M/s. Anaparai Estates Limited In
re
Dated: 28th November
2012
Whether input tax credit can be claimed on purchase of inputs such
as pesticides, fertilizers, manure etc., for raising coffee, pepper, arecanut,
cardamom, etc., and selling the same ?
Held, the Applicant is not
entitled for the claim of input tax credit on the purchases of pesticides,
manure, chemicals, fertilizers, etc., which are used in the cultivation and
growing of coffee, pepper, arecanut, cardamom plantation as the said activity
is only an agricultural operation and it cannot be termed as
"business" activity,
Advance Ruling authority found
assessee contention was untenable and unsustainable for the following reasons:
(a) It is an undisputed fact that the Applicant is not
only involved in the cultivation of coffee, pepper, arecanut, cardamom, etc.,
plantation grown on their land but also engaged in the manufacture and sale of
some of the produces obtained out of such plantation owried by the Applicant.
For the purposes of enriching the soil and plant-growth promoted by
the-Applicant in the growing of plantation, the Applicant has purchased
fertilizers, chemicals, manure, pesticides, etc.', from local registered
.dealers by paying VAT on such purchases and used the same in the course of
growth of coffee, pepper, arecanut and cardamom plantation. After obtaining
coffee, pepper, arecanut, cardamom from
the' plantation, the Applicant has
undertaken processing
/manufacture of coffee, pepper, arecanut, cardamom which are commercial commodities for the purposes of sale in the
course of its business activity. At this stage we deem it appropriate to
reproduce the definition of
"Agricultural produce or horticultural.produce" as defined
under Section 2(3) of the KVAT Act, 2003, which reads thus:
"(3) Agricultural produce or
horticultural produce shall not be
deemed to include tea, beedi leaves, raw cashew, timber, wood, tamarind and
such produce, except coffee as has been subject to any physical chemical, or
other process for being made fit for consumption, save mere cleaning, grading,
sorting or drying."
From the reading of the above definition it is obvious
that the deeming provision does not include pepper, arecanut, cardamom with the
exception of coffee as has been subject to any physical chemical or other
process for being bade fit for consumption, save mere cleaning, grading,
sorting or drying. In other words, these goods are regarded as agricultural
produce for the purposes of KVAT Act, 2003 with the exception of further
processing done to raw coffee obtained as enumerated above. No doubt, coffee,
pepper, arecanut and cardamom cultivated and grown by the agriculturist or by
any person in his plantation is a 'agricultural produce', but-coffee is kept
out of the above said definition by deeming prevision for the reason that trfe
raw coffee cannot be sold by the agriculturists/or person as the same is
required to undergo manufacturing / processing activity in order to make it
suitable and fit for human consumption and marketing, purpose. . For better
clarity, the Legislature has inserted Explanation 4(a) and 4(b) to Section 2(2)
of the KVAT Act, 2003 as per' which when an agriculturist who sells
exclusively agricultural produce grown on land cultivated'by him personally
has been kept out of the purview of the definition of 'dealer' and where the
agriculturist is a company and is selling coffee, pepper, arecanut and cardamom
is deemed to be a dealer in respect of turnovers relating to sales of such
produce. The provisions of Explanation ,4(b) referred to. above defines
"dealer" in relation to turnovers of sales of such produce. In: order
to understand the implication of the above definition to the facts; of the case
of the Applicant before us, it would be appropriate to reproduce the
Explanation 4(a) and 4(b) annexed to Section 2(12) of the KVAT Act, 2003, which
reads thus:
"Explanation
(4)(a)
- An agriculturist who sells exclusively agricultural produce gown on land,
cultivated by him personally or a person who is exclusively engaged in poultry
farming and sells the products of such poultry farm shall not be deemed to be a
dealer within the meaning of this clause;
(b) Where the agriculturist is a
company and is selling pepper, arecanut, cardamom, rubber, timber, wood, raw
cashew or coffee grown«on land cultivated' by it personally, directly or
otherwise, such company shall be deemed to be a dealer in respect of turnovers
relating to sales of such produce."
