Agriculture Service

  • Important Definitions

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(4): “agricultural extension” means application of scientific research and knowledge to agricultural practices through farmer education or training;

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;

Section 65B(6): “Agricultural Produce Marketing Committee or Board” means any committee or board constituted under a State law for the time being in force for the purpose of regulating the marketing of agricultural produce.

  • Provisions relating to Negative List

The following services relating to Agriculture Sector have been excluded by their inclusion in the Negative List provided under Section 66D:

Section 66D(d): services relating to agriculture by way of—

  • agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;
  • supply of farm labour;
  • 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 which do not alter the essential characteristics of  agricultural produce but make it only marketable for the primary market;
  • renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
  • loading, unloading, packing, storage or warehousing of agricultural produce;
  • agricultural extension services;
  • services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;

Thus, the services relating to agriculture which are in the nature of services specified in clauses (i) to (vii) are non-taxable.

  • General Exemption

The following services relating to Agriculture Sector have been excluded by their inclusion in the Negative List provided under Section 66D:

Section 66D(d): services relating to agriculture by way of—

  • agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;
  • supply of farm labour;
  • 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 which do not alter the essential characteristics of  agricultural produce but make it only marketable for the primary market;
  • renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
  • loading, unloading, packing, storage or warehousing of agricultural produce;
  • agricultural extension services;
  • services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;

Thus, the services relating to agriculture which are in the nature of services specified in clauses (i) to (vii) are non-taxable.

  • Related Circulars

  • Small Service Provider

Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.

  • Import of Technology

Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.

 

  • To Foreign Diplomatic missions and their personnel

Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.

  • Services by TBI or STEP

Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted

  • Services provided to SEZ

Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.

  1. Specific Exemptions
  • Services relating to construction of storage infrastructure of agricultural produce – Services by way of construction, erection, commissioning, or installation of original works pertaining to post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes – Sr No. 14(d) of Notification No. 25/2012-ST dated 20/6/2012.
  • Services relating to Construction of mechanized food grain handling systems – Services by way of construction, erection, commissioning, or installation of original works pertaining to mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages – Sr No. 14(e) of Notification No. 25/2012-ST dated 20/6/2012.
  • Services relating to transportation of agricultural produce by rail or vessel- Services by way of transportation by rail or a vessel from one place in India to another of the agricultural produce, milk, salt and food grain including flours, pulses and rice – Sr No. 20 of Notification No. 25/2012-ST dated 20/6/2012.
  • Services provided by a goods transport agency by way of transportation of

(a)           milk, salt and food grain including flours, pulses and rice – Sr No. 21(d) of Notification No. 25/2012-ST dated 20/6/2012.

(b)           agricultural produce- Sr No. 21(a) of Notification No. 25/2012-ST dated 20/6/2012.;

(c)           goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees – Sr No. 21(b) of Notification No. 25/2012-ST dated 20/6/2012.

(d)           goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty rupees – Sr No. 21(c) of Notification No. 25/2012-ST dated 20/6/2012.

  • Services relating to general insurance business

Services of general insurance business provided under following Scheme

  • Hut Insurance Scheme;
  • Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated Rural Development Programme);
  • Agricultural Pumpset and Failed Well Insurance;
  • Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture;
  • National Agricultural Insurance Scheme (RashtriyaKrishiBimaYojana);
  • Pilot Scheme on Seed Crop Insurance;
  • Central Sector Scheme on Cattle Insurance;
  • Coconut Palm Insurance Scheme;

– Sr No. 26 of Notification No. 25/2012-ST dated 20/6/2012.

  • Services relating to Job work –

Carrying out an intermediate production process as job work in relation to agriculture, printing or textile processing is exempt – Sr No. 30(a) of Notification No. 25/2012-ST dated 20/6/2012 (as amended by Notification No. 4/2014 dated 17/2/2014).

  • Services relating to loading, unloading, packing, storage or warehousing of rice and cotton –

Services by way of loading, unloading, packing, storage or warehousing of rice, cotton, ginned or baled is exempt from Service Tax – Sr No. 40 of Notification No. 25/2012-ST dated 20/6/2012 (as amended by Notification No. 6/2014 dated 11/7/2014).

  • Provisions relating to Valuation and Abatement

There is no specific and different valuation provided for any sub sector of Agriculture Sector.  No abatement also is provided for this sector or any of its sub sectors.

