Taxability on Services relating to agriculture or agricultural produce

1. Following services relating to agriculture or agricultural produce are specified in the negative list:

    1.  Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;

         2.  Supply of farm labour;

       3.  Processes carried out at the 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 essential characteristics of agricultural produce but makes it only marketable for the primary market;

       4.  Renting of agro machinery or vacant land with or without a structure incidental to its use;

       5. Loading, unloading, packing, storage and warehousing of agricultural produce;

       6.  agricultural extension services;

       7.  services provided by any Agricultural Produce Marketing Committee or Board or services provided by commission agent for sale or purchase of agricultural produce.

2. Definition  of 'agriculture'

'Agriculture' has been defined in the Act as cultivation of plants and rearing or breeding of animals and other species of life forms for foods, fibre, fuel, raw materials or other similar products but does not include rearing of horses.

 3. Definition of ‘agricultural produce’.

Agricultural produce has also been defined in the Act which means any produce of agriculture on which either no 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.

The process also includes specified processes in the definition like tending, pruning, grading, sorting etc. which may be carried out at the farm or elsewhere as long as they do not alter the essential characteristics.

 4. Definition of ‘ agricultural extension services’

Agricultural extension services have been defined in the Act as application of scientific research and knowledge to agricultural practices through farmer education or training.

 5. Some illustrations:

1. Potato chips or tomato ketchup are manufactured through processes which alter the essential characteristic of farm produce (potatoes and tomatoes in this case).Therefore it is not an agricultural produce.

2. Cleaning of wheat would be covered in the negative list entry even if the same is done outside the farm.

3. Shelling of paddy would not be covered in the negative list entry relating to agriculture as this process is never done on a farm but in a rice sheller normally located away from the farm.

(However, if shelling is done by way of a service i.e. on job work then the same would be covered under the exemption relating to 'carrying out of intermediate production process as job work in relation to agriculture'.)

4. Agricultural products like cereals, pulses, copra and jaggery be still be covered in the ambit of 'agricultural produce' even though  on these products certain amount of processing is done by a person other than a cultivator or producer because such processing is done as is usually done by the cultivator or producer which does not alter essential characteristics of agricultural produce but make it marketable for primary market'.

5. Processes of grinding, sterilizing, extraction packaging in retail packs of agricultural products, which make the agricultural products marketable in retail market, would not be covered in the negative list, because only such processes are covered in the negative list which makes agricultural produce marketable in the primary market.

6. Leasing of vacant land with a green house or a storage shed meant for agricultural produce is covered in the negative list.

7. Activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry are coming under the definition of agriculture and is covered in the negative list.

8. Plantation crops like rubber, tea or coffee be also covered under agricultural produce and is covered in the negative list.

 6. Services referred to in the negative list entry pertaining to Agricultural Produce Marketing Committee or Board.

a. Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce.

b. Such marketing committees or boards have been set up in most of the States and provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like, sheds, water, light, electricity, grading facilities etc.

c. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price. APMCs collect market fees, license fees, rents etc.

d. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list.

e. Services are Taxable if any service provided by such bodies which is not directly related to agriculture or agricultural produce. e.g. renting of shops or other property.

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