The cultivation of mangroves is different from agriculture and hence would not be exempted from the Goods and Services Tax (GST), the Appellate Authority for Advance Rulings (AAAR) has said.
It upheld the order of the West Bengal Authority of Advance Ruling (AAR) and said mangrove cultivation would attract 18 per cent GST.
The applicant, who is engaged in developing mangrove seeds into seedlings in nurseries with a stated objective of environmental protection against cyclones and tidal waves, had sought a ruling from the West Bengal AAR that his activities be exempted from GST.
In his petition, the applicant said he cultivates mangrove seeds in coastal areas across the country in line with contracts awarded by “internationally acclaimed” environmental organisations.
He also said mangrove cultivation could offer sustainable development and provision of livelihood for the people in coastal areas.
However, the GST on various products and services are based on their classification in the harmonised system of nomenclature (HSN) codes.
The applicant had said his activities should come under 9986 heading, which covers activities that support agriculture. But the West Bengal AAR ruled that the product may be treated as environmental protection services under chapter heading 9994, which imposes 18 per cent tax.
The heading 9994 covers sewage and waste collection, treatment and disposal and other environmental protection services as well.
Aggrieved, the applicant then challenged the matter in the AAAR.
The appellate authority said the activities by the applicant will be classified as ‘support services to agriculture, forestry, fishing, animal husbandry’ only if it is related to the cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products.
The appellate authority determined that the appellant is engaged in the business of cultivation, planting, and nurturing of mangrove seeds and seedlings for the primary purpose of environmental protection and such services are not related to the cultivation of plants for food, fiber, fuel, raw material or other similar products.
Therefore, none of the activities carried out by the appellant qualifies to be agriculture, as claimed by him, which is essential to be classified under the chapter heading 9986, the appellate authority ruled.
Sandeep Sehgal, partner tax at AKM Global, said the appellant contended that the planting of mangroves would benefit biodiversity and prevent soil erosion which would indirectly benefit agriculture too, but the AAAR has preferred to take a literal view that such services cannot be categorised as support services to agriculture, forestry etc and would not attract a nil GST rate.
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