Seed production is a very big and complicated process. Once the seed is been harvested one of the crucial steps is the processing of the seed. Very frequently the seed manufacturers use sorting and grading machines to separate unwanted seeds so that strong quality control can be exercised and healthy seeds can be separated. Whether this particular process attracts GST?
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 will attract nil rate of tax. But doing the above-mentioned processes at a place, other than an agricultural farm or using a machine will attract GST @5% (M/s Rara Udhyog, GST AAAR Rajasthan).[1] Since grading and sorting of the seeds is undertaken through a machine, and the same takes place AWAY from the agriculture farm. Therefore, if we go as per the above-mentioned circular, it would attract GST at a 5% rate.
But before proceeding with the abovementioned conclusion it is to be noted that Seed is a very different commodity than agriculture produce, even in GST seed quality is exempted, whereas the commercial attracts GST. Therefore there is no specific clarification provided in this regard.
It is to be noted that the Heading 9986 (i) titled “Support services to agriculture, forestry, fishing, animal husbandry” attract the nil rate of GST. Whereas Subclassification of this SAC code, 998611 titled “Support services to crop production” specifically in its explanation includes Grading and sorting as part of it which is as under:-
“services to improve the propagation quality of the seed, including treatment of genetically modified seeds; removal of non-seed materials, undersized, mechanically or insect-damaged and immature seeds; removal of seed moisture to a safe level for seed storage; drying, cleaning, grading and treating of seeds to be marketed;”
Going by the strict SAC interpretation it is to be noted, it can be seen that the Grading and sorting of the seeds will attract the nil rate of GST. But herein there is one more caveat, that is Notification No. 11/2017-Central Tax (Rate) with code 9986 includes Explanation. For “Support services to agriculture, forestry, fishing, animal husbandry”. Whereas no specific mention of 998611 has been made under the notification, therefore because a specific definition of the same has been given, Further the explanation so included in the notification does not include “include”, therefore the explanation is exhaustive. Therefore regarding specific legislative intention in mind, it might be wrong to conclude that the SAC’s sub-classification can be used to interpret, wherein specific exhaustive definition is given.
“9986 (i) Explanation (iii) : Carrying out an intermediate production process as job work in relation to 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 or agricultural produce.”
Therefore it might be necessary to read the abovementioned provision. It includes intermediate production processes, which mean seed production, and job work associated with the same. It is to be noted that the grading and sorting can be classified as job work.
Further to find force in the above-mentioned classification following circular can be referred to, circular dated 30th April 2019, Circular No. 100/19/2019[2]-GST titled “GST applicability on Seed Certification Tags-reg.”. Though the circular is talking about Certification tags alone, it is to be noted that the circular makes another interesting observation as well. That is seed testing and certification which essential for making seeds involves the process of Seed processing. Whereas Seed processing has been defined as follows:-
Processing includes cleaning, drying, grading, treating and other operations to improve the seed quality
The same is inclusive of grading and sorting. At the same time acknowledging that the job work in the name of grading and sorting can be held as a production process for agriculture.
Therefore in light of the explanation of 9986 provided by the notification and also in light of the circular as issued, it can be opined that the grading and sorting of seeds, attract GST at NIL.
Views expressed are personal, please take independent Legal advice from a professional.
[1] https://taxguru.in/goods-and-service-tax/agricultural-produce-gst-regime.html