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Publish Date: 14 Jul, 2014
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Service tax on road of taxing agricultural produce.

Service tax on road of taxing agricultural produce.

An article by:-
CA. Pradeep Jain
Prayushi Jain

 
With the budget 2014-2015 wherein amendments have been made in mega exemption notification 25/2012-ST two of the amendments relates to transportation by rail and goods transport agency of organic manure and cotton, ginned or baled. With this amendment transportation of this product has been exempted in an alike way in interim budget rice had been exempted of tax on its loading unloading, packing, storage or warehousing. The additions have to be done because of the stand taken by ex-finance minister P Chidambram that rice and cotton do not qualify in the definition of service tax as they have to be processed to become marketable. This statement had a lot of revolting from the side of people as rice is not an agricultural produce is not justified in any of the stretch of imagination.
 
Service tax had greatly changed by introduction of Negative list which initially contained 17 services which were exempt from the service tax. The relevant portion of the negative list is given below:
“Section 66D specifies following services as non taxable:
 
 
(d) services related to agriculture or agriculture produce by way of –
 
i. agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed 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 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.
 
 
Agricultural produce for this purpose is only the produce which hasn't been processed at all or has only been subjected to minor process by a cultivator or producer that doesn't alter its essential characteristics but makes the commodity ready for sale in the primary market. The paddy has to be processed in the industry into the white, brown rice which than becomes marketable. Hence they shall be taxable in Service tax.
 
 The finance minster as per the reading of law is absolutely justified but as per the practicality saying rice is not agriculture produce is a hilarious statement. Narrowing the scope of agricultural produce and making the produce taxable under service tax law is not a verified position.
 
By this budget further addition have been made in the entries of mega exemption notification which are as follows:-
 
 
(v) in entry 20, for item (j), the following items shall be substituted, namely:-
    
       “(j) chemical fertilizer, organic manure and oil cakes;
 
        (k) cotton, ginned or baled.”;
 
 
(vi) in entry 21,-
       (a) for item (e), the following item shall be substituted namely:-
          
          “(e) chemical fertilizer, organic manure and oil cakes;”;
 
    (b) after item (h), the following item shall be inserted, namely:-
            “(i) cotton, ginned or baled.”;
 
With this amendment undoubtedly cotton has been given exemption but looking from different perspective it appears that except these two other agricultural produce which required to be processed for making it marketable like pulsed, wheat and other grains, tea, coffee shall be taxable in the law of service tax. The processes are just minute ones which are generally carried out by the farmers only.  As intention of law makers was never to increase the hardships of the farmer and put the onus of tax on him therefore the inclusion of these grains in taxability sphere is just not reasonable on part of the government. The government has  always exempted the agricultural producers from every ambit of tax than the same shall be followed in service tax laws and unnecessarily the farmers should not be harassed.
 
Winding up:-
 
Therefore the amendment shall be brought into effect increasing the scope of definition of agriculture which covers up these produce and no unnecessary hardships are brought into. Revenue will take no time in alleging the producers and the processors of these grains to deposit the tax. This will just increase the rounds of litigations and appeals.
 

 
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PRADEEP JAIN, F.C.A.

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