Services to Agriculture Sector

Professional Services to Agriculture Sector under GST

 

As we are very aware that India is an agricultural county and Government continuously allows a very big portion of budgetary expenditure every year for the development of the agricultural sector as this sector plays a significant role in the economy of the country that is the only reason to provide so many tax exemptions and tax benefits to the agricultural sectors.

 

Here we try to understand the taxability of professional services being provided to the agricultural sector under the Goods and Service Tax law in accordance with notifications, circulars, and advance ruling under the GST & ruling by the Apex courts & High courts in the erstwhile provision of Service Tax and provision has incorporated under the GST law to the best of my knowledge.

 

But before to discuss the mentioned query on taxability of professional service i.e. training to farmers, here we need to understand about some important terminology and provisions available in the erstwhile act and current tax regime relating to services provided to Agricultural Sector.

 

“Agricultural”

 

Section 65B (3) of the erstwhile Finance Act (Service Tax) has defined it as “Agricultural means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products”.

 

“Agricultural extension”

 

Section 65B (4) of the erstwhile Finance Act (Service Tax) has defined it as “Agricultural extension means the application of scientific research and knowledge to agricultural practices through farmer education or training.”

 

Based on our understanding of “Agricultural extension”, it can be explained as-

·       Agricultural extension is now a common activity in most countries of the world, and it is a basic element in programmes and projects formulated to bring about change in rural areas.

·       AES are aimed at implementing projects for change in the agricultural sector collaborating with the farmers.

·       Extension services are carried out by extension workers or extension agents.

·       Extension agents helps in promoting agricultural productivity, enhancing food security, improving rural livelihoods and promoting agriculture as an engine of pro-poor economic growth.

 

Objectives of Agricultural Extension services

 

·       To transmit the latest technical knowledge to farmers.

·       To provide feedback from farmers to extension officers/scientists on problems and constraints in agriculture.

·       To enhance the professional competence of extension functionaries.

·       To strengthen linkage amongst farmers, extension officers, and researchers.

·       To motivate farmers for overall development.

 

What are government initiatives on AES?

 

·       Central government: The National Institute of Agricultural Extension Management is an apex national institute set under the Ministry of Agriculture.

·       It assists the different organizations in effective management of their agricultural extension and other agricultural management systems.

·       State governments: The State Agricultural Department has also established various centres for the training of extension personnel.

·       SAMETI is an autonomous State level institution, which is responsible for the project implementation of various line departments as well as the farming community.

·       Local governments: For strengthening agricultural extension and transfer of technology to farmers, farmers clubs are being formed in most of the village.

·       These clubs consist of innovative farmers, progressive farmers and farmers’ interest groups (FIGs). One innovative farmer of each club acts as the convener or contact person.

 

Benefits of Agriculture Extension Services

 

·       In helps farmers to plan a detailed agricultural project or program to succeed.

·       It introduces a new technology which is around the globe, for innovative and productive farming.

·       It acts as a powerful tool when combined with price incentives, input supply, credit, and seed multiplication.

·       It acts as an intermediary link between agricultural development institutions such as research institutes, universities, colleges of agriculture, and target groups

·       The agricultural extension services mainly concentrated on strengthening the agricultural system by empowering farmers in terms of health, education, livelihood and income.

 

“Agricultural produce”

 

Section 65B (5) of the erstwhile Finance Act (Service Tax) Act “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 the primary market.

 

Now let’s understand the clarification given related to agricultural produce under the ‘Goods and Service Tax Law’-

 

Definition of “Agriculturalist”, as per GST Law

 

As per Section 2 (7) of the CGST Act,2017, “Agriculturalist” means an individual or a Hindu Undivided Family who undertakes cultivation of land:-

(a) By own labour,

(b) By the labour of family, or

(c) By servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family.

 

Meaning of Agricultural Produce as per GST Law

 

The definition of “agricultural produce” has not been provided in CGST Act. However, the term is defined vide para 4(7) of Notification No. 11/2017 and under Para 2 (d) of Notification No. 12/2017 - Central Tax (Rate), dated. 28’th June 2017,

 

“Agricultural Produce” means any product out of cultivation of plant and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products, 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 the primary market.

 

As per the aforesaid definition any products in order to become an agricultural produce having the following criteria-

(i)              Any produce out of cultivation of plants and rearing of all life forms of animals

(ii)            Such produce does not require any further processing and if any processing shall be carried by producer or cultivator

(iii)          the said processing does not alter the essential characteristics of such produce

(iv)          the requirement of such initial processing is essential to make the produce marketable at the primary stage of marketing

 

It is pertinent to mention that job working or any process or services relating to agriculture or agricultural produce that was specified in the negative list of services and was exempted from the payment of Service Tax under the pre-GST regime but now it is taxable in the GST regime.

 

Even it is contradictory to definition of agricultural produce as provided in the GST law. Without processing of paddy into rice cannot be marketable hence job working of paddy is primary marketing activities which makes agricultural produce i.e. paddy marketable. Further, the paddy cannot directly satisfy the requirement of consumer so there is need of processing of paddy into rice by the cultivators. Since every farmers having no facility or not owned machine for processing paddy into rice, so they carry out processing through Rice Miller and the services provided by Rice Miller should not be charged with GST as prescribed in the GST law. Alternatively, can we said that when paddy processed into rice by cultivators by own machine then services are not liable to GST but when get it done through Rice Miller is taxable. So it is a matter of discussion and arguable issue.

