9911796707
TMI Blog2024 (8) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Ruling, Andhra Pradesh. 1. Background of the Case: Appellant in Brief * The applicant, M/s. Archipel India Foundation is social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small scale farmers. The Applicant is formed for social purpose to assist the people and society and rural development. * 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. * 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 Sitharamaraju, covering an area of approximately 23,000 hectares and 20,000 farmers. * The Appellant 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 loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity and will provide its services to carry out ARR project. Responsibilities of AIF includes all activities in the level of field actions including relationships with the farmers, but are not limited to: - * Project design and implementation * Establishing landownership * Community awareness, engagements, and mobilization in line with VCSCCB requirements including undertaking all data collection, surveys on climate, community and biodiversity to establish baseline and for periodic monitoring reports including necessary data collection and monitoring of the Project as per the advice of the carbon consultants and Shell for preparation of the PDD, validation and verification of the project as per the MRV protocols required by VERRA. * Entering into agreement with landowners for undertaking the project and transfer of 100% carbon credits. * Raising nurseries and procuring saplings as per the agreed species including transportation of saplings, land preparation, pit digging and plantation as per agreed densities * Providing GPS for plantation and maintaining the GIS platform with the details such as area, plots, plantation etc. * Undertaking monitoring, maintenance, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of planation and growing trees which is related to agriculture. Serial No. 24 of Notification No. 11/2017-CGST (Rate) dated June 28, 2017 (amended time to time) provides nil rate of rate for "Support services to agriculture, forestry, fishing, animal husbandry". Questions raised with AAR Andhra Pradesh Question 1: Whether the activities of the applicant under the agreement can qualify as 'composite supply under GST law with Principal Supply as "Support services to agriculture, forestry, fishing, animal husbandry" as provided in the SL No 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017 (as amended time to time) having SAC code 9986. Question 2: If the answer is affirmative, whether taxable rate applicable would be NIL in term no. 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017. The Authority for Advance Ruling Andhra Pradesh in its orders in AAR No. 02/AP/GST/2024 dated 10.01.2024 held: Answer 1 : No Answer 2 : Does not arise. Aggrieved by the impugned order, the appellant has filed the present appeal on the following grounds. 2. Grounds of Appeal: THE APPELLANT HAS, VIDE THE GROUNDS OF APPEAL, ADDRESSED THE GROUNDS ON W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... species. The adoption of regenerative agriculture practices, including the use of scientifically developed compost, mulehing, and green manuring, ensures long-term soil health and sustainable crop production. It is further submitted that Appellant will provide multiple services to the SEIPL which includes the following services:- * Project design, establishing ownership of land, Entering into agreement with land owners for undertaking the project and other ancillary activities * Raising nurseries (cultivation, plantation, maintenance), procuring saplings including transportation of saplings and plantations * Undertaking monitoring, maintenance and replacement of planted saplings and crops * Providing GPS coordinates of plantation and maintaining GIS platforms * Coordination with carbon consultant to achieve reduction in GHG as per the standards of VCS-CCB (verified carbon standard-Climate, community & Biodiversity) which includes compliance with VCS-CCB requirements * Providing all support to the carbon consultant as necessary to file reports with Verra, Issuance of credits etc. * Providing any other relevant data (such as planting locations, species planted, communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. Nil - The Appellant also wishes to refer to the explanatory notes to service codes. The relevant extract of Heading 9986 is reproduced below for ease of reference: "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-seed materials, undersized, mechanically or insect-damaged and immature seeds; removal of seed moisture to a safe level for seed storage; drying, cleaning, grading and treating of seeds to be marketed; ii. post-harvest crop services such as preparation of crops for primary markets, cotton ginning services; iii. Other support services to crop production like tilling of fields preparatory to planting; planting, cultivation and fertilizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not elsewhere classified. Therefore, these initial activities although not directly related to production of agriculture produce, but can be considered as incidental and ancillary for undertaking agricultural operations. * Raising nurseries * Procuring saplings (agreed species) including transportation of saplings and plantations. * *Undertaking monitoring, maintenance and replacement of planted saplings and crops * Providing GPS coordinates of plantation and maintaining GIS platforms. 