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Article Dated 11th December, 2023

Harvesting Growth: Exploring GST Exemptions on Agricultural Services

In the sprawling landscape of economic policies, the Goods and Services Tax (GST) has emerged as a pivotal player in shaping financial frameworks. In the agricultural sector, where the hands of cultivation sow the seeds of a nation`s sustenance, understanding the nuances of GST exemptions on agricultural services becomes imperative. This exploration delves into the intricacies of how GST exemptions act as a catalyst for the growth of the agricultural domain, unravelling the economic tapestry that binds farmers, services, and taxation policies. Join us on a journey through the fertile fields of fiscal dynamics, as we navigate the landscape of GST exemptions on agricultural services and their impact on the agrarian heartbeat of our nation.

Following Entries are inserted with respect to agricultural services exempt from GST:

Entry No.

Description of Services

24

Services by way of loading, unloading, packing, storage or warehousing of rice.

24A

Services by way of warehousing of minor forest produce.

24B

Services by way of storage/ warehousing of cereals, pulses, fruits and vegetables.

54

Discussed in detail further in this article

55A

Services by way of artificial insemination of livestock (other than horses).

55

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.

Entry 54

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—

  1. agricultural operations directly related to production of any Agricultural produce including cultivation, harvesting, threshing, plant protection or testing;

  2. supply of farm labour;

  3. 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;

  4. renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

  5. loading, unloading, packing, storage or warehousing of Agricultural produce;

  6. Agricultural extension services.

  7. services by any Agricultural produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of Agricultural produce.

Agriculture Produce

The term `Agricultural produce` refers to any product resulting from the cultivation of plants and the rearing of all life forms of animals (excluding horses) for purposes such as food, fibre, fuel, raw materials, or similar products. This definition encompasses items on which either no additional processing occurs, or if processing does take place, it must align with the practices typically carried out by a cultivator or producer without altering the essential characteristics of the produce. The processing, while making the produce marketable for the primary market, should not fundamentally change its nature. Examples of such processes include activities conducted on an agricultural farm like tending, pruning, cutting, harvesting, drying, cleaning, trimming, etc.

However, such products whose essential characteristics are altered by intermediate processes are not agricultural produce for the purpose of this entry. For example, Sugarcane is an Agricultural produce but sugar is not, because it is manufactured through various intermediate process. Similarly, Paddy is an Agricultural produce whereas Rice is not. 

Agriculture Extension Services

Item (f) of the entry provides an exemption for Agricultural extension Services (AES), which are defined in the notification as the application of scientific research and knowledge to agricultural practices through farmer education or training. The primary goal of AES is to convey the latest technical knowledge to farmers, with a specific emphasis on improving their understanding of crop techniques and aiding them in enhancing productivity. This is achieved through various means, including training courses, kisan call centers, farm visits, on-farm trials, kisan melas (farmers` fairs), kisan clubs, advisory bulletins, and similar activities. The overall objective is to facilitate the dissemination of up-to-date agricultural information and practices to farmers for the improvement of their agricultural activities.

Agricultural Produce Marketing Committee

Services rendered by Agricultural produce Marketing Committees or Boards, as well as services offered by commission agents involved in the sale or purchase of Agricultural produce, are exempt from Goods and Services Tax (GST). The term "Agricultural produce Marketing Committee or Board" refers to any committee or board established under the current State Law to regulate the marketing of Agricultural produce.

These committees or boards, which are prevalent in most states, play a crucial role in supporting the marketing of Agricultural produce. They provide various services, including facilities such as sheds, water, light, electricity, and grading facilities. Additionally, they take measures to prevent the sale or purchase of Agricultural produce below the minimum support price. Agricultural produce Marketing Committees collect fees such as market fees, license fees, rents, etc.

The exemption under item (g) of entry 54 specifically covers services provided by these Agricultural produce Marketing Committees or Boards. However, it`s important to note that services offered by these bodies, which are not directly associated with the cultivation of plants and the rearing of animals for specific purposes like food, fibre, fuel, raw materials, or other similar products, may be subject to tax. For instance, renting of shops or other properties for commercial purposes by these bodies would be liable to tax under GST.

Some other points to be remembered

  1. Renting of stud farming is taxable. Because of rearing of Horse is not covered under this entry.

  2. Earlier services by way of fumigation in a warehouse of Agricultural produce was exempted under this entry. However, it has been omitted vide Notification No.04/2022-CT(R) w.e.f. 18.07.2022

Entry 55

Custom milling of Paddy into Rice: Circular No 19/19/2017 Dated 20/11/2017

This clarification addresses concerns regarding the tax implications of custom milling of paddy by rice millers for Civil Supplies Corporation under the Goods and Services Tax (GST). The question is whether such milling is liable to GST or falls under the exemption provided by S. No 55 of Notification 12/2017-Central Tax (Rate) dated 28th June 2017.

The examination reveals that S. No 55 of the notification exempts an intermediate production process as job work related to the cultivation of plants and rearing of animals, excluding horses. Agricultural produce, defined in the notification, includes products from cultivation and rearing where no further processing occurs or the processing is typical of cultivators, maintaining essential characteristics for the primary market.

However, milling of paddy is determined not to be an intermediate production process related to cultivation. It occurs after cultivation, conducted by rice millers, and changes the essential characteristics of paddy. As a result, milling of paddy into rice does not qualify for the exemption under S. No 55 of the notification.

The clarification emphasizes that milling of paddy into rice is subject to GST. It specifically notes the reduced GST rate of 5% for services by way of job work related to food and food products falling under Chapters 1 to 22. Therefore, milling of paddy into rice on a job work basis is liable to GST at the rate of 5%, applicable to processing charges and not the entire value of rice.

Some other exemptions related to Agriculture:

Entry No.

Description of Services

63

Services provided by the Central Government, State Government, Union territory or Local authority by way of assignment of right to use natural resources to an individual farmer for 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.

10A

Services supplied by Electricity Distribution Utilities by way of construction, erection, commissioning, or installation of infrastructure for extending electricity distribution network upto the tube well of the farmer or agriculturalist for agricultural use.

58

Services provided by the National Centre for Cold Chain Development under the Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination.

20(e)

Services by way of transportation by rail or a vessel from one place in India to another of Agricultural produce

20(f)

Services by way of transportation by rail or a vessel from one place in India to another of milk, salt and food grain including flours, pulses and rice

20(c)

Services by way of transportation by a goods transport agency, by way of transport in a Goods carriage of agriculture produce.

20(d)

Services by way of transportation by a goods transport agency, by way of transport in a Goods carriage of milk, salt and food grain including flours, pulses and rice.


CA Pranay Jain is a young and aspiring Chartered accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at linkedin.com/in/capranayjain

CA Pranay Jain
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