The appellant, Tvl. Aravind Drillers is involved in the activity of providing drilling services for industrial, agricultural, personal users. Their general business is into the drilling of land, as required. When drilling works are done for agriculturists and their compressors are used for pumping water for agricultural cultivation, the appellant herein submits that they take a confirmation letter from the service recipient that the bore wells are used are exclusively for agricultural purposes. The appellant had raised two questions to the AAR whereby it required clarification if the drilling of bore wells for agricultural purposes and renting of compressors for pumping of water from the bore wells for agricultural purposes amount to agricultural operations undertaken directly with raising agricultural produce and if yes, whether the said activity would be classified under entry S.No. 54 of Notification 12/2017 CT (Rate) dated 28.Jun.2017.

The AAR vide its Order No. 39/AAR/2020 dated 18.Dec.2020 ruled that the drilling activity and renting of compressors for pumping water from the bore wells will not be construed as ‘Support Service for agriculture’ classifiable under SAC 9986 and hence S.No. 54 of Notification 12/2017 CT (Rate) dated 28.Jun.2017 will not be applicable for the two cases.Aggrieved by the order passed by the AAR, the appellant appealed to the appellate authority as below. The appellant produced the S.No. 54 of Notification 12/2017 CT (Rate) dated 28.Jun.2017.

As per the above notification, activities which fall under the exemption category and which are construed as ‘support service for agriculture’ are enumerated under ‘S.No. 54. Heading 9986’. The appellant is of the contention that the notification is not exhaustive and is inclusive and other allied agricultural services can be added. Also the explanatory note to the exemption category elaborates on the activities which can be classified under ‘support service for agriculture’ but excludes the following four services under this heading as given below.

Formation and clearance of agricultural land – 995432

Services provided by agronomists and agricultural economists – 998311

Other pest control services – 998531 and

Water distribution services through mains ( on a fee or contract basis) – 998633

The appellant further contended that the notification should be read excluding the explanatory notes provided as ruled in a Supreme Court case, CCEx, Jaipur Vs. Mewar Bartan Nirman Udyog, 2008, where it was stated that notification are to be read strictly and only S.No. 54 is to be considered for interpreting the exemption activities, excluding the explanatory notes. Further the appellant presented the Supreme Court ruling in the case of CCEx Vs. Rajasthan State Chemical Works 1991 where it was held that the term ‘in or in relation’ has a wide connotation and cannot be interpreted in a narrow sense. Hence the appellant contended that the intention of the government is to provide exemption to such activities as listed and similar activities.

The appellant explained further that the activity of digging bore wells is integral to agricultural activity for providing water supply for irrigation and contended that Heading 9986 has to be read in an inclusive sense. Supreme Court ruling under HCL Limited Vs. Collector of Customs, New Delhi, 2001 and Share Medical care Vs. Union of India, 2007 were referenced where the appellant contended that when a tax payer can avail benefits under two headings, it is the responsibility of authority to grant such benefits.

For the case of compressor pumps, the appellant is of the view that since the compressor pumps are used for flushing water out off the bore wells, the activity has to be read in an inclusive sense and also further quoted that under the erstwhile service tax regime, the Finance Minister through letter No. FNo. 354/35/2014 – TRU dated 04.Mar.2014, had classified bore well drilling for supply of water for agricultural purposes was exempt from service tax and it was further covered under the negative list under Section 66D(d)(1) of Finance Act. With the onset of GST, the appellant submitted that this exemption was carried through Notification No, 12/2017 dated 28.Jun.2017 and hence their activities are exempt from GST.