9911796707
TMI Blog2024 (2) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... Foundation (hereinafter referred to as applicant), registered under the AP Goods & Services Tax Act, 2017. 3. Brief Facts of the case: 3.1 M/s Archipel India Foundation (Hearinafter referred to as "applicant") is a social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small seale farmers. The Applicant is formed for social purpose to assist the people and society and rural development. 3.2 The Applicant has entered into a Project Development Agreement ("Agreement") with M/s. Shell Energy India Private Limited ("SEIPL") where, as per Schedule 1 of the said agreement, "Project" has been defined as Afforestation, Reforestation and Revegetation (ARR) for Sustainable Agriculture and Land Management and Afforestation. 3.3 The project will be undertaken in the state of Andhra Pradesh to increase productivity of privately held agricultural lands in 2 mandals of Integrated Tribal Development Agency, Paderu, Distriet Alluri Sitharama Raju, covering an area of approximately 23,000 hectares and 20,000 farmers. Applicant is having GST Registration number 37AAQCA9513P1ZU The Applicant is formed for soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culture and Land Management and Afforestation. The project will be undertaken in the state of Andhra Pradesh to increase productivity of privately held agricultural lands in 2 mandals of Integrated Tribal Development Agency, Paderu, District Alluri Sitharama Raju, covering an area of approximately 23,000 hectares and 20,000 farmers. Copy of the agreement is enclosed as "Annexure-C" * SEIPL wishes to be a leader driving the energy transition and wishes to contribute to the global effort to tackle climate change and a front-runner in preservation of the environment. SEIPL intends to reduce its net carbon footprint and as part of this ambition is investing in nature-based solutions such as avoided deforestation, forest restoration and reforestation initiatives. * The Applicant and SEIPL wish to collaborate together to ensure the long-term success of ARR Project in the establishment of plantations and sustainable economic development of local communities. * Vide the aforesaid mentioned agreement, SEIPL has agreed to support development of applicant's ARR project by incurring expenses related to development and operational activities of the project with tent to be granted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement - Definition AlF Service Obligations means the services (and related obligations) for the establishment, management and delivery of the Project listed in Schedule 1 (AIF Service Obligations) and undertaken by AIF in accordance with this Agreement, including Sustainable Agriculture and Land Management, Forest Management and Carbon Management Activities. Page 20 of the agreement - Project development and operations 5.7 AIF shall implement the Project as set out in, and in accordance with, each Project Description in Schedule 1 and any other requirements as may be communicated to AIF by the Joint Coordination Committee from time to time. 5.8 AlF shall be solely responsible to manage and maintain the relationships with farmers and local communities throughout the Project Duration, undertake any operational activities that may be quired to support farmers on ground in plantation required activities and enter into relevant agreements with landowners to ensure transfer of 100% carbon credits to Shell. 5.9 AlF shall provide all the necessary information and support to the Carbon Consultant appointed by Shell to manage requirements of VCS and CCB standards (including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of environment". The applicant further submits that a significant percent of global greenhouse gas (GHG) emissions is caused by forest destruction and poor agricultural practices. Boosting carbon sequestration in forestry sector is an effective approach to reduce and remove emissions from the atmosphere. The afforestation and reforestation and revegetation program aim to establish and maintain a sustainably managed ecosystem for carbon sequestration, natural disaster risk reduction, poverty reduction with sustainable livelihoods in the coastal communities. * The Applicant wishes to submit the following in relation to billing and milestones aspects basis the agreement (clause g of page 24 and schedule 2 to page 51):- * The detailed milestone plan will be approved by Joint Coordination Committee in quarterly meetings. Disbursement of funds will be basis achieved milestone every quarter The Applicant shall submit properly specified invoices for all payments to be made by SEIPL to AIF under this Agreement on quarterly basis. The Applicant shall, on a quarterly basis issue a written request to SEIPL (Cash Call) for an advance of an amount that is equal to applicant's t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aderu Circle, Visakhapatnam-II Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the Central Tax authorities to offer their remarks as per Sec. 98(1) of CGST /APGST Act 2017. In response, remarks are received from the Central jurisdictional officer concerned stating that no proceedings lying pending with the issue, for which the advance ruling sought by the applicant. 5. Applicant's Interpretation of Law: - Classification of Supplies contemplated in the Agreement In order to understand the taxability of the transaction, it is relevant to first determine the nature and classification of supplies. In this regard, the applicant has captured relevant extract of explanatory notes to Service Code (Tariff) 9986 as per Notification No. 11/2017-Central Tax (Rate) below:- "9986 Support services to agriculture, hunting, forestry, fishing, mining and utilities 99861 Support services to agriculture, hunting, forestry, and fishing 998611 Support services to crop production This service code includes i. services to improve the propagation quality of the seed, including treatment of genetically modified seeds; removal of non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading, 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; d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; e) loading, unloading, packing, storage or warehousing of agricultural produce; f)agricultural extension services; g) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce. II. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. III. Carrying out an intermediate production process as job work in relation 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. From the pursual of the above explanatory notes to SAC and meaning of support services to agriculture ete., it is worthwhile to note that an activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to file reports with Verra, issuance of credits, etc. * Providing any other relevant data (such as planting locations, species planted, community data, photographs etc.) as requested by the carbon consultant * Work closely with the Carbon Consultant and provide any other information and data that maybe required to help the Carbon Consultant undertake their role effectively These activities involve cultivation, plantation, maintenance, monitoring etc. The word "Agricultural operations" as mentioned in notification 11/2017-CT (R) is not been defined in the GST law and only an inclusive and indicative list of activities covered in such operations has been given. It has been defined as "Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing". Therefore, the meaning of agricultural operation is wider to cover other than listed operations like cultivation, harvesting etc. However, it should be directly linked to production of agricultural produce. Further, it is also to be noted that under erstwhile service tax regime (entry was same in negative list), the CBIC vide circular no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 2017 (CGST Act) defines 'composite supply as follows:- (30) "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply * On perusal of the above definition, it is pertinent to note that for classifying a particular transaction as composite supply following conditions are required to be fulfilled: a) Supply should be made by a taxable Person b) Consisting of two or more taxable supplies of goods or services or both, or any combination thereof c) Supplies should be naturally bundled d) Supplies shall be in conjunction with each other in ordinary course of business e) There should be a principal supply The Applicant has tabulated analysis of each of the conditions and their applicability in the present contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njoyment of a main service. for example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in the ordinary course of business are:- i. There is a single price or the customer pays the same amount, no matter how much package they actually receive or use ii The dements are advertised as a package iii The different elements are not available separately iv The different elements are integral to one overall supply. If one or more is removed, the nature of the supply would be affected The Applicant has analyzed below whether multiple supplies under the present agreement can be treated as naturally bundled. 1. In the present contract, SEIPL (i.e., Service receiver) expectation is to receive packaged service from the supplier. Various categories of supply under the agreement are interlinked and the applicant is in best position to provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present agreement can be said to be naturally bundled. In conjunction with each other in the ordinary course of business- The supplies should be provided simultaneously at the same time or at the time of principal supply or just after the main supply. The goods or services or both provided as a package in ordinary course of business. Meaning, thereby it should be the practice of majority of traders/service providers to provide different elements of supplies as a package or bundle. In the present context, the applicant would provide the activities of project design, implementation, cultivation, maintenance of documents and sharing with carbon consultant etc. in conjunction with each other. Principal Supply In terms of 'composite supply definition, there has to a principal supply. A principal supply has been defined under section 2(90) of the CGST Act as "the supply of goods or services which & constitutes the Predominant clement of a composite supply and to which any other supply forming part of that composites supply is ancillary. Thus, principal supply is the supply which is the main/predominant supply under a contract and other supplies are ancillary to that supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, it can be noted that the authority relied on main activity of the applicant which is providing education and training to farmers. * The above ruling also recognized that the predominant nature is agricultural extension services and other activities are related to and supportive of agricultural extension services. In the present case also, the predominant nature of supply is "Support service to agriculture" for which applicant was hired and other services such as project design, implementation, dealing with farmers, contract with farmers, maintenance of documents and sharing with carbon consultant etc. are related to support service to agriculture. Question 2:- If the answer is affirmative, whether taxable rate applicable would be NIL in terms of serial no. 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017. Tax Liability for Composite Supply In order to determine taxability of composite supply, Section 8 of CGST Act is required to be referred which provides as follows:- Tax liability on composite and mixed supplies. "8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- (a) a composite suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant and also their submissions made during the time of the personal hearing. The appellant relied on the entry 24 of Headings 9986(Support services to agriculture, hunting, forestry, fishing, mining and utilities) of notification no. 11/2017-Central Tax (Rate), dated 28th June, 2017 which reads as follows: Sl.No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition 24 Heading 9986 (i) Support services to agriculture, forestry, fishing, animal husbandry. Explanation. - "Support services to agriculture, forestry, fishing, animal husbandry" mean - (i) 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; (b) supply of farm labour; (c) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) processes carried out at 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; d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; e) loading, unloading, packing, storage or warehousing of agricultural produce; f) agricultural extension services; g) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce. II. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. III. Carrying out an intermediate production process as job work in relation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieving the Project Objectives are not purely related agricultural activities but also involves activities such as Project Design, Carbon Accounting, Validation, Monitoring, Reporting and Verification, Project Administration, Project Operations, Biodiversity Impact Assessment, Community Engagement etc., We found that such activities doesn't quite fit the definition of support services 9986. To understand this legally, we need to look at what the appellant is really trying to do. It seems they want to make it look like they're doing good things for the environment, like planting trees. They're saying it's a social enterprise. But, behind this seemingly good intention, their main goal is to make a profit from trading carbon credits. They want to benefit from support services to maximize their gains. Understanding the legal situation around carbon credit trading is complex. It involves knowing the ever-changing rules. Figuring out if the appellant should get a tax break becomes tricky due to the misalignment in how they fit into the support services category. Furthermore, the Central Government, as delineated in Circular No. 34/8/2018-GST dated 01.03.2018, has issued ..... X X X X Extracts X X X X X X X X Extracts X X X X
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