 

Meaning of agricultural process under the GST Act, 2017

 

Agricultural Processes or operations means shelling of paddy or cleaning of wheat carried out outside the farm be covered in the clause relating to services by way of processes carried out at an agricultural farm. Activities like the processes carried out in the agricultural farm would also be covered if the same are performed outside the agricultural farm provided such processes do not alter the essential characteristics of agricultural produce but only make it marketable in the primary market.

 

Therefore, the cleaning of wheat would be covered if the same is done outside the farm. Shelling of paddy would not be covered herein, since this process is never done on a farm but in a rice sheller normally located away from the farm.

 

However, if shelling is done by way of service i.e. on job work, manually then the same would be covered under the exemption relating to “carrying out of intermediate production process as job work about agricultural”.

 

Taxability of Agricultural Produce in the GST regime

 

In view of Notification No. 2/2017-Central Tax (Rate) most of the items related to agricultural produce or of the said category have been classified under the goods listed from Sl. Nos. 1 to 137 of Schedule of Goods Rates to Chapter Heading Nos. 101 to 8201 has been declared as Nil-rated. This clearly implies that produce out of cultivation or produced by agriculturists is exempted from tax.

 

If a person or organization provides support services relating to agriculture, forestry, fishing, and animal husbandry is whether exempt or taxable under GST Law?

 

Any person or organization provides support services in respect of agriculture, forestry, and animal husbandry, which have been exempted under the GST Act, vide entry 24 (Chapter Heading 9986) of Notification No. 11/2017-Central Tax (Rate), dated 28’th June’2017. The support services to the agriculture sector prescribed vide said notification as-

(i)              Support services to agriculture, forestry, fishing, animal husbandry.

Explanation – “Support services to agriculture, forestry, fishing, animal husbandry” mean –

(i)              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 or agricultural produce by way of –

 

(a)  Agricultural operations are directly related to the production of any agricultural produce including cultivation, harvesting, threshing, plant protection, or testing,

(b)  supply of farm labour,

(c)   Processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging, and such like operations that do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market,

(d)  Renting or leasing agro machinery 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 way of 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.

 

(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, fiber, fuel, raw material or other similar products or agricultural produce.

 

Here, we can see that there is a word mentioned “agriculture extension services”. So, we have to specifically go with the definition of “agriculture extension services” as prescribed under Section 65B (4) of the erstwhile Finance Act (Service Tax).

 

Case Law related to ‘Agricultural Extension Service’

 

M/s Frontier Agencies Private Limited vs Commissioner of CE & ST, Chandigarh

 

The appellant is service provider to their principal namely E.T. Dupont India Private Limited under an agreement. As per the agreement DuPont derived through years of scientific research in Crop protection techniques to farmers through training to facilitate better yield and productivity and in furtherance of the above objective perform all of the following functions relating to Agriculture Extension Services & farmer training activities including

 

(i) Understand problems which a farmer face from pests while growing crops and then performing all farmer training activities.

(ii) Provide feed-back from farmers to Dupont on problems and constraints in crop protection.

(iii) Create a linkage between farmers and Dupont to facilitate Dupont scientists to understand the crop requirement and develop solutions for crop protection.

(iv) Explain the farmers about the manner of usage of Crop protections products including action, mixing process, contact or systematic action, insect killing process.

(v) Create awareness about the crop protection techniques to increase production healthy crop, quality in seed, satisfy for crop.

(vi) Time of application of crop protection products, (1) spray herbicide (2) spray insecticides (3) spray fungicide, (4) Application of Fertilizers, Micro Nutrients and Seed selection.

(vii) How to use insecticides product safely without being unsafe to our body and also our crop product, does and point of purchasing (Shop), per acre dose and per acre water quality.

(viii) Field demonstrations including, area measure, water and dose, crop stage, demo plot location

(ix) Farmer group meetings

(x) Management, commitment and participatory methodologies as a sequel to the feedback from training programmes

(xi) Farmer field day on demo plot, observing the results and then conduct field day.

(xii) Agriculture Extension Services, which cover all operations in relation to farmer training & application of knowledge for better performance of agriculture operations."

 

Considering all the facts and keeping an understanding of Section 66D of the finance act, which explains about the negative list of exempted services under service tax, pronounced the judgment in the favour of appellant by the Mr. Ashok Jindal, Hon'ble Member (Judicial) Mr. Anil G. Shakkarwar, Hon'ble Member (Technical) of CESTAT, Chandigarh.

 

The same has also been pronounced by CESTAT Chandigarh in the matter of M/s Mayansh Resources vs Commissioner of Service Tax, Gurgaon that "Agricultural Extension Services" and are covered under the negative list as per section 66D of the Finance Act, 1944, therefore, the said services provided by the appellant are not taxable under Service Tax.

 

Based on the facts available in erstwhile law and the explanation given by the apex court in relation to “Agriculture Extension Services”, it is pertinent to say that the training program run by any person or any organization directly or by its partners is covered under the scope of ‘Negative list’ i.e. exempted as prescribed under Section 66D of Service Tax (Finance Act 1994) and also prescribed as exempted service under the GST Act, vide entry no. 24 (Chapter Heading 9986) of Notification No. 11/2017-Central Tax (Rate), dated 28’th June’2017.