B. Ravichandran ORDER
B. Ravichandran, Member (T)
1. Revenue is in appeal against the order dated 5.10.2015 of Commissioner (Appeals-I), Meerut. The respondents are engaged in the manufacture of MDF, particle boards, wooden flooring, etc. They are registered with the Department for paying central excise duty, where applicable. They have availed service of "Goods Transport Agency" (GTA). During the period April, 2011 to March, 2014, they paid service tax of Rs. 85,97,757/- on reverse change basis on such GTA service. Contending that such tax was paid erroneously by them and claiming exemption under S. No. 21 of Notification No. 25/12-ST : MANU/DSTX/0065/2012dated 20.06.2012, as amended for transportation of agricultural produce by road, the respondents filed claim for refund of the said amount. The Original Authority after examining the claim rejected the same on the ground that logs/wood/timber transported by the GTA for the appellant is not an agricultural produce and as such, the service tax paid by the appellant on such transportation service is correct and no exemption is available. On appeal, the Commissioner (Appeals) vide the impugned order reversed the decision of the Original Authority and allowed the refund claim. Aggrieved by this, the Revenue filed the present appeal.
2. Ld. AR elaborating the grounds of appeal by the Revenue submitted on the following lines:-
(a) As per notification No. 25/2012 : MANU/DSTX/0065/2012 (Sl. No. 21) services provided by the Goods Transport Agency by way of transport in a goods carriage of "agricultural produce" is exempt from payment of service tax. Timber logs transported in the present case are not agricultural produce.
(b) 'Agricultural produce' is defined under Section 65B to mean that "any produce of agriculture on which either no further processing is done or such processing is done as is usually done by the cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market". In the present case, the traders, who provide eucalyptus/poplar trees cut and sold by the owners, further processed them by cutting, pruning, debarking and as such, these cannot be considered as covered by the term 'agricultural produce'. The traders purchased the cut trees and further processed it. The processes cannot be said to be for making goods marketable for primary market. The primary market in the present case is from owner to the trader/dealer.
(c) The Commissioner (Appeals) erred in relying on the decision of the Hon'ble Bombay High Court in the case of SRI Rollers Mills Pvt. Ltd. - MANU/MH/0421/1991 : 1992 (59) ELT 361 (Bombay). The said decision and also the decision relied on by the Bombay High Court were all dealing with expression "plant". The said decisions dealt with 1989 order for regulation of import into India. The same has no direct relevance to decide the scope of wood logs/timber as 'agricultural produce'.
(d) Submitting that timber and wood logs cannot be considered as 'agricultural produce' in terms of Section 65B of the Finance Act, 1994 the ld. AR submitted that the Original Authority is correct in denying the exemption and the impugned order fell in error in reversing such decision.
3. Ld. Counsel appearing for the respondent submitted that the traders, from whom they have purchased the goods, have received the same in various sizes from the cultivators and the traders had not done any processing on the said goods. The trees are cut into logs of various sizes for transportation or as per the market requirement in the farmland itself. No further processing is done except for cutting, pruning. The logs retained their essential characteristics.
4. Referring to the definition of 'agricultural produce' in common parlance as well as in other enactments, ld. Counsel submitted that the terms 'plant' and 'tree' are not defined under Finance Act, 1994. Tree is nothing but a perennial plant. The timber logs from eucalyptus/poplar trees should be considered as product of plants and 'agricultural produce' in terms of Section 65B. The ld. Counsel submitted that the term 'agriculture' is only defined in inclusive terms. An activity requiring human skill and labour on the land will make the process 'agriculture' and the person using the skill 'agriculturist'. The ld. Counsel contended that the term 'agricultural produce' is to be construed in its widest sense to include all things whatsoever that are grown on the land using human skill and labour for its cultivation irrespective of the nature of the product obtained. Since the timber harvested is used as a raw material, it satisfies the condition of being 'agricultural produce'.
5. We have heard both the sides and perused the appeal records.
6. The only point of dispute is regarding the eligibility of the respondent to claim exemption from service tax liability for transportation of timber/wooden logs, which are used by them as raw materials in their manufacture. The exemption is claimed under Sl. No. 21 of Notification No. 25/2012 : MANU/DSTX/0065/2012 dated 20.06.2012. The said entry states that services provided by a 'goods transport agency; by way of transport in a goods carriage of 'agricultural produce' is exempt from service tax. The impugned order examined the scope of the term "agriculture" and "agricultural produce" in terms of Section 65B. It concluded that eucalyptus/poplar trees for use as raw material is covered by the definition of 'agricultural produce'. The problem with such interpretation is that it presumes that the wood cut and transported were all out of agricultural cultivation not from natural grown or preexisting trees. The impugned order did not record a categorical evidence to the effect that these trees are cultivated/grown by specific effort and intend using human skill and labour, as is the case with the general agricultural cultivation. The claim of the respondent and the observation in the impugned order are generic and resolution of dispute was not focused on this crucial aspect. Rather more emphasis is given only on "processes" undertaken on wood logs.
7. The case laws relied upon were on the same presumption that these wood arising out of agricultural cultivation of plants. As we have already noted the 'trees' cannot be equated straight away to 'plants'. Both the terms have certainly distinct, identifiable connotation. In fact, the reference made by the impugned order to the decisions of the Hon'ble Kolkata High Court in Kanan Devan Hills Pvt. Ltd. - 1997 2000 IRT 453 Kolkata was specific to trees planted and nurtured by manual labor and trees which are not spontaneous production will be included in the scope of agricultural income. As noted earlier, it is not established that all the wood and timber now transported for which GTA service was availed were cultivated wood and timber. Even here, it would appear that such activity will be more in the realm of forestry, not an agricultural operation per se.
8. Cutting/logging of trees for timber for further industrial use can more appropriately come under "Forestry Operations". Cultivation relates more to plants, various crops etc. There is a clear distinction between plant/crop and trees.
9. A reference to Indian Accounting Standard 41 dealing with 'Agriculture' may throw some light on the current dispute. Harvesting from unmanaged sources (such as ocean fishing and deforestation) is not agricultural activity.
10. United States Internal Revenue Service Code of Federal Regulations (as on 1.4.2012, page 25 stipulates that a tree framer or timber grower may not claim that a highway motor vehicle used in that trade or business is used directly in agricultural production.
11. In the absence of categorical evidence recorded to the contrary, it is to be considered that timber now under considerations is wholly or partly out of spontaneously grown trees and not all are product of deliberate cultivation due to human agency or effort. Dealing with the income generated in sale of such timber/wood for income tax purposes the High Court and Apex court held that income cannot be treated as agricultural income (Mahendralal Choudhari - MANU/NP/5002/1948 : 1949 17 IR 454 Nag.).
12. In view of the above analysis, we find that the exemption available to GTA service for transport of 'agricultural produce' cannot cover the transport of cut wood of trees. Accordingly, we set aside the impugned order and allow the appeal by Revenue.
[Order pronounced on 19.02.2018]
© Manupatra Information Solutions Pvt. Ltd.