TMI Blog2020 (10) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... icant have expressed protest that the services provided by the Applicant continue to remain exempt in view of its coverage under Entry 54(a) of Exemption Notification No. 12/2017- Central Tax (Rate) dated June 28, 2017. When NRL has authorized certain laboratories to undertake testing of soil, water, from the plot/farm along with the grown grapes in such plot, DMI has authorized laboratories for the Grading and marking of fruits. APEDA ensures registration of all the stake holders and traces the events in the Grape Net . In the case at hand, the applicant Laboratory is an approved laboratory by the Directorate of Marketing Inspection (DMI) and undertakes testing for Agmark Grading and Final Inspection . The applicant is not authorized to undertake testing of soil, water, farm/plot where the cultivation is undertaken but is authorized to sample and grade the cultivated grapes based on physical attributes for issuance of Certificate of Agmark grading . It is seen from the test reports submitted by the applicant, they conduct test to detect residue of various chemicals, pesticides etc. The recommended chemicals for which testing is to be done is specified in Annexure -9 of AP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher price. Even without these activities of the applicant, the crop is produced. Hence, the supply by the applicant is not classifiable under SAC 998619 also. The testing for chemical residue, grading based on physical attributes of table grapes is classifiable under SAC 998346 - it is seen that supply of services classifiable under SAC 9986 and which are agricultural operations directly related to production of any agricultural produce are eligible for this exemption. For the case in hand, the activities of testing for chemical residue, grading based on physical attributes of table grapes are not classifiable under SAC 9986 as they are not meant for preparation of crops for primary market and not necessary for production of the grapes. Hence, they are not directly related to the production of the table grapes - the activities of the applicant are not eligible for the exemption under therefore the applicant is not eligible for exemption at Entry No. 54 (a) of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017 as amended and Notification No.II(2)/CTR/532(d-15)/2017 vide G.O. (Ms) 73 dated 28.06.2017. - TN/25/AAR/2020 - - - Dated:- 12-5-2020 - MS. MANASA GANGOTRI KATA, I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and guidelines prescribed by APEDA established under the APEDA Act and the APEDA rules. By way of this testing the applicant identifies residues of chemicals in fresh table grapes and determine as to whether the grapes are of exportable quality or not for its customers who are Indian exporters/pack houses/farmers/importers (Foreign customers) (hereinafter referred to as exporter-customers). The applicant has also stated that the exporter-customers in India approach and contract with them for conducting the sampling and testing specific types of fresh table grapes grown/cultivated in India. They in turn approach the grape farms, draw samples, conducts test in their laboratory and issues certificates/ reports of analysis to its exporter customers. The exporter customer in turn would consider the analysis in the report and take decision on their export orders. They have stated that they have set up sampling units in the state of Maharashtra at Nasik, Sangli Pune and some other regions especially where majority of grape farms are located. They have also submitted that APEDA is the primary governing body which regulates the production and exports of fresh table grapes from India. APE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmer/ exporter/exporter s representative and representative of the laboratory who has drawn the sample. The applicant has stated that after the sampling of fresh table grapes is completed the samples are sent to the Chennai Laboratory for testing and a record for movement of such samples is maintained. In the laboratory each samples are numbered by indicating code numbers and testing of the samples are done in accordance with recommended list of pesticides prescribed by APEDA in the fresh table grapes export procedure. A test report is issued 3 -5 days of the drawl of samples and completion of analysis to the exporter customer. A copy of the test report is provided to the client and it is also uploaded on the website facility maintained by APEDA i.e. GrapeNet also the certificate of AGMARK GRADING (Final random inspection) report is uploaded in GrapeNet. 2.3 The applicant has stated that after issue of test and inspection report they raise two types of tax invoices on the exporter-customers under the service description a) Laboratory testing/Analysis and b) final random inspection. They stated that they classified their services under the tariff heading 9983 covering service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f agricultural operations or the testing activity is not given under the CGST Act and they rely on Circular No.189/8/2015-Service Tax dated 26.11.2015 under Finance Act which provides scope of activities under Agricultural operations and testing activity as under: a) The exemption is not limited to the specified operations and the scope of coverage is broad enough to cover any testing activity in agricultural operations directly linked to production of agriculture produce. The benefit is therefore available to all other testing activity in relation to agriculture or agricultural produce Testing activity b) Testing and certification can be done as per the Act and rules made there under c) Testing