Is GST exemption allowed for agricultural related services

In our last article, we have discussed how services related to charitable or religious activities are exempted from GST and what are the services that are GST exempted. In this article we will specifically discuss exempt services related to agricultural activities.

As per notification number 12/2017- Central Tax (Rate) dated 28th June, 2017, following services are exempted from goods and services tax;

  • Services by way of loading, unloading, packing, storage or warehousing of rice.
  • Services by way of warehousing of minor forest produce.
  • Services by way of fumigation in a warehouse of agricultural produce.
  • 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.
  • Services by way of artificial insemination of livestock (other than horses).

GST exemption for Services related to plants and animals

As per the notification, GST exemption can be availed for 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 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.

(h) services by way of fumigation in a warehouse of agricultural produce.

In relation to above exempted services government has also defined certain terms related to it. Here are the definitions of those terms for the provisions of GST exempt services related to agricultural activities.

Agricultural produce means any produce out of 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, 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.

Agricultural extension means application of scientific research and knowledge to agricultural practices through farmer education or training.

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.

Based on above exemptions, if any process which alters the essential characteristics of the agricultural produce or which makes the agricultural produce marketable in the retail market then, that service is not exempted under GST. For example, potato chips, tomato sauce and other products which alter the essential characteristics of farm produce are not exempted.

As per circular number 16/16/2017 GST dated 15.11.2017, processed product such as tea, processed coffee beans or powder, pulses, jaggery, processed spices, processed dry fruits, processed cashew nuts etc. fall outside the definition of agricultural produce and therefore the exemption from GST is not available to their loading, packing, warehousing etc.

As per circular number 19/19/2017 GST dated 20.11.2017, milling of paddy is  not an intermediate production process in relation to cultivation of plants. It  is a process carried out after the process of cultivation is over and paddy  has been harvested. Further, processing of paddy into rice is not usually carried out by cultivators but by rice  millers.Milling of paddy into rice also changes its essential characteristics. Therefore, milling of paddy into rice cannot be considered as an intermediate production process in relation to cultivation of plants for food, fibre or other similar products or agricultural produce.

In  view  of the  above, the government has  clarified that milling of  paddy into rice is not eligible  for exemption. Therefore, milling of paddy into rice on a job work basis,is liable to GST at the rate of 5%, on the processing charges (and not on the entire value of rice).

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.