Analysis of Entry (d): Services relating to agriculture or agricultural produce in negative list :

Following services relating to agriculture or agricultural produce are not taxable-

(i) Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing

•  Activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry are included in the definition of agriculture.
•  Plantation crops like rubber, tea or coffee would be also covered under agricultural produce.
•  The processes contemplated in the definition of agricultural produce are those as are ‘usually done by the cultivator or producer’. Thus agricultural products like cereals, pulses, copra and jaggery where certain amount of processing on these products is done by a person other than a cultivator or producer may not get covered in the ambit of ‘agricultural produce’.

1. Agriculture means the 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 [Section 65B(3)].

2. Agricultural produce means any produce of agriculture 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 [Section 65B(5)].

Circular No. 177/03/2014 ST dated 17.02.2014 has clarified that the above definition of agricultural produce covers ‘paddy‘; but excludes ‘rice‘. It implies that benefits available to agricultural produce in the negative list are not available to rice.

(ii) Supply of farm labour: The service provider who is providing the desired farm labour to the service receiver is not liable to pay service tax on the said services.

(iii) Processes which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market: The 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 are not taxable. However, following processes are taxable:-

(a) Process which alters the essential characteristics of the agricultural produce: Potato chips or tomato ketchup does not qualify as agricultural produce because in terms of the definition of agricultural produce, only such processing should be carried out as is usually done by cultivator producers which does not alter its essential characteristics but makes it marketable for primary market. Potato chips or tomato ketchup are manufactured through processes which alter the essential characteristic of farm produce (potatoes and tomatoes in this case).

(b) Process which makes agricultural produce marketable in the retail market: The 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. Only such processes are covered in the negative list which makes agricultural produce marketable in the primary market.

(iv) Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use: Leasing of vacant land with a green house or a storage shed which is incidental to its use for agriculture would be covered in the negative list.

(v) Loading, unloading, packing, storage or warehousing of agricultural produce

(vi) Agricultural extension services: Agricultural extension means application of scientific research and knowledge to agricultural practices through farmer education or training [Section 65B(4)].

(vii) Services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce: Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce. 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. 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. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list. However, any service provided by such bodies which is not directly related to agriculture or agricultural produce will be liable to tax e.g. renting of shops or other property.

Service provided by commission agent for sale or purchase of agricultural produce are also covered under the negative list entry.