The provisions, of Section 2(12) of the KVAT Act, 2003
defines the word "dealer". However, on a con-joint reading of the
definition of agricultural produce or horticultural produce as defined under
Section 2(3) of the KVAT Act, 2003 along with Explanation 4(a) and 4(b) annexed
to the provisions of Section 2(12) of the KVAT Act, 2003, a conclusion is
obvious that a Company incorporated
under the Companies Act, 1956 and carrying on agricultural operations to
grow crops like pepper, cardamom, rubber, timber, wood, raw cashew or coffee
for sale or such produce, is a dealer for the purposes of KVAT Act, 2003.
(b) In the case of the Applicant before us, there is
no dispute that the Applicant is not only engaged in the growing of various
plantation which are consisting of minor and major crops but also engaged in
the processing of raw coffee obtained from
such plantation which is used
put to any physical chemical or other process for
being made fit for consumption, save
mere cleaning, grading, sorting or
drying along with other ingredients to obtain finished coffee which its sold as
a commercial commodity. The main
business activity of the Applicant is to sell these goods which are
obtained out of cultivation and growth of minor and major crops. Thus there are two activities involved in the
case of the Applicant, Firstly, the
Applicant is engaged in the activity of growing of coffee, pepper, arecanut,
cardamom plantation which constitutes agricultural activity and the second is
processing and sale of these goods from the plantation grown by the
Applicant. Both these activities are
independent and distinct in nature. For the purposes of-carrying on the
agricultural activity of growing of coffee, pepper, arecanut, cardamom
plantation, the Applicant has purchased
inputs viz., pesticides, fertilizers, manure, chemicals,
etc., from local
registered dealers and
used for the
enrichment of the soil and growth of the coffee, pepper, arecanut, cardamom
plantation.
(c) The word
"agriculture" is also defined under Section 2(1) of the KVAT Act,
2003. The word agriculture is understood to mean the cultivation of the field
which involves tilling of the land, sowing of the seeds, planting and similar
operations on the land. These are the-basic operations and would require the
expenditure of human skill and labour upon the land itself. However, there are
other operations which have got to be resorted to and which are absolutely
necessary for the purpose of effectively raising, the produce from the land.
They are operations to be performed after The produce, sprouts from the land,
namely, weeding, digging the soil around the growth, removal of undesirable
undergrowth, and all operations which foster the, growth and preserve the same
not only from insects and pests but also from depredation from outside,
tending, pruning, cutting, harvesting and rendering the produce fit for the market.
One cannot dissociate the basic operations from the subsequent operations and
say that the subsequent operations, even though they are divorced from the
basic operations can constitute agricultural operations by themselves. With
this background in view, we have to move on to the definition of agricultural
produce as reproduced elsewhere in this order. The definition itself gives
recognition to the fact that any produce, in order, to be marketable and fit
for human consumption, must undergo some primary processing. The Hon'ble
Supreme Court in the case of Commissioner of Sales Tax, Lucknow V/s. D.S. Bist
and others in their-decision reported in AIR 1979 SO 169 has" observed
that "almost every kind of agricultural produce has to undergo some kind
of processing or treatment by the agriculturist himself in his farm or
elsewhere in order to bring them to a condition, of non-perishability and to
make them transportable and marketable" and that the mere fact that in the
case of a particular produce the process is a bit longer or even a bit
complicated will not rob the produce of its character of being an agricultural
produce.
(d) The word "business" is defined under
Section 2(6) of the KVAT Act, 2003, to mean;
"(a)Any trade, commerce,
manufacture or any adventure or concern in the nature of trade, commerce or
manufacture, whether or not such trader-commerce, manufacture, adventure or
concern is carried on in furtherance of gain or profit and whether or not any gain
or profit accrues there from; and
(b) Any transaction in connection
with, or incidental or ancillary to, such trade, commerce, manufacture,
adventure or concern."
