2025 (6) TMI 988 - AAR - GST

Exemption from GST as per Entry 54 (g) of the exemption Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 - Commission received under Selling arrangement clause - services rendered by clinic in relation to health care services under the Entry No. 46 of the exemption Notification No. 12 of 2017 Central Tax (Rate) dated 28th June 2017 - Veterinary Services - Entry 54(a) of the exemption Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 - Laboratory testing and analysis services. Commission charged by VHPL under the selling arrangement for promoting marketing and selling birds of VRBFL and Venco should be classified under Service Accounting Code (SAC) 9986 (Support services to agriculture hunting forestry fishing mining and utilities) or not - HELD THAT - The applicant is providing services of marketing and selling of chicks carrying out sales promotion identification of new customers etc. in addition to procurement of orders preparation of invoices collecting advances collecting payment and other incidental activities. It is relevant to understand that the applicant is acting as a commission agent for Venkateshwara Research and Breeding Farm Ltd. They are basically engaged in sale of chicks which are sold to other poultry farmers who breed these chicks into hens or roosters. These hens and roosters are then sold by these poultry farm owners for food meat eggs etc. It is seen from the applicant s submission that the existing broiler breeders who are engaged in commercial day-old chick gets pitched by the applicant for backward integration i.e. purchasing parent hicks of new breed from group companies and then producing day old commercial chicks at their own farms. It includes factoring and analyzing the size of business of target customers the customer s hatchery farms background checks etc. for acquiring and pitching these prospective clients. Heading 9986 under Notification 11/2017-Central Tax (Rate) dated 28.6.2017 covers support services to Agriculture which includes animal husbandry. The services provided by the applicant in the instant case is not sale or support services for any agricultural produce but a sale in the general wholesale trade. Therefore the said services are appropriately classifiable under Heading 996111 - the provisions of Sl.no.54 of Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017 would not be applicable to the said services provided by the applicant. Veterinary services provided by the applicant - HELD THAT - The said services would be appropriately classified under Heading 998352 of the Tariff. The explanatory notes also provide that the said services includes animal and veterinary hospital and non-hospital medical surgical and dental services delivered to livestock. The services are aimed at curing restoring and/or maintaining the health of the animal; hospital laboratory and technical services for livestock; provision of dietary recommendations for livestock -The word Clinic has not been defined under the CGST Act 2017. However as per general parlance a clinic is a health care center or establishment or hospital department where outpatients are given medical treatment or advice especially of a specialist nature. It is seen from the details provided by the applicant that they employ specialized veterinary doctors at various locations to provide services to their clients. Such services includes diagnostic preventive healthcare and nutrition advice to the live stock. Such services are therefore covered under the exemption provided by a veterinary clinic to livestock. Therefore the applicant is entitled to avail the benefit of Sr.No.46 of the Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017. Laboratory analysis and testing services - HELD THAT - The services provided by the applicant are more akin to technical testing and analysis services provided by them from their laboratory. Therefore the said services are appropriately classifiable under heading 998346. Since the services are appropriately classifiable under Heading 998346 the benefit of exemption under S.No.54 of the Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017 which is available only to services classified under Heading 9986 would not be available to the applicant. Conclusion - i) Commission charged by VHPL under the selling arrangement for promoting marketing and selling of birds of VRBF and Venco not to be classified under Service Accounting Code 9986. ii) Commission @ 10% of the sale value of birds of VRBFL and Venco received by VHPL under the Selling arrangement for promoting marketing and selling of birds and handling the sale administration not exempt as per entry number 54 of notification number 12/2017-Central Tax (Rate) dated 28 June 2017. iii) Charges received @3% of the sale value of birds of VRBFL and Venco for the Veterinary services provided by VHPL (SAC 99835) would be exempt from levy of GST as per entry number 46 of notification number 12/2017-Central Tax (Rate) dated 28 June 2017 as Veterinary service. iv) Laboratory testing and analysis undertaken by VHPL to carry out various laboratory analysis and tests in respect of the birds including feed water etc. in relation to the brooding growing and laying of birds not classified under Service Accounting Code 9986. but classified under SAC 998346. v) Charges received @ 7% of the sale value of birds of VRBFL and Venco for the Laboratory testing and analysis services provided by VHPL not exempt from levy of GST as per entry number 54 of notification number 12/2017-Central Tax (Rate) dated 28 June 2017 as agricultural extension services.

