Chemically processed seed is not an Agri product and does not qualify for GST.
The Appellate Authority for Advance Ruling in Telangana has ruled that chemically processed seed is not an agricultural product and so does not qualify for Goods and Services Tax exemption (GST).
Ganga Kaveri Seeds Private Limited, situated in Hyderabad, is the appellant in this case. It is engaged in the manufacturing and selling of agricultural seeds. It outsources certain services, such as cleaning, drying, grading, and packing to workers during the production process and keeps the seeds in various facilities after processing them.
They also use a transport agent to transport the seeds during the process. The corporation applied to the Authority for Advance Rulings (AAR) for a ruling on its actions in relation to GST exemption/taxability. Because the lower authority’s decision was ruled against the applicant’s interests, they filed the current appeal with AAAR.
The appellant argued that all the produce as a result of cultivation is essentially agricultural produce and the seed is nothing but the best quality of the agricultural produce graded from out of the agricultural produce based on its germination. It relied on the decision of the Supreme Court in the matter of State of Rajasthan vs Rajasthan Agriculture Input Dealers Association (1996).
‘It is undeniably true that foodgrains per se could be utilized as seeds for being sown and achieving germination,’ the Supreme Court stated, ‘but in that form, they preserve the dual function of being as well as seeds.’ By coating and applying insecticides, other chemicals, and poisonous substances to the food grain intended to be used as seed, one of its basic characteristics, namely its consumption as food by humans or animals or extraction for the same purpose, is irreversibly lost, and such processed seeds become a commodity distinct from food grains as commonly understood.’
It was argued that the Apex Court’s decision made it plain that chemically treated seed may not be suitable for human or animal consumption as food grain and may be distinct from food grain due to its limited and stated utility, but it does not lose the character of agricultural produce.
The primary condition
After reviewing all of the arguments and facts presented, AAAR concluded that the main condition for claiming an exemption for agricultural produce is that either no processing is done on the produce 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 the primary market.
‘If the applicant’s actions are merely cleaning, drying, and grading without including any chemical processing on the subject material, then the services are on agricultural produce, and exemption is allowed,’ AAAR noted, adding that this is not the case here and upholding AAR’s finding.