In an interesting judgement on matters related to GST on Seeds, the Telangana Authority of Advance Ruling (AAR) has considered that seeds are not agricultural produce and should attract GST.
It is probably a development that could create additional liability for the agriculture sector as “seed” will be treated separately from “grain”.
The law therefore applicable to grain and seed will be different and the concessions applicable to grain produced by a cultivator will not be applicable to seed, said the ruling in the case of “Ganga Kaveri Seeds and Narasimha Reddy & Sons”
Both the companies are supplying goods which are produced from the cultivation of plants, the AAR ruled. It said the companies were engaged in the production and sale of agricultural seeds and in the process of production they outsourced certain services such as cleaning, drying, grading, and packing to the job workers in relation to the production of seeds.
Applying the ejusdem generis principle, i.e., where general words follow a list of particular things, the general words are restricted to matters of the same kind as those specifically listed.
These rulings held that raw material used in the definition of agricultural produce is confined to food, fiber, etc., which can be consumed, and as seeds are not consumed but cultivated, and the same is liable to GST.
In the definition of agricultural produce, “raw material” is used, which is a general term and is in the company of specific words such as food, fiber, and fuel. These specific words indicate direct consumption by humans or in the industry but not in cultivation, the AAR ruled.
These specific words indicate direct consumption by humans or in the industry but not in cultivation – the supply of seed does not fall under the definition of agricultural produce as the seed does not fulfill the utilities prescribed therein.
“Auxiliary supplies” like storage of the seeds in the leased storage facility or godowns, loading, unloading, and packing of seeds on any basis are not exempt from payment of GST.
In *common parlance, one would tend to perceive seeds to be agricultural produce and hence not liable to GST.
But this is contrary to that perception. Best Chartered in Pimpri Chinchwad.
Agriculture is outside the gamut of tax framework in India for both direct and indirect tax. Tax experts said that seeds are exempt under the GST law and the agricultural produce from seeds or services in relation to agricultural produce are also exempt from GST.
Many experts pointed out that if services, in relation to the production of seeds, are brought under the GST framework, then it could impact the cost of the entire agricultural chain. This could end in an additional cost.
Important Note – While AARs are only applicable to the companies that have approached the bench, often they are taken as a precedent in the case law. In several instances in the past, the tax authorities started issuing notices following one AAR ruling.
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