Activities not Predominantly Agricultural Extension Support, not exempt as “Support Services to Agriculture, Forestry, Fishing, Animal husbandry”: AAR [Read Order]

The Goods and Services Tax ( GST ) Authority for Advance Ruling ( AAR ), Karnataka Bench ruled that the applicant’s activities being predominantly outside the purview of agricultural extension support, was not covered under the Notification 11/2017-Central Tax and that the same was not exempt from the levy of Goods and Services Tax Act. M/s Archipel India Foundation, the applicant is a 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 purposes to assist the people and society and rural development. The Applicant has relied on the Notification No. 11/2017-Central Tax ( Rate ) dated June 28, 2017 which provides the rate of tax and also provides an explanation with regard to the meaning of "Support Services to agriculture, forestry, fishing, animal husbandry". The applicant had extracted the same below for reference:- "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; 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. II. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. III. 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. The applicants submitted the list of activities taken up by them as per agreement and relayed on the following services. Project design and implementation Establishing landownership Community awareness, engagements, and mobilization in line with VCS-CCB 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, and replacement ( for early mortalities ) of the planted saplings and crops The applicant has tabulated below the present scope of work linking withCoordination with Carbon Consultant to achieve reduction in GHG as per the standards of VCS-CCB. This includes the followings activities:\Compliance with VCS-CCB requirements ( Verified Carbon Standard - Climate, Community & Biodiversity ) 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, community data, Photographs etc. ) as requested by the carbon consultant Work closely with the Carbon Consultant and provide any other information and data that may be required to help the Carbon Consultant undertake their role effectively It was observed that, “To understand this legally, we need to look at what the appellant is really trying to do. It seems they want to make it look like they're doing good things for the environment, like planting trees. They're saying it's 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. 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.” The Bench of K Ravi and B Lakshmi Narayana, Members noted that, “The appellant's strategy of aligning with environmental initiatives while also aiming for profits is intentional. They are carefully navigating the legal system to benefit both socially and financially. This careful balance means we have to look closely at their motives, especially at the intersection of environmental efforts and making money within the tax regulations.” In conclusion, the appellant's role in carbon credit trading is a complicated legal situation. Resolving this matter requires careful use of legal principles, taking into account all the details of what the appellant is doing within the broader legal and regulatory context resulting in outcome of them not getting the exemption under support services. This legislative interpretation underscores the importance of ascertaining the specific characteristics and nature of carbon credits to determine their GST status accurately. It is pertinent note that the services said to have been undertaken by the appellant are nowhere in tune with the agricultural support services and are mostly independent activities. It was thus ruled that, “the worker or activities undertaken by the appellant as per agreement viz., project during doesn’t fall under the support services to agriculture under SI.No.24 of Heading 9986 of Notification No.11/2017-Central Tax( Rate ), dated 28th June, 2017.” It was also ruled that, “when it comes to taxes, the main argument is whether the appellant should get an exemption vide notification No. 11/2017, CGST , specifically under serial No. 24. In view of findings given above, doesn't qualify for the exemption. This decision is strengthened by the fact that for the reason their activities doesn't match the definition of services in the support services 9986 category.” Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates