Telangana’s Appellate Authority for Advance Ruling has upheld that chemically processed seed is not an agricultural produce and hence, activities related with it will not get the exemption from Goods & Services Tax (GST).
The appellant in this matter is Hyderabad-based Ganga Kaveri Seeds Private Limited. It is in the business of production and sale of agricultural seeds. In the process of production, it outsources certain services such as cleaning, drying, grading and packing to the workers and stores the seeds in various facilities after processing them. In the process they also transport the seeds by engaging a transport agent. The company filed an application before the Authority for Advance Rulings (AAR) for a ruling on their activities with reference to exemption/taxability under GST. Since, the ruling of the lower authority was pronounced against the interests of the applicant, they filed the present appeal before AAAR.
The appellant argued that all the produce as a result of cultivation is essentially an agriculture produce and the seed is nothing but the best quality of the agricultural produce graded from out of the agriculture produce basing on its germination. It relied on the decision of the Supreme Court in the matter of State of Rajasthan vs Rajasthan Agriculture Input Dealers Association (1996).
The Apex Court said, “It is undoubtedly true that foodgrains per se could be used as seeds for being sown and achieving germination, but in that form they retain the dual utility of being as well as seeds. By process of coating and applying insecticides, other chemicals and poisonous substances to the food grain meant to be utilised as seed, one of its basic characters, i.e., its consumption as food by human beings or animals or for extraction for the like purpose, gets irretrievably lost and such processed seeds become a commodity distinct form food grains as commonly understood.”
It was submitted that ruling by the Apex Court made it clear that the chemically treated seed may not be useful for consumption by human beings or animals as a food grain and may be distinct from the food grain due to its restricted and specified utility, but it does not lose the character of an agriculture produce.
After going though all the arguments and facts placed, AAAR observed that to get into the bracket of agriculture produce for claiming exemption, the main condition is that either no processing is done on the produce 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.
“If the activities of the applicant are only cleaning, drying, grading without involving any chemical processing on the subject produce, then the services would be on agriculture produce and exemption would be available,” AAAR said, while adding that this is not the case here and upheld the ruling by AAR.