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    Agriculture Sector

    Introduction:

     

    Agricultural Sector is the largest contributor to the Indian economy. It covers around 16% of the overall GDP of the Country. Under the earlier regime, Centre and State Governments are lenient in taxing the agricultural sector as compared to all other sectors. However, GST is implemented on the premise to widen the tax base with fewer exemptions and to ensure seamless flow of input tax credit so that the entire tax burden will be rested on the end consumers. This will have a bearing on all the business sectors and will impact one or the other aspects of every sector. Agriculture is no exception. In this article, an attempt is made to provide a macro view on the overall impact of GST on agricultural sector.

     

    Agriculturist is relieved from GST Compliances:

     

    The word ‘Agriculturist’ is defined under section 2(7) of CGST Act, 2017 to mean an individual or HUF who undertakes cultivation of land by own labour or by labour of family or by employing labour on wages or through hired labour. In terms of Section 23(1)(b), an agriculturist is relieved from the requirement of registration to the extent related to supply of produce arising out of cultivation of land. This would imply that any agriculturist is not legally required to collect and pay GST to Government, though the produce of the agriculturist would be subject to GST. This would mean that the person who buys such produce from an agriculturist is required to discharge the corresponding GST liability under reverse charge mechanism as it becomes a supply from unregistered persons in terms of Section 9(4) of CGST Act, 2017. A similar practice was adopted by State Governments under earlier regime also, in order to relieve the farmers from the burden of VAT compliance.

     

    However, the said privilege is not applicable to those persons who are involved in animal husbandry and aquaculture. Thus subject to other requirements relating to taxability, these persons are required to register and pay GST upon supply of meat, eggs, milk, fish, shrimps, prawns etc.

     

    GST Impact on Agricultural Produce:

     

    Under the earlier regime, there used to be no excise duty or any other central taxes on agricultural produce as the said activities does not amount to manufacture. The only tax implications are of VAT or CST. Many of the states used to charge VAT at the rate of 5% on most of the agricultural produce viz. rice, wheat, barley, oats, maize etc. However, under GST there is not tax on these items unless they are sold in unit containers bearing a registered brand name. In such case, the applicable GST rate is 5%. Thus, compared to earlier regime, the tax impact on agricultural produce under GST regime is reduced and is restricted only to that produce that is sold under a brand name which are meant for consumption by wealthy citizens.

     

    GST Impact on Milk Products:

     

    Fresh milk, Pasteurised milk, separated milk curd, lassee and butter milk are not subject to VAT and excise duty under the earlier regime. These items continue to be exempt under GST also. Condensed milk was subject to VAT at 5% and excise duty at 12.5% under the earlier regime. It is now going to be taxed at GST

     

     

     

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    rate of 18%. In case of ultra-high temperature milk, which possess longer shelf life upto nine months, there used to be no excise duty but were subject to VAT at the rate of 5%. Now they are subject to GST at the rate of 5%. Thus, there is no increased tax impact on milk products due to GST.

     

    GST Impact on Animal Husbandry and Aquaculture:

     

    Live birds and their eggs, sheep, goats, swine, bovine animals were not subject to any VAT and they continue to be exempt under GST also. Meat used to be completely exempt under VAT. Under GST regime, frozen meat sold in unit containers under a registered brand name are subject to GST at the rate of 12%.

     

    Coming to aquaculture, all kinds of fishes, prawns, shrimps were not subject to any VAT and they continue to be exempt under GST also. However, frozen meat of these items sold in unit containers under a registered brand name are subject to GST at the rate of 5%. Thus, under GST regime there is a higher tax impact on frozen meet.

     

    GST Impact on capital goods and inputs used in Agriculture:

     

    The capital goods required by agriculturists includes tractors, agriculture equipment, horticulture equipment, harvesting equipment, sprinklers, dippers, poultry machinery including incubators and brooders etc. All these items are exempted from excise duty under the earlier regime. They are subject to VAT at the rate of 5% in most of the states. Under GST regime, sprinklers and dippers are subject to GST at 18% while all other agriculture equipment is subject to GST at the rate of 12%. Thus these items would be subject to a higher tax rate under GST. However, as these items are exempted from excise duty under the earlier regime, there could be hidden tax impact on these items as no credit of service tax and excise duty paid by manufacturers of these items are allowed as CENVAT.

     

    Coming to fertilisers, they are subject to VAT at the rate of 5% and excise duty at the rate of 1% without CENVAT. Therefore, the duty impact is around 6%. As there is no benefit of CENVAT of excise duty and service tax paid by manufacturers on their inputs and input services, there was a hidden tax impact on these items. Under GST regime, they are going to be taxed at 5%. Further, there are no restrictionson availment of input tax credit under GST. Thus, there is favourable tax impact in case of fertilisers.

     

    Coming to the case of seeds including fish and prawn seeds, prawn feeds and other aquatic feeds, they are not subject to any tax under the earlier regime as well as under GST regime.

     

    Conclusion:

     

    Upon comprehension of the above tax changes of various aspects of agricultural sector, it is inevitable that both Centre and States continues to be lenient in taxing this sector under GST regime also. Only products that are sold under a registered brand name which are meant for consumption by wealthy citizens are subject to additional tax burden. In fact, the essential items like rice, wheat, barley, oats, maize etc are free of any tax as compared to earlier regime which is a welcoming move.

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