  • Provisions relating to Cenvat Credit

The Credit is available to the service provider of the duty or tax paid on ‘capital goods’, ‘inputs’ and ‘input services’. Since all the services relating to Agriculture sector is either in negative list or Mega exemption notification, the provider of service will not get the credit of excise duty paid on capital goods, input and service tax paid on input services as defined in Cenvat Credit Rules, 2004.  Also, in case the service provider is providing both taxable as well as non taxable services from this sector, in order to avail credit attributable to taxable services, he shall have to follow provisions of Rule 6 of Cenvat Credit Rules, 2004.

  • Provisions relating to point of taxation

The point of taxation Rules, 2011 make provision for determination of time when the tax is payable. In the case of services relating to agriculture, the service tax liability does not arises in most of the services. Hence, the provisions relating to point of taxation are not of much application in this case.

  • Provisions relating to Place of Provision of Service Rules, 2012

The Place of Provision of Service Rules, 2012 contains different rules for different nature of services. In the case of services relating to agriculture, the service tax liability does not arises in most of the services. Hence, the provisions relating to place of provision are not of much application in this case.

  • Provisions relating to reverse charge

Services relating to Agriculture are specified in clause (d) of section 66D of the Finance Act, 1994 and hence, the liability of service tax does not arise. Further, in case of certain services which are taxable under present service, no services has been specified under reverse charge mechanism where the liability to pay Service Tax has been shifted to Service recepient.

  • FAQs from Education Guide issued from Department relating to Agriculture sector
  • What is the meaning of ‘agriculture’?

‘Agriculture’ has been defined in the Act as cultivation of plants and rearing or breeding of animals and other species of life forms for foods, fibre, fuel, raw materials or other similar products but does not include rearing of horses.

  • Are activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry included in the definition of agriculture?

Yes. These activities are included in the definition of agriculture.

  • What is the meaning of agricultural produce?

Agricultural produce has also been defined in section 65B of the Act which means any produce of agriculture on which either no 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. It also includes specified processes in the definition like tending, pruning, grading, sorting etc. which may be carried out at the farm or elsewhere as long as they do not alter the essential characteristics.

  • Would plantation crops like rubber, tea or coffee be also covered under agricultural produce?

Yes. Such plantation crops are also covered under agricultural produce.

  • Would potato chips or tomato ketchup qualify as agricultural produce?

No. In terms of the definition of agricultural produce, only such processing should be carried out as is usually done by cultivator producers which does not alter its essential characteristics but makes it marketable for primary market. Potato chips of tomato ketchup are manufactured through processes which alter the essential characteristic of farm produce (potatoes and tomatoes in this case).

  • Would leasing of vacant land with a green house or a storage shed meant for agricultural produce be covered in the negative list?

Yes. In terms of the specified services relating to agriculture ‘leasing’ of vacant land with or without structure incidental to its use is covered in the negative list. Therefore, if vacant land has a structure like storage shed or a green house built on it which is incidental to its use for agriculture then its lease would be covered under the negative list entry.

  • What is the meaning of agricultural extension services?

Agricultural extension services have also been defined in section 65B of the Act as application of scientific research and knowledge to agricultural practices through farmer education or training.

  • What are the services referred to in the negative list entry pertaining to Agricultural Produce Marketing Committee or Board?

Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce. Such marketing committees or boards have been set up in most of the States and provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like shops, sheds, water, light, electricity, grading facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price. APMCs collect market fees, license fees, rents etc. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list.

  • Would operations like shelling of paddy or cleaning of wheat carried out outside the farm be covered in the negative list entry relating to agriculture as sub-clause (iii) of clause (d) of section 66D relating to services by way of processes carried out at an agricultural farm?

The said sub-clause (iii) also includes ‘such like operations which do not alter the essential characteristic of agricultural produce’. Therefore, activities like the processes carried out in 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, cleaning of wheat would be covered in the negative list entry even if the same is done outside the farm. Shelling of paddy would not be covered in the negative list entry relating to agriculture as 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 a service i.e. on job work then the same would be covered under the exemption relating to ‘carrying out of intermediate production process as job work in relation to agriculture’.

  • Would agricultural products like cereals, pulses, copra and jaggery becovered in the ambit of ‘agricultural produce’ since on these products certainamount of processing may be done by a person other than a cultivator orproducer?

‘Agricultural produce’ has been defined in clause (5) of section 65B as ‘any produceresulting from cultivation or rearing of plants, animals including all life- forms, on whicheither no further processing is done or such processing is done as is usually done bythe cultivator or producer which does not alter essential characteristics of agriculturalproduce but make it marketable for primary market’. The processes contemplated in thesaid definition are those as are ‘usually done by the cultivator or producer’

  • Would the processes of grinding, sterilizing, extraction packaging in retailpacks of agricultural products, which make the agricultural products marketablein retail market, be covered in the negative list?

