Tuesday, April 1, 2014

Service tax on Agriculture related service

1.      Agriculture related service

1.1.     Definition related agricultural service:
Agriculture: As per section 65B(3) of the act, it 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;

Agricultural extension: As per section 65B(4) of the act, it means application of scientific research and knowledge to agricultural practices through farmer education or training;

Agricultural produce: As per section 65B(5) of the act, it 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

Agricultural Produce Marketing Committee or Board: As per section 65B(6) of the act, it 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.

1.2.     Exemption in negative list:

As section 66(d) of the act, following services relating to agriculture or agricultural produce would be exempt:
(i)      agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;
(ii)    supply of farm labour;
(iii)  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;
(iv)   renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
(v)     loading, unloading, packing, storage or warehousing of agricultural produce;
(vi)   agricultural extension services;
(vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;

Vide Finance act, 2013, word ‘seed’ has been removed from the expression ‘seed testing’ in section 66D(d)(i) of the act. As a result of removal of word ‘seed’, testing activities not only directly related to seed testing but also directly related to production of any agricultural produce like soil testing, animal feed testing, testing of samples from plants or animals, for pests and disease causing microbes will be covered by the negative list.

1.3.     Exemption under mega exemption notification
Exemption under mega exemption notification, 25/2012-ST dated 20.6.2012:

·       Construction of storage 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 would be exempt. (Entry no. 14(d))
·       Construction of mechanized food grain handling system: services by way of construction, erection,     commissioning, or installation of original works pertaining to mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages would be exempt. (Entry no. 14(e))

·         Job work relating to agriculture: Carrying out an intermediate production process as job work in relation to agriculture, printing or textile processing would be exempt. (Entry no. 30)

·       Transport of agricultural products by rail or a vessel: Services by way of transportation by rail or a vessel from one place in India to another of the agricultural produce would be exempt. (Entry no. 20(h))

·       Transport of agricultural products by GTA: Services provided in respect of following agricultural produce by GTA by way of transport in a goods carriage would be exempt: (Entry no. 21)

o    fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage

o    agricultural produce

o    foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

1.4.     Clarification by CBEC
Taxability on activities relating agriculture: As per Guidance notes on service tax issued by CBEC on 20th June, 2012 following activities relating to agriculture would be taxable / exempt:

·       Pisciculture, sericulture & floriculture: Activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry are included in the definition of agriculture.

·       Plantation crops like rubber, tea or coffee: Such crops are also covered under agriculture produce.

·       Potato chips or tomato ketchup: if such products are manufactured through process which alters the essential characteristic of farm produce. Hence, such potato chips or tomato ketchup would not qualify as agricultural produce.

·       Cleaning of wheat: it would be covered in the negative list entry even if the same is done outside the farm.

·       Shelling of paddy: it 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.

·       Cereals, pulses, copra and jiggery: it would be covered in the ambit of ‘agricultural produce’ even though on these products certain amount of processing is done by a person other than a cultivator or producer.

·       The process of grinding, sterilizing, extraction packaging in retail packs of agricultural products, which make the agricultural products marketable in retail market: such process would not be covered in the negative list.

·       Leasing of vacant land with a green house or a storage shed meant for agricultural produce: it would be covered in the negative list.

·       Services of agricultural Produce Marketing Committees or Boards: Such committees and 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, 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. However any service provided by such bodies which is not directly related to agriculture or agricultural produce will be liable to tax e.g. renting of shops or other property.

Pathik shah & Team Hand book on service tax

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