Summary

Issues Presented and Considered

The core legal questions considered by the Authority for Advance Ruling (AAR) relate to the classification and exemption of Goods and Services Tax (GST) on various services provided by the applicant, Venkateshwara Hatcheries Pvt. Ltd. (VHPL), under agreements with Venkateshwara Research and Breeding Farm Ltd. (VRBFL) and Venco Research and Breeding Farm Ltd. (Venco). The specific issues are:

1. Whether the commission charged by VHPL under the selling arrangement for promoting, marketing, and selling birds of VRBFL and Venco should be classified under Service Accounting Code (SAC) 9986 (Support services to agriculture, hunting, forestry, fishing, mining and utilities).
2. Whether the commission at 10% of the sale value of birds received by VHPL under the selling arrangement is exempt from GST under entry number 54 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017.
3. Whether charges received at 3% of the sale value of birds for veterinary services provided by VHPL (SAC 99835) are exempt from GST under entry number 46 of the same notification as veterinary services.
4. Whether laboratory testing and analysis services undertaken by VHPL related to birds, including feed and water, should be classified under SAC 9986.
5. Whether charges received at 7% of the sale value of birds for laboratory testing and analysis services are exempt from GST under entry number 54 of the notification as agricultural extension services.

Issue-wise Detailed Analysis

Issue 1: Classification of Commission under Selling Arrangement under SAC 9986

Legal Framework and Precedents: SAC 9986 covers support services to agriculture, including animal husbandry services (998612) and other support services (998619). The exemption under entry 54 of Notification No. 12/2017-Central Tax (Rate) applies to services by commission agents for sale or purchase of agricultural produce. The term "agriculture" includes rearing of all life forms of animals except horses, and "agricultural produce" is defined to include products out of cultivation and rearing of animals, without further processing altering essential characteristics.

The Income Tax Act and Rent Agriculture Act definitions support poultry as part of agriculture. Past rulings (e.g., Madras High Court in Commissioner of Income Tax v. K.E. Sundara Mudaliar) include poultry under animal husbandry. The applicant also referred to an advance ruling from Tamil Nadu AAR on commission agents for turmeric classified under SAC 9986.

Court's Interpretation and Reasoning: The AAR examined the nature of services rendered by VHPL, which include marketing, promotion, customer acquisition, order procurement, invoicing, payment collection, and post-sale services on behalf of VRBFL and Venco. The applicant claimed VHPL acts as a commission agent for sale of birds (poultry), which they argued are agricultural produce.

The AAR noted that while the applicant's services resemble those of a commission agent, the chicks sold are not agricultural produce per se but livestock sold for breeding purposes. The chicks are sold to poultry farmers who rear them further for food production. Hence, the chicks are livestock rather than agricultural produce in the context of the exemption.

The definition of "agent" under Section 2(5) of CGST Act includes commission agents. However, the AAR concluded that the services relate to wholesale trade of livestock rather than support services to agriculture or sale of agricultural produce.

Key Evidence and Findings: Agreements between VHPL and VRBFL/Venco, invoices, service descriptions, and statutory definitions were considered. The applicant's long-standing role as commission agent was acknowledged, but the nature of the goods (livestock) was determinative.

Application of Law to Facts: Since the chicks are livestock sold for breeding, not agricultural produce, the commission services are classified under wholesale trade (SAC 996111) rather than agricultural support services (SAC 9986).

Treatment of Competing Arguments: The applicant's argument on poultry as agricultural produce was weighed against the statutory definition and the commercial reality of the transaction. The AAR favored the latter.

Conclusion: Commission charged under the selling arrangement should not be classified under SAC 9986.