From the above definition it is clear that the
activity of producing agricultural produce is not regarded as business
activity. When there is no business activity insofar as the agricultural
produce is concerned, the purchases made for plantation growth by the Applicant
does not fall within the meaning of "business" as defined under
Section 2(6) of the KVAT Act, 2003. Further, the activity of growing of coffee,
pepper, arecarrat and cardamom plantation and obtaining goods out of such
plants would not amount to manufacture or processing so as to say that it is
incidental or ancillary to the business activity of the appellant of
manufacturing and selling of coffee, pepper, arecanut, cardamom, etc.,. The
growing of coffee, pepper, arecanut, cardamom, etc., plantation is only am
activity of cultivation of agricultural produce and the final products produced
out of such plantation is an agricultural 'produce which does not answer to the
description' of "manufacture" or "processing" of finished
commodities. In this connection it would be of relevance to refer to the
judgment of the Hon'ble-Supreme Court in the case of IVl/s. Travancore Tea Estates- Co. Ltd., V/s. State of Kerala
reported in 1976 AIR 2469, wherein the Apex Court at the fag end.of the
judgment has rule.d as under:
".....Cultivation and growth of tea plants no
"doubt results
in the production of raw. material in the form of green tea leaves which are
ultimately processed into tea meant for Sale, but cultivation and growth are in
the very nature of things prior to the manufacturing process and do not answer
to the description of manufacture and processing of tea meanttbr sale. 'There
is a vital difference between an agricultural operation and a manufacturing
process, and the same should not be lost sight of. What is needed for being
used purely in an agricultural operation cannot be held, to be goods required
for use in a manufacturing process....,...,..."
Even in the case of the Applicant, the cultivation and
growth of coffee, pepper, arecanut, cardamom plants no doubt results in the
production of raw form of these goods which are ultimately processed into
finished form of coffee, pepper, arecanut, cardamom meant for sale
subsequently. This; cultivation and growth are in the very nature of
agricultural operations prior to the manufacturing process and
therefore the pesticides, chemicals, manure, fertilizers,
etc., purchased by the Applicant is used prior to the manufacturing process and
with the use of these inputs what is obtained is agricultural produce whichjis
not' a commercial commodity so as to be eligible to claim, input tax credit on
such purchases. Therefore, the purchases of chemical?, fertilizers, manure,
etc., are not in the course of its business activity but for the purposes' of'
. agriculture activity which does not fall within the meaning of
"business". In addition to this "factor,; the Applicant'is
not.paying any output tax on the "raw coffee, pepper, ^arecanut,,
cardamom" obtained out of cultivated and grown plantation so as to hold
that the Applicant is eligible for input tax credit on the purchases-of fertilizers,
manure, chemicals, etc., used for growing of coffee, pepper, arecanut,
cardamom, etc., plantation.
(e) The issue at dispute has
already been dealt with by the Hon'ble High Court of Karnataka in their recent
judgment dated 16.8.2012 rendered in the case of M/s.Balanoor Plantations and
Industries Ltd., v/s. State of Karnataka and others in W.P.No.5739/2011 &
W.P.Nos. 18322-332/2012 and others. At
para 36 and 37 of the said judgment,' it has been succinctly ruled as under:
"36. But, in the instant
case, petitioners seek to claim deduction of input !tax for having purchased
agricultural machineries, motor car, fertilizers and chemicals on the ground
that they are purchased by them for use in their business which includes
growing of and maintaining tea plantation apart from processing and
manufacturing tea. This contention cannot be accepted. Fertilizers and
Chemicals or for that matter agricultural machineries, such as tractors,
trailers, transformers^ motor car, pump sets and electrical goods, which are
used for tea cultivation cannot be regarded as goods falling within the
definition of the term 'input' for the purpose of the business of the
petitioners, which in the instant case is manufacturing and processing of tea
for the sale of which output tax is claimed. The 'output tax', in the instant
case, is not claimed on the sale of tea leaves, on the other hand, the output
tax is paid on the sale of manufactured tea. Therefore, the business of the
dealer for the purpose has to be understood confining it to the manufacturing
process resulting in production of tea and any transaction in connection
therewith or incidental or ancillary to it. Viewed in this background, even
though the petitioners are engaged in cultivating tea plantation and in growing
tea leaves, this cannot be regarded'as business and has no relevance for the
purpose of granting input tax credit to the inputs used by way of purchase of
fertilizers, chemicals etc., in the course of cultivation of tea.
