Ltd. v. CCE [2009] 22 STT 130 (Bombay) wherein it was held that the word "include' in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. 5. Discussion and Findings: We have gone through the submissions made by the appellant in light of the ruling pronounced by the Authority for Advance Ruling. On perusal of the elaborate subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evelopment and operational activities for the Project, with the intent to be granted the full, legal, beneficial and unencumbered title to 100% of the VCUs generated by the Project and participate in the project governance as a non-operating party. F AIF wishes to be the Project Proponent, Developer and Operator of the Project in India, implementing and coordinating all required operational activity under the oversight of the Joint Coordination Committee under the terms of this Agreement. 5.3 Further, Para 3 of the said Agreement lays down the Acknowledgements, Representations and Warranties as follows: 3. Acknowledgements, Representations and Warranties Acknowledgement 3.1 Each Party acknowledges for the benefit of each Party that: (a) it has entered into this Agreement for good and valuable consideration for the performance by each Party of its obligations under this Agreement; and (b) nothing in this Agreement constitutes or is to be construed as being a joint venture, or agency relationship between the Parties. 5.4 A combined reading of both the Recitals and the Representations and Warranties, it is clearly evident tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o different recipients. The Appellant is now seeking clarification as to whether those supplies can be clubbed together and be categorised as 'Composite Supply'. 5.8 'Composite Supply' is defined under Section 2 (30) of the CGST Act as - (30) "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply The essential requirements for a supply to be treated as "Composite Supply" are as follows: (i) it should be a supply by a taxable person to a recipient (ii) consisting of two or more taxable supplies of goods or services or both (iii) which are naturally bundled and supplied in conjunction with each other (iv) in the ordinary course of business (v) where one of the supplies is a principal supply 5.9 As stated above, the appellant is making some supplies to SHELL (Sl. Nos. 1 & 3 in the above table) and some supplies to Farmers (Sl.No.2 in the above table). The law envis....