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". From the above, it can be noted that definition of 'agricultural operation' is inclusive and restrictive in nature. Therefore, the meaning of agricultural operation is wider to cover other than listed operations like cult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In relation to this, the appellant would liaison with and assist carbon consultant in providing relevant information, statements and documents. It can be noted that the appellant will work on ground and will the best position to provide the requisite information to the carbon consultant such as details of plants, documents etc. From the nature of the activities, it can be noted that in order to provide the information, documents as per the VCS-CCB standard, the appellant needs to prepare appropriate statements, evidences etc. to capture the reduction in GHG. Further, this will also fulfill the requirements of verra for registering and obtaining the carbon credit. It is a support services provided by AIF to carbon consultant. * In view of the above stated, it is submitted that the Appellant is providing multiple services under the agreement to SEIPL. From a perusal of the services being provided as explained above, it appears that the services being provided under the agreement would qualify as 'support services to agriculture'. Judgments and other Rulings * * Applicant placed reliance in case of M/s. Vikas Centre For Development (Advance Ruling No. GUJ/GAAR/R/2022/50, da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants are related to agricultural extension activity. Thus, the services of the applicant are covered under agricultural extension services. 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. * The Appellant most humbly submits that in the case of the Appellant as well, the predominant nature of supply is "Support service to agriculture" for which the agreement was entered into between the Appellant and SEIPL. Other services such as project design, implementation, dealing with farmers, contract with farmers etc. are initial activities undertaken at the commencement of the agricultural operations to enable cultivation of plants, as without the said activities , it is not possible to commence the agricultural operations. Due to these facts, these services are support services to agriculture which will fall under the residual SAC code of 998619 (Other support services related to agriculture, hunting, forestry a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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" * In this regard, the Appellant wish to reiterate the fact that Appellant SEIPL have entered into the agreement to carry out ARR (Afforestation/ Reforestation/ Revegetation) project in the state of Andhra Pradesh on sustainable agriculture and land management and afforestation to increase productivity of privately held agricultural lands. * Further, in terms of the agreement, SEIPL has agreed to support the development of the Project by incurring expenses in relation to development and operational activities for the Project, with the intent to be granted full legal, beneficial and unencumbered title to 100% of the Verified Carbon Units (VCUs) generated by the Project and participate in the project governance as a non-operating party. * The AAR has passed an observation that the Appellant is involved in trading of carbon cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers including in India. Without prejudice, the Appellant would like to submit that even assuming the motive is profit then also the AAR need to apply the principles of GST law in order to arrive a conclusion on taxability of activity under the agreement. By simply mentioning that the objective is profit, it can be preclude the authority to apply principles of GST law i.e., levy, supply, composite supply etc. * In view of the foregoing submissions, it is submitted that the AAR has proceeded to pass the Impugned Order without proper appreciation of the terms and conditions of the agreement and without analysis of the services which are being provided under the Agreement. The AAR has completely disregarded the fact that the services which are being provided by the Appellant start from the identification of land on which the activities of afforestation and reforestation can be carried out. * The AAR has passed the impugned order with a preconceived mind of rejection of the application filed before him. Further, the AAR also disregarded the fact that the carbon credits are actually issued in the name of SEIPL and not the appellant. * The Appellant would like to draw the attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of imagination, it can be said that the Appellant is involved in trading of carbon credits. Thus, the observation passed by the AAR is without proper appreciation of facts. THE AAR ERRED IN CONCLUDING THAT APPELLANT IS PERFORMING VARIOUS ACTIVITIES WHICH ARE NOT PURELY RELATED TO AGRICULTURE The activities required to be undertaken for the purpose of achieving 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 and the said activities do not fit in the definition of support services. The Appellant are in the nature of composite supply wherein the principal supply is that of support services to agriculture * The term 'Composite Supply' is defined under Section 2 (30) of Central Goods and Services Tax Act, 2017 (CGST Act) (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elate. Several indicators are listed as below: 1) The perception of the consumer or the service receiver - If large number of service receivers of such bundle of services reasonably except such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business. 2) Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. 3) The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. It the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment 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 service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant would be rendering similar services for various service recipients, based on their requirements because that is main/core domain of the applicant 4. Activities starting from project design to cultivation, maintenance can only be done by one party and it is not possible to provide services separately because of dependence of one activity on another. Also, it can be noted that AlF possess specific expertise w.r.t cultivation and maintenance of trees and has the knowhow of which kind of trees are best suited for the particular geography. Here the attraction for service recipient is in the specific expertise of the AIF. 5. Activities starting from project design to cultivation, planation and maintenance are integral part of each other. It can be easily said that if one activity is removed other activities can't be performed. From the above discussion, the activities under 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 pac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 8 of CGST Act, tax liability in case of composite supply shall be determined in terms of Principal supply. In the present case, support services relating to agriculture is a principal supply and