37. The expression 'business'
used in Section 2(6), in this background, cannot be stretched to include the
tea plantation and cultivation by the dealer for the purpose of claiming a
input tax credit. Therefore, fertilizers, chemicals, pesticides and other
agricultural machineries, which are used for 'the purpose of growing tea leaves
cannot be termed as goods purchased by the petitioners in the course of their
business in manufacturing processing or packing of tea produced by them or
storing of other goods or any other use in that business........
This judgment applies in all force to the facts of the
case of the Applicant before us. In
addition to this, the Commissioner of Commercial Taxes, Karnataka, Bangalore,
in his Proceedings bearing No.CLR.CR.83/09-10 dated 22.11.2010 has clarified as
under:
"12. In the circumstances,
the. petitioner's activity relating to raising or growing of tea plants is an
agricultural activity and any transaction relating to it does not attract any
of the provisions of the KVAT Act.
13. In view of the above position
of law, it is clarified that the tax paid on fertilizers, chemicals, manures,
pesticides etc, 'for use in cultivation of tea crop, is not eligible for
deduction from the output tax* payable by the applicant under the Karnataka
Value Added Tax Act, 2003."
(f) Now, we analyze the-
judgments relied upon: by the Applicant in support of their contention and we.
express our opinion about the applicability or otherwise of the said judgments
to the facts of the case of, the Applicant before us.
(i) The judgment of Hon'ble High Court of
Karnataka in the case of M/s. Diwan
Bahadur S.L. Mathias & Sons V/s. State of Karnataka & Others reported
in 2010-11 (15) KCTJ 39 in no way helps the Applicant's case as the Hon'ble
High Court did not express its opinion on the issue before it instead the
matter was repored to the Commissioner of Commercial Taxes for passing speeding
order. Hence pursuant to remand by the High Court, the Commissioner has drawn
the proceedings dated 22.11.2010 referred to above holding that no input tax
credit is applicable in respect of purchases of fertilizers, manure, chemicals,
pesticides, etc., used for cultivation of tea. Hence;- this judgment is of no
help to the appellant.
(ii) In the case of Commissioner
of Sales Tax V/s. Jaswant Singh Charan reported in 19 STC 469, the Apex Court
has referred to the judgment rendered in the case of K.V. Varkey v.
Agricultural Income Tax; and Rural Sales Tax officer, Peelmedu and others
wherein it is held that tea leaf and tea powder is one and the same commodity.
This decision was rendered on the basis of definition of turnover in Section 3
of the Travancore General Sales Tax Act which while including sales of
agricultural or horticultural produce included tea, coffee, rubber etc., in the
turnover. This judgment in no way supports the stand of the Applicant as
it was decided on the basis of the words and phrases
prevailed under the relevant statute and on the basis of non-occurrence of word
"tea" in the statute. But under the KVAT Act, 2003, the definition of
agricultural produce or-horticultural produce is very well defined to include
tea. Hence this judgment is also, of no relevance to the facts of the case of
the Applicant.
