GST on Carbon Credit Projects: AAR No. 02/AP/GST/2024 Explained
The Authority for Advance Ruling decided that carbon credit projects do not qualify as tax-exempt agricultural support services.
- Ruling
- AAR No. 02 /AP/GST/2024 dated: 10.01.2024
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Archipel India Foundation asked if their afforestation project was tax-exempt agricultural support.
- The Authority ruled the project is a commercial operation, not agricultural support.
- Carbon credit trading activities are subject to GST under the residual service head.
In short
The company asked if their work in afforestation and carbon credit generation qualified for a NIL GST rate under agricultural support services. The Authority for Advance Ruling (AAR) examined the project and decided that because the primary goal is commercial carbon trading, it does not fit the definition of agricultural support.
What has changed
How it worked before
Businesses often assumed that projects involving planting trees or land management could be classified as agricultural support services to claim a NIL tax rate.
What has changed
The Authority clarified that carbon credit projects are commercial operations. This means businesses cannot claim the NIL tax exemption for agricultural support services for these activities and must pay GST under the residual service category.
Who this affects
Social enterprises, environmental consultants, and businesses involved in afforestation or carbon credit generation projects.
An example
Imagine a company, GreenFuture, that manages reforestation to sell carbon credits. They might hope to classify their services as agricultural support to avoid GST. Based on this ruling, the tax department would likely reject that classification and require them to pay GST on their service fees.
What you should do
If you are running similar projects, do not assume they qualify for the NIL rate. An Advance Ruling only binds the company that asked and its specific tax office; it is not a general law for all businesses. You should consult a tax professional to review your specific project agreement to determine your correct tax liability.
If you do nothing
If you incorrectly classify your services as exempt, you risk a tax demand for unpaid GST plus interest and penalties. A tax officer may audit your project agreements and reclassify your income, leading to unexpected financial liabilities.
The terms explained
- Composite supply
- A bundle of two or more goods or services provided together that are naturally bundled in the ordinary course of business.
- Residual head
- A catch-all category in the tax system for services that do not fit into any specific, defined classification.
- Commercial substance
- The actual economic reality of a business activity, rather than how the business chooses to describe or label it.
The ruling in detail
Authority for Advance Ruling
M/s. Archipel India Foundation
AAR No. 02 /AP/GST/2024 dated: 10.01.2024 · Andhra Pradesh
Questions before the authority
- Whether the activities of the applicant under the agreement can qualify as 'composite supply under GST law with Principal Supply as "Support services to agriculture, forestry, fishing, animal husbandry" as provided in the SL No 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017 (as amended time to time) having SAC code 9986.
- If the answer is affirmative, whether taxable rate applicable would be NIL in term no. 24 of Notification 11/2017-Central Tax (Rate) dated June 28, 2017.
Facts
The applicant is a social enterprise that entered into a Project Development Agreement with M/s. Shell Energy India Private Limited for afforestation, reforestation, and revegetation projects in Andhra Pradesh. The applicant acts as a project proponent, developer, and operator, coordinating activities such as land preparation, plantation, and monitoring to generate Verified Carbon Units. The applicant sought to classify these bundled activities as a composite supply with the principal supply being support services to agriculture.
Ruling
| Question | What the authority ruled |
|---|---|
| Qualification as composite supply of support services to agriculture | No The activities are not considered support services to agriculture under the relevant notification. |
| Applicability of NIL tax rate under Notification 11/2017 | Does not arise Since the first question was answered in the negative, this question is moot. |
The Authority ruled that the applicant's activities do not qualify as a composite supply of support services to agriculture. Consequently, the question regarding the applicable NIL tax rate does not arise. The Authority determined that the applicant is a commercial enterprise involved in carbon credit trading, which does not fit the definition of agricultural support services.
Reasoning
The Authority examined the applicant's records and concluded that their involvement in carbon credit trading constitutes a **significant commercial operation** rather than purely agricultural support. The activities, including project design, carbon accounting, and biodiversity impact assessment, were found to be independent of and not in tune with the definition of support services to agriculture under Heading 9986. The Authority relied on the nature of the business and the specific exclusions in the explanatory notes to the service code. It further noted that carbon credits and analogous instruments are subject to GST under the residual head.
Provisions relied on
- Section 98 of the Central Goods and Services Tax Act, 2017
- Section 98 of the Andhra Pradesh Goods and Services Tax Act, 2017
- Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017
- Circular No. 34/8/2018-GST dated 01.03.2018
- Circular No. 46/20/2018-GST dated 06.06.2018
For the practitioner
This ruling serves as a warning for entities attempting to classify complex, multi-faceted commercial projects involving carbon credit trading as agricultural support services. It clarifies that the Authority will look beyond the stated social objectives to the **commercial substance** of the activities. Practitioners should note that such bundled projects are unlikely to qualify for the NIL rate exemption under Serial No. 24 of Notification 11/2017.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/02_archipel_india_final.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
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