To understand the scope of the Definition of “Agricultural produce” in reference to the applicability of Notification No. 11/2017 and 12/2017- Central Tax (Rate) to the Storage services that it provides

PJ/Case Law/2018-2019/3532

Case:M/s. Sardar Mal Cold Storage & Ice Factory

Citation:Advance ruling no: RAJ/AAR/2018-19/03

Issue:To understand the scope of the Definition of “Agricultural produce” in reference to the applicability of Notification No. 11/2017 and 12/2017- Central Tax (Rate) to the Storage services that it provides.

Brief Facts:The applicant is the owner of the cold storage house and therefore provides storage and warehousing facilities to variety of agriculture produce.

Appellant’s Contention:The Applicant provides a detailed list of all the produce that it receives to provide storage services. However the applicant does not have surety as to whether the Produce that it receives would fall under the definition of Agricultural produce or not; thereby implying NIL rate of tax on the same. The applicant submit tables showing detailsof various produce and related processes done on them by the Farmers/ cultivators/ traders before the products comes for Storage purposes which are as follows:

Group A	Fennel, Coriander, Mustard seeds, Poppy seeds etc
Group B	Turmeric, Dried Ginger, Dates, Dry Dates.
Group C	Tamarind
Group D	Dry Mango, Kathodi, Dry Peas etc
Group E	Cinnamon, Gum, ArjunaChaal
Group F	Groundnuts, Copra Gola
Group G	Fig, Almond, Walnuts etc

Respondent’s Contention and Reasoning of Judgement:

As per the Relevant Notifications, Agricultural Produce should necessarily have three essential elements:
(a) It must be a produce out of cultivation of plant and rearing of all life forms of animals.
(b) It must be a produce on which no further processing is done or such processing is done as usually done by a cultivator or producer which does not alter its essential characteristics i.e. produce must broadly retain its physical and chemical form/constitution.
(c) Most importantly the processing done should be such as is usually done by a cultivator or producer which should only help it to attain marketability at primary market i.e. the definition limits the scope of processing and allows only those activities which helps the produces to attain the condition of its first marketability in primary market. After it attains the condition of first marketability the definition restricts all other further processes on the produce for further sale to be termed as ‘Agricultural Produce’.
Once the products attains its first marketability for the primary market all other subsequent processes on produce leading to value addition and subsequent sale belong to the realm of secondary market thereon refraining the produce to fall under the category of ‘Agricultural Produce’ as defined in Notification. The judgement has been made based on these conditions and based on above explanations, goods as per Groups are discusses as follows:

In case of Group A, Fennel (Saunf), Coriander (Dhaniya), Cumin Seeds (Jeera), Carom Seeds (Ajwain) ,Fenugreek Seeds(KasooriMethi), Mustard Seeds (Sarson), Brown Mustard Seeds (Rai),Nigella Seeds (Kalonji), Poppy Seeds (Posara Dana):
If no further processing is done on above mentioned goods or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes marketable for primary market then the same would fall in the definition of agricultural produce given in aforesaid Notification and exemption would be available. However if any processing is done on above products as is not usually done by a cultivator or producer at farm level such as cleaning, sorting, colour-sorting, grading, cutting, splitting, drying, packing etc. using specialized machine or equipments (as is not usually done by a cultivator or producer at farm level),then it will fall outside the definition of agricultural produce as given in the aforesaid Notification.

In case of Group B, Turmeric (Haldi), Dried Ginger (Sonth): Alter harvesting front fields the produce is brought to primary market (mandis) as fresh green/ raw turmeric and ginger where it is sold by farmers/cultivators. Further drying and polishing of them is a specialized process not usually carried out by cultivator who converts them into dry haldi (masala) and into dried ginger (Sonth. kirana item) hence changing the essential characteristic. Similarly dates and dry dates also after being sold in primary market go under specific process of soiling, cleaning, drying and polishing which is not usually done by cultivator. Hence processed goods mentioned in Group B do not belong to produce which are being sold in primary market and processes involved lead to considerable value addition indicating change in essential characteristics. Hence goods mentioned in Group B do not fall under the definition of’Agricultural Produce’.

In case of Group E, Cinnamon ( Dalchini), Gum (Gond), ArjunaChaal ( ArjunChaal):Cinnamon (Species) is obtained from the inner bark of a tree, species Genus CINNANOMUN. Immediately after harvesting the bark has to undergo a specific process involving hammering, scrapping, drying, cutting, fumigation,packing etc. These processes are done by skilled labour and nearly accounts for 60% costs of the final product. After harvesting these process are not done by farmers but are being done by skilled labour at specific plants set up to exctract bark from the branches harvested..
Gum (Gond): – Raw gum is collected by farmers or gum collectors from outer bark ot Acacia tree which after collection is sold in primary market. Later in industrial plants, raw gum is cleaned, refined, powered and made in granular form which is fit to be consumed in foods industries.
ArjunaChaal( ArjunChaal):- ArjunaChaal is got from tree, ArjunTrminalia. The bark also goes under certain processing before it is fit to be used in Ayurvedic Industries.Hence as per definition they too don’t fall under the category of Agricultural Produce.

Decision:
1. Goods mentioned under Group A fall under the definition of Agricultural Produce in terms of the aforesaid notification and so supply of cold storage service in relation to these is exempt from the levy of GST. However if any processing is done on these products as is not usually done by a cultivator or producer at farm level , then these would fall outside the definition of agricultural produce as given in the aforesaid Notification and in that case supply of cold storage service in relation to these would remain chargeable to GST.
2. Goods mentioned under Group B to G are not Agricultural produce in terms of the exemption notification and so the supply of cold storage service in relation to this would be chargeable to GST.

Comment: In the RARA UDHYOG-AAR Rajasthan(Advance Ruling No. RAJ/AAR/2018-19/06, dated 23-6-2018);
The applicant is engaged into the activities of cleaning of the various Agriculture produce like Saunf (Fennel) Dhaniya (Coriander), Jeera (Cumin seeds), etc. or the like goods which are brought to them by the farmers or by the traders. It was decided that there is a vast difference between the type of cleaning undertaken at the farm level by the farmer and that undertaken at the factory by specialized machines. In nutshell, the impugned process when undertaken at the factory level upgrades the marketability of the product to the level of the secondary market. The exemption notifications do not envisage such a refinement on the produce .Therefore, the benefit of aforesaid notifications was not extended to them and it was chargeable to GST.
In case of GURU COLD STORAGE PVT. LTD.(Ruling No. GUJ/GAAR/RULING/2017-18/1, dated 13-12-2017), it was ruled thatProcessed spices including processed turmeric and processed ginger (soonth), are not agriculture produce as defined under Notification No. 11/2017-Central Tax (Rate). However, groundnuts with shell, turmeric and ginger on which 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 make it marketable for primary market would fall within the definition of agriculture produce.
While in S.S.S.V.K. COLD STORAGE PVT. LTD.-Order No. AAR/AP/02(GST)/2018, dated 28-3-2018 in Application No. AAR/02(GST)/2018
, it was decided that the exemption under Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 under Entry No. 54(e) is applicable for agricultural produce of both farmers and traders.
This matter of classification as agriculture produce has always been a matter of litigation in the eyes of law. Continuous rulings enlighten the assessee to classify it properly taking into consideration – the marketability factor.

Prepared by: Adit Gupta

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PJ/Case Law/2018-2019/3532

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