other activities like project design, implementation, dealing with farmers, contract with farmers, procurement of saplings, seeds, maintenance of documents and sharing with carbon consultant etc. are incidental or ancillary to the main supply. The appellant would like to refer to Notification 11 which provides rate of tax for supply of services under CGST Act. Serial No. 24 of Notification 11 provides tax rate for the following: 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not have any bearing in deciding a 'composite supply' or applicability of notification [i.e., 11/2017-CT(R)] The Appellant's submissions made during the proceedings before the Hon'ble authority were swiftly dismissed based on that appellant is 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. However, the Impugned Order fails to provide any specific, cogent, or legally sound reasoning to support this conclusion. It lacks clarity in distinguishing or addressing the Appellant's arguments and the decisions cited by the Appellant in support of their case. One facet of the principle of natural justice is that the order passed by the authority must specify the reasons basis which the decision has been passed. A speaking order or a reasoned order means an order speaking for itself by giving reasons. The party affected must know why and on what grounds an order has been passed against him. It is now settled that passing of a speaking order is another important requirement of principle of natural justice [see ACCT vs Shukla Brothers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedent or to principles of incrementalism. (l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision making process. (m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). (n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya v. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions". (o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or other outcomes, with the only exception of transfer of the carbon credits generated during the designated Project Period of Araku Project irrevocably to the investor in the project Page 4- clause 3 Respective Commitment of the Parties Commitment of Project Proponent Neither the PROJECT PROPONENT nor the investor in the Project will have any land title rights and won't intervene in any disputes of land title among the member farmers during the project period. However, the BENEFICIARY has to honor their contribution in generating carbon credits and transfer of the generated carbon credits to investor in the Project during the designated project period Commitment of Beneficiary All the carbon credits that accrue from the project will be transferred to the investor in the project A.5 Basis the above agreement, the appellant submits that the carbon credits generated from the project is directly transferred to the investor of the project (i.e., Shell Energy India Pvt Ltd). On account of the volume of the transaction, quantum of farmers involved and relationship of the appellant with farmer, the appellant is entering into the agreement. However, the rights in 100% carbon c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Meaning Of The Word Relating To" And "Including" As Used In Notification No. 11/2017 C.1 The Appellant would like to refer to the entry no. 24 of the notification 11/2017-Central Tax which provides fot NIL. rate of tax for heading 9986 which relates to "Support Services to agriculture, forestry, fishing, animal husbandry". During the personal hearing the applicant submitted that the entry no.24 of the notification 11/2017 uses the word "relating to" and "including", therefore its coverage is very wide enough and hence restrictive interpretation can be given to this. The Appellant has extracted below the relevant part of the notification for reference:- "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; C.2 In relation to the above, the appellant submits th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (AIF) in Contract ID: CW637291. As seen from the "Recitals" in the agreement: A Shell wishes to be a leader driving the energy transition and to contribute to the global effort to tackle climate change and meet the goals set out in the Paris Agreement. Shell intends to reduce its net carbon footprint in step with society as it moves towards the goal of the Paris Agreement. As part of this ambition, Shell is investing in nature-based solutions such as avoided deforestation, forest restoration and reforestation initiatives, with the aim of delivering benefits to the climate, communities and to develop carbon credits which Shell may retire or sell to its customers. B AIF is a social enterprise in India that develops and implements community-based conservation and sustainable agricultural land management projects with small-scale farmers including in India. C AIF wishes to carry out ARR (Afforestation/ Reforestation/ Revegetation) project in the state of Andhra Pradesh on Sustainable Agriculture and Land Management and Afforestation to increase productivity of privately held agricultural lands in 2 mandals of Integrated Tribal Development Agency, Paderu, District Alluri Sitha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for undertaking the project and other activities SHELL 2 Raising of Nurseries; Procuring saplings including transportation of saplings and plantations; Undertaking monitoring maintenance and replacement of planted saplings and crops; Providing GPS co-ordinates of plantation and maintaining GIS Platforms Farmers 3 Coordination with carbon consultant to achieve reduction in GHG as per the standards of VCS-CCB. SHELL 5.7 While the Appellant is trying to project the entire gamut of operations as one cohesive supply, between AIF and SHELL, however, it is evident that the appellant is making different supplies to SHELL and different supplies to the Farmers. From a business point of view which is relevant to taxation matters, the appellant is engaged with the Farmers for the sole purpose of gaining the "Carbon Credits" which are to be transferred to their client viz., SHELL. To this end they are said to be engaged in Procuring saplings including transportation of saplings and plantations; Undertaking monitoring maintenance and replacement of planted saplings and crops; Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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