Agricultural Services

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Service Tax Provision Relating to Agriculture Services

January, 2013

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SERVICE TAX PROVISION RELATINGS TO

AGRICULTURE SERVICES

INTRODUCED FROM : 1STJULY 2012.

COVERED UNDER THE NEGATIVE LIST OF SERVICES

(Section 66D)

Services relating to Agriculture or Agriculture produce by way of-

i.

agricultural operations directly related to production of any

agricultural produce including cultivation, harvesting, threshing,

plant protection or seed testing;

ii. supply of farm labor;

iii. processes carried out on 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;

iv.

renting or leasing of agro machinery or vacant land with or

without a structure incidental to its use;

v.

loading, unloading, packing, storage or warehousing of agricultural produce;

vi. agricultural extension services;

vii. services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent

for sale or purchase of agricultural produce;

The services in relation to both agriculture and agriculture produce, are in negative list.

TABLE OF CONTENTS

HEADINGS PAGE NOS.COVERED UNDER THE NEGATIVE LIST OF SERVICES 1

COVERED UNDER EXEMPTION 2

DEFINITIONS OF CERTAIN TERMS 2

FREQUENTLY ASKED QUESTIONS 3

EXPLANATORY NOTES 3


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COVERED UNDER EXEMPTION

( Notification No. 25/12-ST dated 20/06/2012)

Following services in relation to agriculture are exempt:

i.

erection or construction of original works pertaining to post harvest storage infrastructure for agricultural

produce including cold storage for such purpose (chilling plants not specifically covered)

ii.

erection or construction of original works pertaining to mechanized food grains handling system, machinery or

equipments for units processing agricultural produce as food stuff excluding alcoholic beverages

iii. transportation of agricultural produce and foodstuff including flours, tea, coffee, jaggery, sugar, milk

products, salt and edible oil, excluding alcoholic beverages, chemical fertilizer and oil cakes in a goods

carriage, rail or a vessel

iv.

Services provided by GTA for transportation of fruits, vegetables etc. or where amount charged for

transportation is up to a given monetary limit

v.

insurance schemes for crops and agriculture

vi.

agriculture related production processes/job works

Thus, services relating to agriculture and agricultural produce not covered under the Negative list of services andunder Exempted services are taxable.

DEFINITIONS OF CERTAIN TERMS

1. AGRICULTURE: Clause 3 Section 65B

Agriculture means the cultivation of plants and rearing of all life-forms of animals, except the rearing of

horses, for food, fiber, fuel, raw material or other similar products.

2.

AGRICULTURE PRODUCE: Clause 5 Section 65B

Agricultural produce means any produce of agriculture 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.

3. AGRICULTURAL EXTENSION: Clause 4 Section 65B

Agricultural extension means application of scientific research and knowledge to agricultural practices through

farmer education or training.

4.

APMC: Clause 6 Section 65B

Agricultural produce marketing committee or board means any committee or board constituted under a State

law for the time being in force for the purpose of regulating the marketing of agricultural produce

5.

ORIGINAL WORKS: As defined in Valuation Rules

Original works means:

a) all new constructions or

b) all types of additions and alterations to abandoned or damaged structures on land that are required to

make them workable or

c)

erection, commission or installation of plant, machinery or equipment or structures whether

prefabricated or otherwise


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FREQUENTLY ASKED QUESTIONS

(Text on Guidance Note on Service Tax issued by CBEC)

i. Would plantation crops like rubber, tea or coffee be also covered under agricultura

produce?(4.4.4)

Yes. Such plantation crops are also covered under agricultural produce.

ii.

Would potato chips or tomato ketchup qualify as agricultural produce?(4.4.5)

No. In terms of the definition of agricultural produce, only such processing should be carried out as is

usually done by the cultivator which does not alter its essential characteristics but makes it marketable

for primary market. Potato chips or tomato ketchup are manufactured through processes which alter

the essential characteristic of farm produce (potato and tomatoes in this case).

iii. Would the processes of grinding, sterilizing, extraction packaging in retail packs of agricultura

products, which make the agricultural products marketable in retail market, be covered in the

negative list?(4.4.8)

No. Only such processes are covered in the negative list which makes agricultural produce marketable

in the primary market.

iv. Would leasing of vacant land with a green house or a storage shed meant for agricultural produce

be covered in the negative list?(4.4.9)

In terms of the specified services relating to agriculture 'leasing' of vacant land with or without

structure incidental to its use is covered in the negative list. Therefore, if vacant land has a structure

like storage shed or a green house built on it which is incidental to its use for agriculture then its lease

would be covered under the negative list entry.

v.

What are the services referred to in the negative list entry pertaining to Agricultural Produce

Marketing Committee or Board?(4.4.11)

Agricultural Produce Marketing Committee or Boards are set up under a State Law for purpose of

regulating the marketing of agricultural produce. Such marketing committees or boards have been setup in most of the states and provide a variety of support services for facilitating the marketing of

agricultural produce by provision of facilities and amenities like sheds, water, light. electricity, grading

facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below

the minimum support price. APMC's collect market fees, license fees, rents etc. Services provided by

such Agricultural Produce Marketing Committee or Board are covered in the negative list. However any

services provided by such bodies which is not directly related to agriculture or agricultural produce will

be liable to tax e.g. renting of shops or other property.

EXPLANATORY NOTES

1.

Agricultural produce means all produce whether processed or non-processed, manufactured or not, of

agriculture, horticulture, plantation, animal husbandry, forest, sericulture, pisciculture and includes livestock

or poultry as specified in the schedule. [Bihar Agricultural Produce Market Act, 1960, section 2(1)(a) as cited inLipton India Ltd., Calcutta v. Bihar State Agrl. Marketing Board, AIR 1998 Pat 58,59]

2.

Agricultural Produce means all produce of agriculture, horticulture, animal husbandry, apiculture, pisciculture

or forest as specified in this schedule (M. P. Krishi Upaj Mandi Adhiniyam 197 sec 2(1)(a) as cited in Goyal &

Sons v. Krishi Upaj Mandi Samittee, AIR 1998 MP 202, 204, para II]

3.

Forest trees of spontaneous growth cannot be regarded as agricultural or horticultural produce grown on land.

4.

There is no service tax liability on erection or installation of machineries or equipments for units processing

agricultural produce as food stuff excluding alcoholic beverages.

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Agricultural Services