cannot stand in isolation of certification and other ancillary activities d) Testing cannot be random, somebody has to register for testing e) If the certificate is not received and seeds are not tagged, testing is irrelevant. Therefore, all processes are a part of the composite process and cannot be separated from testing f) All testing and ancillary activities o testing such as seed certification, technical inspection, technical testing, analysis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is satisfied.; it does not perform any further processing to the extent that testing residue levels of agrochemicals does not amount to any activity of further processing so as to make an agricultural produce marketable or saleable in the primary market. They receive service orders from their exporter- customer on a need basis. The testing activity is conducted under the instructions and sole discretion of the farmer or the exporter-customer and is not a related, ancillary or conditional activity to production, cultivation and harvesting of Fresh Table Grapes. Also, the shape, size, form, etc. of Fresh Table Grapes both before and after testing activity remains the same. The testing activity is conducted on a sampled quantity and not on the entire produce from the farms whereas a process is something which is performed on the entire produce and not just on the sampled quantity. The definition of agriculture produce refers to processing effected by cultivator or the producer and not laboratories. In view of this, condition (b) and (c) does not apply to activities performed by them. The scope of agricultural produce includes any produce out of cultivation of plants for food, fibre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services to agriculture, hunting, forestry and fishing and are exempt vide entry 54(a) of exemption Notification 12/2017CT(Rate) dated 28 June 2017. The applicant is also of the same view and they have sought the authority of Advance ruling to clarify the same. 3.1 The applicant was given an opportunity to be personally heard on 28.01.2020. The applicant appeared before the authority and gave a written submission. They stated that they do testing service to exporters to test residue of pesticides, metals etc. as per norms of APEDA. They sated that in Service Tax regime, initially seed testing was exempt and later in 2013 testing in relation to agricultural production and all agricultural produce was exempted under Service Tax Notification. They stated that the same language was used in Notification under GST in Notification 12/2017. They stated that there are 2 competing classification and 9983 of which they are classified under SAC 9986 and they are support service to agriculture even though they provide the said service to exporters after production. 3.2 In the written submissions, the applicant has drawn reference from the erstwhile service tax provisions and the United N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that the activity of testing performed by them is specific to agricultural produce and hence would not be covered under 998346 however the testing activity of the applicant would merit coverage under Other Support Services and classifiable under SAC 9986. 3.3 The applicant vide their letter dated 04.02.2020 furnished another Written submission, wherein, inter-alia, they stated that the Hon ble Members of the captioned Authority for Advance Ruling on examining their submissions during the personal hearing, prima facie expressed a view that the testing activity of the Applicant is not directly related to production of any agricultural produce. The Hon ble Members offered a view that testing is an activity which is performed post-production of the crop and not during or before production of the crop. It was also put forward that exemption under the CGST Act has been granted only to pre-production activities and not post-production activities. since definition of agricultural operations is not defined under the CGST law, they draw reference from the judgement of Hon ble Supreme Court in the case of Commissioner of Income Tax, Calcutta v. Raja Benoy Kumar S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whereas certain other operations are required to be performed for harvesting and rendering the produce fit for the market. From the above precedents laid down by the Hon ble Supreme Court, it is very clear that agricultural operations as a whole, consists of basic operations as well as subsequent operations performed in conjunction with each other on the agricultural produce. Whereas basic operation is the activity of cultivation and subsequent operations are activities of harvesting, threshing, plant protection or testing, etc, which essentially enhances the produce and makes if fit for market. In the present case, the language employed under Entry 54 of the CGST Exemption notification no. 12/2017 is agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing . As established above, cultivation is the basic operation whereas harvesting , etc are subsequent operations. Both these activities merit inclusion under agricultural operations and hence the scope of agricultural operations is wide enough to cover both these activities. In view of above, it can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , related to production of agricultural produce; supply of farm labour; and operations which do not alter the essential characteristics of agricultural produce, but make it only marketable for primary market, whereas in the present case the applicant is not inclined to any such direct production activity. From the physical document and invoices furnished by the applicant it is seen that inspection and certification services