CESTAT Holds Agricultural Warehousing and Allied Services as Tax-Exempt Composite Activity [Read Order]

The Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled in favour of the appellant, holding that the cleaning, grading, handling, and transportation of agricultural produce are exempt from service tax, as they form part of a composite service of storage and warehousing.

The appellant, M/s Shree RamAgro Services, is engaged in providing taxable services such as Renting of Immovable Property Service, Business Auxiliary Service, and Cargo Handling Service.

The department received an intelligence report that the appellants were renting go-downs to various firms.

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They were also providing handling and transportation services and cleaning and grading services to those firms and were making payments for receiving legal services.

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The department, by going through the final accounts, Form 26 AS from the Income Tax Department, observed that the appellant has received an amount of Rs. 2.5 crores during the

financial years 2011-12 to 2015-16, but paid no service tax. On 27-12-16, a show cause notice (SCN) was issued by the proposing the recovery of a service tax amounting to Rs 29,64,185/- along with the interest and the penalties under Sections 77 and 78 of the Finance Act 1994.

The SCN was adjudicated, and it confirmed a service tax demand amounting to Rs . 3.66 lakhs on activities such as:

i) cleaning and grading, holding it to be Business Auxiliary Service being provided by the appellants

ii) Handling and transportation of goods, holding it to be Cargo Handling Service.

 The assessee’s counsel contended that service tax cannot be levied on the activities

of ‘cleaning & grading’ and ‘handling & transportation’ as they are integral and ancillary to the principal activity of ‘Storage and Warehousing’ of agricultural produce. The counsel also submitted that there was no suppression of facts to evade service tax.

To strengthen his argument, the assessee’s counsel relied on  the case of M.L. Agro Products Ltd. Vs. CCE and ST Nellore, reported at 2017 (6)GSTL 94 ( Tri.) Hyd., which was upheld by the Supreme Court, in which the court held that “threshing and redrying of tobacco leaves, being an activity ‘in relation to agriculture’, is covered under entry ‘production of goods on behalf of a client in relation to agriculture’, which is entitled to exemption under Notification No. 14/2004-S.T.”

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The bench observed that the cleaning and grading were done for a few agricultural products stored by the appellant, and since this didn’t change the nature of the products, it’s seen as part of agricultural activity, which is exempt from service tax.

The tribunal noted that cleaning, grading, handling, and transporting the agricultural produce are all part of one combined service. As clarified by the TRU on 28.02.2006, when services are bundled like this, they should be treated as a single service based on the main activity, and what really matters is the main purpose of the service, not how the charges are split.

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It further observed that “In the light of the above discussion, the two activities are held to be part of one service, i.e., storage and warehousing of agricultural produce.”

CESTAT, comprising Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member), allowed the assessee’s appeal and set aside the impugned order.

To Read the full text of the Order CLICK HERE

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