Telangana AAR: Agriculture Seeds Attracts GST
The Telangana Authority of Advance Ruling (AAR) has ruled that seeds are not agricultural produce and attract Goods and Services Tax (GST). This development could create complications for the agriculture sector in the future. The AAR ruled that seed is treated separately from grain in the rulings of Ganga Kaveri Seeds and Narasimha Reddy & Sons. The AAR ruled that the law applicable to grain and seed will be different. Hence, concessions applicable to grain produced by a cultivator will not apply to seed. The AAR pointed out that both the companies are supplying goods produced from the cultivation of plants. It said that the companies were engaged in producing and selling agricultural seeds. In the production process, they outsourced certain services such as cleaning, drying, grading and packing to the job workers about the production of seeds.
AAR has applied the principle of ejusdem generis, i.e., general words should take the colour of the specific words accordingly. The AAR held that raw material used in the definition of agricultural produce is confined to food, fibre, etc., which can be consumed. Hence, the seeds are liable to GST as the seeds are not consumables. The word ‘raw material’ is used to define agricultural produce, which usually means food, fibre and fuel. In the case of Ganga Kaveri, the AAR ruled that specific words indicate direct consumption by humans or in the industry but not in cultivation. These words indicate direct consumption by humans or in the industry, but the cultivation or supply of the seeds does not fall under the definition of agricultural produce. The AAR ruled in the case of Narasimha Reddy that the storage, godowns, loading, unloading and packing of seeds by the applicant are not exempt from GST payment. In common parlance, one would perceive seeds as agricultural produce and hence not liable to GST.