Taxability of services relating to agriculture or agriculture produce
Covered under negative list
Following Services relating to Agriculture or Agriculture produce are not taxable:
- Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; (See Notes 1, 2 and 5)
- Supply of farm labor
- processes carried out on 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;
The services in relation to both agriculture and agriculture produce are in negative list.
COVERED UNDER EXEMPTION
Following services in relation to agriculture are exempt:
- Services provided to Food & Agricultural Organization of the United Nations are exempt. However, it is important to note that services provided by these organizations are chargeable to service tax
- Construction, erection, commissioning or installation of original works pertaining to post harvest storage infrastructure for agricultural produce including cold storage for such purpose (chilling plants not specifically covered)
- Construction, erection, commissioning or installation of original works pertaining to mechanized food grains handling system, machinery or equipments for units processing agricultural produce as food stuff excluding alcoholic beverages
- Transportation of agricultural produce and foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, (excluding alcoholic beverages), chemical fertilizer and oil cakes in a goods carriage, rail or a vessel
- Services provided by GTA for transportation of fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage or where amount charged for transportation is up to a given monetary limit (See Note 6) or Relief material meant for victim of natural or man-made disaster, calamities, accidents or mishaps, or
- Insurance schemes for crops and agriculture (Agriculture Pump set & Failed well insurance, National Agricultural Insurance Scheme, Weather based crop insurance scheme or the modified national agricultural insurance scheme, approved by the government of India and implemented by Ministry of Agriculture.
- Agriculture related production processes/job works
Thus, services relating to agriculture and agricultural produce not covered under the Negative list of services and under Exempted services are taxable.
Statutory definitions of certain terms
Agriculture: Agriculture means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products.
Scope of term ‘agriculture’ includes:
- Breeding of fish
- Rearing of silk worms
- Cultivation of ornamental flowers
- Horticulture i.e. art or science of growing flowers, fruits, vegetables and shrubs in gardens or orchards
Agriculture produce: 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.
Agricultural extension: Agricultural extension means application of scientific research and knowledge to agricultural practices through farmer education or training.
APMC: 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
- Plantation of crops like rubber, tea, or coffee are also covered under agricultural produce.
- Potato chips and tomato ketchup are manufactured through processes which alter the essential characteristic of farm produce i.e. potatoes and tomatoes in this case, so they are not agricultural produce hence taxable.
- 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.