(iiiJ In the case of M/s. Girdharlal Jaiwanlal Vs. The Assistant
Commissioner of Sales Tax (Appeals), Nagpur and another reported in 8 STC 732,
the Bombay High Court held that an agriculturist may sell the produce from his
lands but, his activity cannot be regarded as a business of sale or supply of
agricultural produce. 'Even under the KVAT Act, 2003, the agriculturist
producing the agricultural produce is not regarded as sale by virtue of the
provisions of Section 2(6) of the KVAT Act, 2003 as such activity does not fit
into the word "business". Therefore, this judgment - also does not support
the stand taken by the Applicant.
(iv) The Andhra Pradesh High
Court in the case of T.V. Chetty and Sons Vs. CTO reported in 33 STC 497 the
deeming provision of AP General Sales Tax Act contained a deeming provision
which says that an agricultural grower of sugarcane who converts the same to
jaggery and sells it should be regarded as a "dealer for all purposes of
the Act. Under the KVAT Act, 2003 also there is a deeming provision in the form
of Explanation 4(a) and (b) in Section 2(12), which prescribes that an
agriculturist selling the agricultural produce is not a dealer, but- where a
Company sells such agricultural produce then, such company is deemed to be a
dealer under the KVAT Act,. 2003. Since sugarcane is an agricultural produce and jaggery is a commercial commodity,
the Andhra Pradesh High Court has
rightlyTierld that the agriculturist growing sugarcane when converts the same
to jaggery and sells he should be regarded as "dealer". This judgment
in no way helps the Applicant, as the Applicant has undertaken growing and
cultivation of minor and major, crop plantations and out of such cultivation
the raw form of coffee, pepper, arecanut, cardamom, etc.,' is obtained which is
an agricultural produce and thereafter the Applicant has processed and obtained
finished form of coffee, pepper, arecanut, cardamom which are different
commercial commodities. (v) The Hon'ble Karnata'ka Appellate Tribunal in the
case, of M/s.Deluxe Coffee Company V/s. State of Karnatakarreported in 2011
(70) KLJ 500 (Tri.) was dealing with the issue wherein the dealer had claimed
exemption fronvpayment of CST on inter-State ' sales of coffee, seeds by virtue
of Notificatioji No.FD 112 CSL 2002(5) dated: 31.5.-2002. The Tribunal while
interpreting this ' notification had come to the conclusion that VAT is a
multi-point system of taxation and the dealer is entitled toi the benefit of
input tax credit on the output tax payable either under the State Act or under
the CST. But the Tribunal had further held that the claim •of deduction of CST
by the appellant on the VAT paid coffee seeds would defeat, the purpose of the
enactment of \(AT for the reason that under the KST Act the benefit
"olHnput tax was not available. This judgment is altogether on a different
footing and this will not help the facts prevalent in the case oTthe Applicant.
5. Before concluding our discussion on the
subject-matter we would like to give our opinion in this case that since the
Applicant is a Company carrying on the agricultural / horticultural produce
operations to grow crops of coffee, pepper, arecanut, cardamom, etc., will be
liable for registration as well as liable to pay tax under the KVAT Act, 2003.
There are no special provisions with regard to allowance of deduction of input
tax paid on purchases effected to carry on the agricultural / horticultural
operations, especially where such companies carry on inter-plantation of crops.
No doubt, no provisions like the provisions of Section 11. of the KVAT Act,
2003 restricting the input tax credit are enunciated under the Act for
restricting the input tax credit in the case like the Applicant's case, such
benefits are not automatically extendable for the reason that the input so
utilized are for the purpose of agricultural operations and not for business
activity as, elaborately discussed above.
Thus, not restricting the inputs,
like this under Section 11 for the activity of agricultural as well as
business, the Applicant would not be eligible for entitlement of such benefit?.
6. For the foregoing reasons, we do not find any
legality in the claim of the Applicant in the application filled under Section
60 of the KVAT Act, 2003, seeking input tax credit on the purchases of
pesticides, manure, chemicals, fertilizers etc, used in the cultivation and
growing of coffee, pepper, arecanut, cardamom plantation. Hence the Applicant
is not entitled for the benefit of input tax credit claimed oh such purchases.'
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