No. Only such processes are covered in the negative list which makes agriculturalproduce marketable in the primary market.

  • Would leasing of vacant land with a green house or a storage shed meant for agricultural produce be covered in the negative list?

Yes. In terms of the specified services relating to agriculture ‘leasing’ of vacant land withor without structure incidental to its use’ is covered in the negative list. Therefore, ifvacant land has a structure like storage shed or a green house built on it which isincidental to its use for agriculture then its lease would be covered under the negativelist entry.

  • Related Circulars
  • CircularNo. B/11/1/2002-TRU, Dated 1-8-2002
  • Circular No. 177/03/2014-ST [F.NO.334/03/2014-TRU], dated 17-2-2014
  • Letter F.NO.354/114/2013-TRU], dated 8-11-2013
  • Circular No. 157/8/2012-ST, dated 27-4-2012

  • Important Cases

  • Commission paid for rice:

Hon’ble Court gave full waiver from pre deposit in case of commission paid to foreign agent considering rice as agricultural produce. [- Olam Agro India Ltd v CCE, Delhi[[2014] 47 taxmann.com 179 (Delhi)]]

  • Agricultural dam are not agricultural machinery or equipment:

Agricultural dam or sluice gates thereto cannot be considered as a plant and machinery or equipment or structures thereof. They are in the nature of infrastructural construction catering to the needs of agriculture. [Executive Engineer Water Resources Department v CCE&C [[2013] 33 taxmann.com 17 (Mumbai – CESTAT)]]

  • Production of Tobacco is process in relation to agriculture produce:

If as a result of process undertaken, the product retains the essential characteristics of input (tobacco leaves in the case), the process would tentamount to have been undertaken in relation to agricultural produce and would be exempt from Service Tax. [Mahi Agro Products (P.) Ltd. v CCE&Service Tax, Guntur [[2013] 30 taxmann.com 159 (Bangalore – CESTAT)]]

  • Transportation of sugarcane is not taxbale:

Services of harvesting and transportation of sugarcane from the farmers fields to the sugar factory was held to be undertaken in relation to sale of agricultural produce and exempt from Service Tax[Shri Dnyaneshwar Trust v CE&C [[2012] 27 taxmann.com 74 (Mumbai – CESTAT)]]

  • Service Tax was payable on manpower service provided to agricultural associations. [Meenu Manpower Associates v CCE, Jaipur [2008 taxmann.com 634 (New Delhi – CESTAT)]
  • Agricutural asscoaition functioining on behalf of member is not clearing and forwarding agent:

The activities undertaken by the assessee in the cases were as follows:—

(a)           Advance loans to members on the pledge of sago and starch manufactured by its members. 

(b)           Undertake sales of sago and starch of its members in consuming market centres to the best advantage of the manufacturer on agency basis, dissemination of market intelligence to members. 

(c)           Purchase such materials and appliances as may be required for the industry and retain the same either for cash or credit to members.

(d)           Exercise quality grading of the products and to undertake grinding of starch for fineness of mesh and for better price. 

(e)           Construct or hire godowns or other buildings for marketing of the goods.

(f)            Undertake such other activities as conducive to the attainment of the general objects of the service society.

The nature of activities was sought to be explained by the assessee that members of the society sent their products by making their own arrangements for loading, transport and unloading of the goods in the premises of the society. Thereupon, they were weighed and sent to the godown maintained by the assessee. Samples were drawn for quality testing as well as for display in the tender hall. On receipt of the tenders from the registered merchants, who also happened to be members of the society, the higher rate offered for each lot was displayed. On confirmation of the price by the principal, the buyer was thus intimated suitably to make his arrangements to lift the stock. Thereupon the assessee herein prepared the statement bill to the members, wherein, deductions were made towards advance paid, interest payable, godown services charges, godown rent, unloading charges, marking charges, bank service charges and courier charges etc. According to the assessee, it acted as agent between the members and buyers; provided warehousing the starch and sago in the godown; gave advance money to the members before sale if so requested by the members. It facilitated calling of tenders from the buyers. Given the nature of the service thus provided, the assessee contested that they could not be characterised as clearing and forwarding agent to fall under sub-section (23) of section 65 of Finance Act, 1994.

It was held that the activities undertaken by Assessee were not in the nature of clearing and forwarding agent. [CCE v Salem Starch & Manufacturers ‘Service Industrial Co-operative Society Ltd.[[2013] 39 taxmann.com 69 (Madras)]

Read More 

Print Friendly
By | 2017-04-06T10:49:04+00:00 September 16th, 2016|Service Wise Implications|

Leave A Comment