rendered by the applicant are post production testing/grading operations meant for export market to the European union. Also the applicant could not be described as a committee or board or a commission agent for sale or purchase of agricultural produce to claim exemption under sub-clause(g) ii. Also as per the explanatory notes to Heading 998611 support services o crop production includes services directly in relation to agricultural production activities such as seed production, crop production, pest control, provision of agricultural machinery and post harvest crop services such as preparation of crops for primary market. But in the instant case the activity of the applicant is meant for export market which cannot be equated with primary market. iii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required recognition/ approval for carrying out inspection and testing activity on Fresh Table Grapes. Apart from this, each of the grape farms which intends to export directly or supply fresh Grapes to exporters, are also required to be registered with the APEDA. Even the exporter-customer s/ pack houses are also required to be registered with APEDA without which these exporters would not be able to undertake exports. To this end, the entire supply chain i.e. the grape farms, laboratories and exporters are all required to be registered with the APEDA. After the exporter-customer provide their approval. they initiate the sampling procedure from the farms in accordance with the method of sampling laid down by the APEDA in the procedures for export of Fresh Table Grapes in file no. QCT-2013-14-000011, Trade Notice no. Apeda/Q/56/2018-19 dated October 10, 2018. On receipt at the laboratory, each sample are numbered by indicating code numbers and testing of these samples conducted in accordance with recommended list of pesticides prescribed by APEDA in Annexure-9 of the Fresh Table Grapes export procedure and a test report is issued 3-5 days of the drawal of samples. The copy of the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure 7. The applicant is not one of the authorized laboratory listed under Annexure 6 The procedure for issue of Certificate of Agmark Grading(CAG) and Phyto Sanitary Certificate(PSC) are provided at Sl.No.7 and the procedure for grant of certificate of Agmark Grading is set out in Anexure-11, wherein under II. Procedure for obtaining Certificate of Agmark Grading (CAG) for export of grapes to EU Countries , the list of offices of Directorate of Marketing Inspection(DMI) [Appendix-i] and list of Approved Laboratories approved by DMI for the grading and marking of fruits and vegetables for export[Appendix-(ii)] are provided. It is seen that the applicant is a laboratory approved by DMI for the Grading and marking of fruits. Sampling Plan is given under Annexure-D and the Inspection Report for Grapes is given under Annexure-E From the above, it is evident that when NRL has authorized certain laboratories to undertake testing of soil, water, from the plot/farm along with the grown grapes in such plot, DMI has authorized laboratories for the Grading and marking of fruits. APEDA ensures registration of all the stake holders and traces the events in the Grape N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l rate of tax. 7.4 The scope of services is given as Annexure to Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 and for ease of reference, the relevant portion is extracted below: 454 Heading 9986 Support services to agriculture, hunting, forestil. fishing, mining and utilities 455 Group 99861 Support services to agriculture, hunting, forestry and fishing 456 998611 Support services to crop production 457 998612 Animal husbandry services 458 998613 Support services hunting 459 998614 Support services to forestry and logging 460 998615 Support service to fishing 461 998619 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paratory to planting, planting, cultivation and fertilization of crops, spraying, including from the air, pest control for agriculture, etc. In short, 99861 i covers support services necessary for Crop Production and includes activities of Post-harvest services of crop for preparation for Primary markets. Preparation of crops for primary market in, jives activities which are essential for selling the produce. Without these activities by the farmers, the produce would not be sold in primary market. This could include activities such as threshing to separate the grains from the stalks in the case of cereals as in the primary market, only grains are purchased and not the stalks. Such activities would be essential for the production of the crop, without which the crop would not be ready for primary market. It is seen from Para vi. That this SAC covers only services necessary for agricultural production. i.e. without these services the production of the crop would not be complete. The testing undertaken by the applicant involves grading and testing for chemical residues of the Fresh Table grapes . These activities are not necessary for the production of the grapes as these are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) Condition 54 9986 Services relating to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce by way of- (a) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; NIL Agricultural produce is defined under explanation 2 (d) of Notification No. 12/2017-C.T.(Rate) as under: 2 (d) agricultural produce means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, 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; From the above, it is seen that supply of services classifiable under SAC 9986 and which are agricultural operations ..... 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