Micro Irrigation System and Service Tax
MICRO Irrigation System (MIS) is a modern agricultural technology aimed at conservation of water, saving of power and other agro inputs apart from increase in productivity. Many states are encouraging farmers to adopt this technology as a government policy. Micro irrigation system is tailor made to suit individual farms and crops grown and the system is installed by recognized MIS suppliers. The maintenance of system is taken care of by the MIS suppliers. The implementation of the system involves supply of pipes, nozzles, and other accessories, transportation of the goods, installation and commissioning. Some MIS suppliers charge administration cost from farmers as a percentage of cost of MIS system to defray the cost and expenses incurred for implementing the scheme.
And service tax sleuths are after such MIS suppliers and want them to pay service tax on commissioning an installation service and also on GTA and BAS service. We have received many enquiries as to whether this supply and installation of MIS is liable to service tax under the said services. The suppliers are under the belief that government being conscious about protecting the interest of the farmers would not resort to burdening them with service tax and it is only the field officers' interpretation to bring them under the tax net. They also argue that if service tax is levied on the MIS suppliers it would ultimately burden to State governments as some States take up MIS as a state sponsored activity. However, the government being revenue conscious think otherwise. It is already clarified by the Government in reply to such references received from State governments that such supply and installation of MIS would be liable to service tax – see CBEC Letter F.No. 137/144/2008-CX.4 Dated August 04, 2008 , issued more than a year ago, in which Board had clarified that “There is no exemption of service tax on installation or transportation of such equipment. It may accordingly be ensured that service tax levy is applied correctly in such cases”.
But a doubt does arise as to why the farmer friendly government can't spare the farmers from this levy. After all, the revenue that may accrue from this service would be very meagre and much less compared to the Hotel bills paid to our Hon'ble Ministers staying in Five Star hotels instead of government accommodation. The exemption would not only serve the interest of farmers and but also encourage them to adopt modern agrarian practices. The government is magnanimous in sparing agriculture activity from service tax levy - Notification No. dt. 10/09/2004 exempting Business Auxiliary Services provided in relation to agriculture and Notification No. 10/2002 ST dt. 1/08/2002 exempts cargo handling services provided to agricultural produce.
In fact Drip and Micro irrigation systems, fall under the category of Default authorized operations under the SEZ scheme.
Further the National Taskforce on micro-irrigation headed by the then AP chief minister Chandrababu Naidu, had way back in 2004 suggested abolition of service tax on various services the farmer is expected to utilise when he takes up the micro-irrigation route including agronomic practices, soil testing, market support etc.
It is time the Government has a relook on this issue and maybe such issues should be taken up through Congress Chief Ministers or the All India Motor Transport Congress!