Agricultural Activities Can’t Be Artificially Taxed Under Multiple Service Categories: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside service tax demands raised holding that the leasing of tea estates for plantation activities constitutes a composite agricultural transaction and cannot be artificially split into taxable services such as renting of immovable property, manpower supply, and supply of tangible goods. The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) ruled that activities intrinsically connected with agriculture remain outside the ambit of service tax and allowed the appeals filed by the company with consequential relief. The dispute arose from service tax demands covering the period from November 2009 to June 2017. The Department had alleged that NEPC Agro Foods Limited, which owns tea estates in Valparai, Tamil Nadu, had provided taxable services under the categories of “Renting of Immovable Property Service,” “Manpower Recruitment or Supply Agency Service,” and “Supply of Tangible Goods Service” pursuant to a lease agreement entered into with Waterfall Estate Pvt. Ltd. The authorities also alleged failure to obtain service tax registration, pay tax, and file statutory returns. A Division Bench comprising Technical Member Vasa Seshagiri Rao and Judicial Member Ajayan T.V. examined the lease arrangement and found that the tea estates had been leased specifically for plantation activities including cultivation, irrigation, harvesting, application of fertilizers, and processing of tea leaves. The Tribunal observed that the lease consideration itself was linked to agricultural output, being dependent upon the quantity of green tea leaves harvested and their auction price. Rejecting the Department’s attempt to classify different components of the arrangement separately, the Tribunal emphasized that the dominant nature of the transaction was agricultural. It noted that the existence of labour quarters, staff accommodation, offices, dispensaries, crèches, and machinery did not alter the essential character of the arrangement since such facilities were incidental and necessary for carrying out plantation operations. The Bench observed that both under the pre-negative list regime and the post-negative list service tax framework, the legislative intent had consistently been to exclude agricultural activities from taxation. Prior to July 1, 2012, services relating to agriculture enjoyed exemption under various notifications. After the introduction of the negative list regime, agricultural activities were specifically excluded from service tax under Section 66D of the Finance Act, 1994. In a significant finding, the Tribunal relied on the Supreme Court’s ruling in Doypack Systems Pvt. Ltd. v. Union of India, which interpreted the phrase “in relation to” as having a broad and comprehensive meaning. Applying this principle, CESTAT held that not only cultivation and harvesting but also ancillary facilities and activities integrally connected with agriculture must be regarded as activities “in relation to” agriculture. The Tribunal therefore concluded that the Department’s attempt to dissect a composite agricultural arrangement into separate taxable services was legally unsustainable. On the allegation of manpower supply service, the Bench held that the essential ingredients of the taxable category were absent. It found that plantation workers were under the control and supervision of the lessee, while the responsibility for payment of wages, labour welfare expenses, and statutory dues rested entirely with the lessee. There was also no evidence of any separate consideration flowing to the appellant for supply of manpower. The Tribunal further observed that expenditure incurred towards wages, bonuses, labour welfare measures, and statutory contributions could not be treated as consideration received by the appellant for providing manpower services. Such expenses merely represented operational costs associated with plantation activities. The Bench also rejected the demand under the category of “Supply of Tangible Goods Service.” It held that there was no evidence showing transfer of possession or effective control of tractors or other machinery to the lessee. The machinery was merely part of the overall plantation arrangement, and no separate consideration had been identified for any alleged supply of tangible goods. Summarising its findings, the Tribunal held that the entire lease arrangement constituted a composite and indivisible agricultural transaction. Since the dominant purpose of the arrangement was agricultural activity, all incidental components including land, infrastructure, labour facilities, and machinery were inseparably linked to agriculture and therefore outside the scope of service tax. Having decided the matter on merits in favour of the assessee, the Tribunal declined to examine the issues relating to limitation and penalties in detail, observing that such questions became academic once the demands themselves were found unsustainable. Accordingly, CESTAT set aside both the Order-in-Original dated July 29, 2016 and the Order-in-Appeal dated April 5, 2019, allowing the appeals filed by NEPC Agro Foods Limited and granting consequential relief in accordance with law. Case Details Case Title: M/s. NEPC Agro Foods Limited Versus Commissioner of GST and Central Excise Citation: JURISHOUR-1526-CES-2026(CHE) Case No.: Service Tax Appeal No. 42197 of 2016 Date: 02.06.2026 Counsel For Appellant: Ramesh T.R., Advocate Counsel For Respondent: Sanjay Kakkar, Authorized Representative Click Here To Read Order Read More: Customs Can’t Reject Thailand Certificate of Origin or Recalculate Value Addition Without Following FTA Verification Procedure: CESTAT

Agricultural Activities Can’t Be Artificially Taxed Under Multiple Service Categories: CESTAT

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