Issue 2: Exemption of Commission @10% under Entry 54 of Notification No. 12/2017-Central Tax (Rate)

Legal Framework: Entry 54 exempts services by commission agents in relation to sale or purchase of agricultural produce under SAC 9986.

Reasoning: Since the commission services do not qualify under SAC 9986 as established above, the exemption under entry 54 does not apply.

Conclusion: Commission @10% received by VHPL is not exempt from GST under entry 54.

Issue 3: Exemption of Veterinary Services @3% under Entry 46 of Notification No. 12/2017-Central Tax (Rate)

Legal Framework: Entry 46 exempts services by a veterinary clinic in relation to healthcare of animals or birds under SAC 99835.

Reasoning: VHPL's veterinary doctors provide clinical, diagnostic, preventive, and advisory services including vaccination recommendations, disease diagnosis, post-mortem examinations, and nutritional advice. The doctors are specialized and employed by VHPL, and veterinary services are rendered at multiple locations including farms and hatcheries.

The AAR interpreted "veterinary clinic" in its ordinary meaning as a healthcare establishment providing professional veterinary services. VHPL's services fit within this definition.

Key Evidence: Veterinary doctors' qualifications, services rendered, and invoices were considered.

Application of Law: The services are directly related to healthcare of birds and animals and fall under SAC 99835.

Competing Arguments: None significant against exemption.

Conclusion: Veterinary services provided by VHPL are exempt from GST under entry 46.

Issue 4: Classification of Laboratory Testing and Analysis Services under SAC 9986

Legal Framework: SAC 998346 covers technical testing and analysis services, including microbiology, biochemistry, and bacteriology testing. SAC 9986 covers support services to agriculture including animal husbandry.

Reasoning: VHPL provides laboratory services including post-mortem examinations, histopathology, bacterial and virus isolation, serological tests, feed and water analysis. These are scientific and technical testing services.

The AAR found these services are technical laboratory services rather than agricultural extension services or support services to agriculture.

Conclusion: Laboratory testing and analysis services should be classified under SAC 998346, not under SAC 9986.

Issue 5: Exemption of Laboratory Testing and Analysis Services @7% under Entry 54 as Agricultural Extension Services

Legal Framework: Entry 54 exempts agricultural extension services defined as application of scientific research and knowledge to agricultural practices through farmer education or training.

Reasoning: VHPL's laboratory services are scientific testing services and do not constitute farmer education or training. They do not fall within the definition of agricultural extension services.

Further, the exemption under entry 54 applies only to services classified under SAC 9986, whereas these services fall under SAC 998346.

Conclusion: Laboratory testing and analysis services are not exempt under entry 54 as agricultural extension services.

Significant Holdings

1. "The chicks in this case would not fall under the definition of an agricultural produce as it is not a produce out of rearing of livestock for the purpose of food, fibre, fuel, raw material or other similar product but are reared for sale to other poultry farmers, who will do the further rearing of these chicks for the purpose of food etc."

2. "The services provided by the applicant in the form of services of selling and incidental services are akin to services provided by a commission agent... Such services are not for sale of any agricultural produce but in fact such services are for sale of livestock themselves for the purpose of breeding."

3. "The veterinary services provided by the applicant such as guidance for preventive medication, suggesting line of treatment recommending feed formulations etc., fall within the ambit of veterinary services provided to livestock... Such services are therefore covered under the exemption provided by a veterinary clinic to livestock."

4. "The services provided by the applicant are more akin to technical testing and analysis services provided by them from their laboratory. Therefore, the said services are appropriately classifiable under heading 998346... the benefit of exemption under S.No.54 of the Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017, which is available only to services classified under Heading 9986 would not be available to the applicant."

5. Final determinations on each issue:

• Commission under selling arrangement: Not classified under SAC 9986; GST exemption not applicable.
• Commission @10%: Not exempt under entry 54.
• Veterinary services @3%: Exempt under entry 46 as veterinary clinic services.
• Laboratory testing and analysis: Classified under SAC 998346, not SAC 9986.
• Laboratory testing charges @7%: Not exempt as agricultural extension services under entry 54.